Despite increased economic activity following the easing of hard and adjusted lockdown restrictions, adjusted Level 4 restrictions still impacted on restaurant sales, entertainment and liquor trade during the six months to September 30, JSE-listed Accelerate Property Fund said on November 24.
However, the group’s nodal strategy and specifically positive trading at its community centres buoyed performance during the period under review.
Accelerate reported an increase in rental recoveries to 91.4% in September, with non-recovered income mainly relating to tenants who had limited trading capabilities under lockdown Level 3, including entertainment offerings (Bounce, gyms); tenants in business rescue (Ster Kinekor and Virgin Mobile); and smaller tenants who are still recovering from the impact of Covid-19 on their businesses.
Rental assistance of R11.2-million was provided during the period, compared with R100-million in the prior comparative six months.
Consequently, distributable income increased to R135.4-million from R11.6-million in the comparative period with revenue of R513.2-million reported for the six months.
Accelerate CEO Michael Georgiou said the company used negotiations on rental assistance to negotiate longer leases, optimise the tenant mix and rightsize tenant boxes during the period.
As a result, the weighted average lease expiry (WALE) increased from 4.9 years to 5.9 years during the period, with contractual escalation rates (excluding the offshore portfolio) at 6.5%.
Vacancies as a result of the impact of Covid-19, especially in the office sector, remain a concern.
“The fund did well in filling a significant number of vacancies in our Foreshore, Cape Town portfolio. From a retail perspective we concluded a long-term lease with Clicks in Eden Meander shopping centre and substantially reduced vacant space at our Bela-Bela shopping centre.
“Most of the vacancies remaining in the portfolio relate to B- and C-grade office space as well as low-rental industrial space, resulting in total vacancy by revenue of 9.5%,” COO Andrew Costa commented.
He noted that the company would continue to repurpose vacant space and use its existing bulk space at its shopping centres to introduce alternative revenue streams through storage, residential or shared office offerings.
Post the reporting date, on November 22, Accelerate announced the disposal of its offshore portfolio comprising nine big-box Do-It-Yourself (DIY) retail stores (six in Austria and three in Slovakia) which are tenanted by OBI GmbH & Co Deutschland KG, one of the largest DIY retailers in Central and Eastern Europe, to Slate Asset Management for a consideration of €87.4-million (about R1.5-billion).
Georgiou remarked that Accelerate’s disposal strategy supported its strategic step-change in focusing on key nodes in Johannesburg, Cape Town and George and would reduce the group’s loan-to-value (LTV) from 47.8% to about 2%, which he said would not only strengthen the balance sheet and improve Accelerate’s credit rating, but would "support further market confidence in the group”.
The group expects that a purely nodal strategy will allow for greater diversification across asset classes and economies of scale, while allowing the group to focus on nodes with the strongest property fundamentals.
Costa, meanwhile, said the company believed the impact of Covid-19 going forward was starting to dissipate, and that notwithstanding ongoing recovery, considering potential further waves and the subdued economy, it would likely take another 12 to 18 months before the portfolio settled at pre-Covid levels.
“The Fourways node remains resilient as evidenced by the strong trade at our smaller centres. We believe that this positive trading will soon include the much larger destination shopping centres such as the Fourways Mall super-regional centre,” he concluded.
The fund did not declare an interim distribution but guided that, subject to its financial position and liquidity, it will consider the payment of distributions for the year March 31, 2022.