In line with guidance set, JSE-listed real estate investment trust Gemgrow Properties delivered dividend growth of 5% year-on-year to 106.91c apiece for A shares and 7% year-on-year to 78.7c apiece for B shares, for the financial year ended September 30.

The company on Wednesday reported a distributable income of R369-million, compared with R323.7-million in the prior financial year. Gemgrow declared a 101.87c apiece A share dividend and a 73.51c apiece B share dividend in 2017.

For the financial year under review, the average gross monthly rental per square metre was R92 for retail, R118 for office and R44 for industrial. Gemgrow’s portfolio comprised 22% retail, 33% office and 45% industrial, based on gross lettable area (GLA).

Net asset value per A share as at the reporting period-end was 962c apiece and 805c apiece per B share, compared with a net asset value per A share of 972c apiece and 845c apiece per B share in 2017.

COO Alon Kirkel said the company focused on reshaping and improving the defensive quality of its core portfolio through active letting strategies, refurbishments, disposals and the yield-enhancing acquisition of 12 properties to the value of R549-million.

The 12 properties are predominantly situated in Limpopo, with some in Gauteng, and comprise established retail assets in lower living standards measure, high-demand traffic nodes.

At period-end, Gemgrow had a total GLA of 751 981 m² in its portfolio, valued at R4.8-billion and comprising 135 properties. The company had a total 690 263 m² GLA in 2017.

After period-end, Gemgrow finalised further acquisitions worth R728-million, which include 36 established retail assets, predominantly in Limpopo.

The acquisitions were funded through debt amounting to R578-million and the issue of A shares worth R150-million.

In addition, Gemgrow has restructured its loan book, refinancing existing loans totalling R575-million for five-year terms.

“Our solid balance sheet, with debt fully hedged and loan-to-value at a comfortable 26.8%, provides room for future opportunities in a tough, cash-strapped environment.

“We have also focused on cost containment measures across the portfolio and successfully disposed of noncore assets with nonsustainable income streams,” explained Gemgrow CFO Junaid Limalia.

Limalia told Engineering News Online that the company was disposing of offices in the outer areas of the Johannesburg and Pretoria central business districts, owing to an oversupply in the Gauteng property sector. Only core performing office assets, with tenant demand, are kept in the portfolio.

In what has been a challenging year for the property sector, Gemgrow managed a  decrease in its vacancies to 7.6%, compared with 7.7% in 2017, on the back of low vacancies in its industrial segment.

Although the company had been able to renew leases or re-let as much as 81% of GLA leases which expired in the reporting period, a weakening in lease renewals became apparent towards the end of the year, in line with worsening economic conditions.

Gemgrow expects this will continue into the next financial year.

“We will continue to work hard over the next 12 months to deal with the market-related challenges ahead of us.

“While the steps already put in place, including the strengthening of our asset management resources and leasing execution capability, will support us in a competitive environment where rental reversions and higher vacancies will continue to prevail, shareholder returns will come under pressure in the year ahead,” said Kirkel.

He explained that, in a tough economic environment, it is necessary to scale up company resources. “We have increased our asset management team and we have created a leasing division that works on the ground to seal deals on a daily basis.”

Gemgrow anticipates an increase of 5% in the A share dividend to 112.25 c apiece, and a decline of 10% in the B share dividend to 70.83c apiece for the 2019 financial year, on the back of the uncertain economic outlook, combined with the fact that a large portion of the company’s rental income is linked to leases that will be up for renewal in 2019.

Meanwhile, Gemgrow interim CEO Mark Kaplan will step down by June 30, as it was always intended that he will only steer Gemgrow during its initial years. The company is considering both internal and external candidates for his replacement and will make an announcement in due course.