New leases and renewals of 204 795m² with a contract value of R945.5 million were concluded during the year, including a renewal of a 15 year lease at Louis Leipoldt Hospital with Medi-Clinic at a contract value of R486 million.

82% of leases that expired during the year ended 31 March 2011 were renewed or are in the process of being renewed (2010: 90%). The reduction in renewals is mostly due to government leases that were still in the process of being renewed at year end as well as a number of lease renewals that were held back, pending possible large refurbishments. The group is implementing a process to improve the renewals percentage.

The group lease expiry profile graph reflects that at least 38% and 19% of the leases are due for renewal in 2012 and 2013 respectively. This means that in the year ahead, approximately 40% of leases will be renewed at market related rates.

The rental escalation graph below reflects that contracted rental escalations are between 8.4% and 9.0% for the year ending 31 March 2012.

At 31 March 2011, the portfolio’s vacancy (measured as a percentage of gross rental) was 5.1% compared to 4.1% at 31 March 2010. This is a slight improvement on the vacancy of 5.3% at 30 September 2010, which is partly as a result of an increase in letting enquiries, aggressive broker launches and advertising.

The largest vacancy in the portfolio is at Randburg Square which reflected a vacancy at year end of 5 103m². This is due to a major revamp of the centre at an estimated cost of R64 million. This revamp, which will commence shortly, entails a re-mix of tenants and the introduction of new tenants. Vacancies have not been filled pending this major revamp.

The properties with higher than normal vacancies are actively marketed through advertising campaigns, broker functions and continuous pressure on the property managers to source tenants.

⁽¹⁾ Property interest paid and received has been reclassified to finance costs and investment income respectively and internal asset management fees have been reversed.
* Recurring cost to property revenue ratios (including rates and electricity costs).

Recurring property expenses have decreased slightly year on year as discussed in more detail below. As the rising costs of electricity and rates and taxes items are negatively impacting on our tenants’ ability to pay their rent, we have implemented the following measures to try and alleviate these costs:

• Appointing a specialist at a cost of R0.8 million over a three year period to value all the group’s properties where the municipal valuations appear to be higher than market and to lodge the appropriate objections and appeals. Annual savings of rates and taxes of R8.6 million have been achieved as a result thereof. An appropriate percentage of such savings are refunded to the tenants.

• Apart from the obvious steps taken to reduce energy consumption by replacing older technology with newer, more energy efficient technology, the group has embarked on an in-depth pilot study in respect of two of its larger properties to formulate a comprehensive strategy to reduce energy consumption costs.

The group continuously evaluates methods of containing costs in the portfolio.

As a result of the measures referred to earlier, the recurring costs to property revenue ratios (excluding electricity and rates and taxes) have decreased from 16.48% to 15.26% year on year.

The portfolio tenant profile is set out in the graph below: 

The average monthly rental rate per sector at 31 March 2011 is as follows:

The graph below indicates the actual escalations of contract rentals achieved on renewals compared to the expiry rentals for the year ended 31 March 2011.

In line with the trend in the market, the renewal escalations for retail of 6.5% have been lower than that of the industrial and office sectors.