Results Summary

Impressive, were Pearl’s results for the year ended 31 December 2009 as they posted

a PAT of $2,5m as per our forecasts. From average rentals per sqm of $3,04 they

made a rental income of $4,2m and total income of $5,3m. They then incurred

operating expenses of $2,2m to post an operating profit of $3m and PBT of $3,1m

after receiving finance income of $91,334. Property values crushed in Q1 2009 as a

result of the liquidity crunch stemming from the shift to the use of the USD. As such,

their property values saw a 22% write-down which saw their properties losing

$16,6m to end the year at $72,4m. This pulled them into a pretax loss position of

$14,2m. However, a tax credit emanating from changes in the tax laws resulted in

them getting a tax credit of $16,7m, which taking them to a PAT of $2,5m and

comprehensive income of $4,7m. Their balance sheet ended 11% lower at $80,4m,

after their investment property portfolio fell from $88,8m to $72,4m (30 June 2009

was $69,6m). Their NAV stood at $75,1m while they closed the period cash positive

at $75,029 with debt of $638,000.

Operational Analysis

Rental yield for the year averaged 4,9% while the vacancy rate as at 31 December

stood at 10,2%.The reason for the high vacancy rate was voluntary as they were

trying to restructure their tenant mix and have a quality that will be able to offer

near-regional rentals in addition, they have been clearing some office space for

refurbishments to help them, meet this cause. Rental arrears stood at 22% as most

tenants in Q1 failed to meet the newly implemented USD rentals. As such, they have

been negotiating on how best they can settle their rental obligations, and believe

they can achieve 5% once this batch is cleared.

Outlook

The group is targeting rental yields of 11% from rentals of $5,50, which is very

possible given current (February 2010) average rentals have come to $4/sqm, which

imply a rental yield of 8%. To achieve this, they need to improve the quality of their

(especially commercial) properties to be able to attract quality tenants who have the

capacity to pay the desired rentals close to regional rates of $10-15/sqm. As such,

Pearl has refurbishment projects as well as some new projects lined up for the year.

They will be spending $600,000 to refurbish George Square at Kamfinsa shopping

centre to make it a roofed shopping arcade. In addition, they want to develop the

land adjacent to it, and construct 38 units of cluster homes. This project should kick

off in April at an estimated cost of $2,1m. The OK Mabvuku project is also set to be

completed this year at a total cost of $1,7m, while new elevators for Pearl House and

99 Jason Moyo house are expected to be installed by September this year. Their

acquisition cost of $434,244 was already incurred in 2009.