Residential-focused real estate investment trust (Reit) Indluplace Properties has reinforced the strength of its management team with new appointments – in its asset and council utility management and its finance teams – to continue driving improvements in operational and letting performance in the year ahead.

The portfolio itself has grown through acquisitions over the past two years and, as a result, Indluplace has increased its head office complement from four to eight people over the past 12 months to ensure the sustainable management of the fund.

Grant Harris was appointed to the board as COO on July 15, and Nindiphiwe Tetyana as a nonexecutive director from November 1.

These appointments, CEO Carel de Wit told Engineering News Online on Wednesday, took place as part of the company’s refocused strategy in an effort to rid itself “of some of the noise” in its portfolio, namely small properties that were bought as part of other portfolios, which are now proving to be distractions to the company.

He added that the strategy also brings the JSE-listed company closer to trading out of the student portfolio and allows it to reduce its exposure to head leases.

FINANCIAL RESULTS

In the financial year to September 30, Indluplace’s contractual rental income decreased to R546.5-million from R563.5-million in the prior financial year, largely owing to the nonrenewal of bulk leases at Highveld View, in Mpumalanga, as work at embattled State-owned power utility Eskom’s Kusile power station reduced.

Letting at the complex to individual tenants has been positive, newly-appointed Harris told Engineering News Online, albeit at reduced rental in a very competitive market. This was partly offset by income from the additional 210 newly built units acquired at Golden Oaks, in Boksburg, Gauteng.

In May, Indluplace mentioned to Engineering News Online that it was in talks with potential buyers for the Highveld View complex, but this did not materialise into a sale, Harris said on Wednesday.

Following this, Indluplace decided to pursue leasing of the property, which, at this time last year, stood at an occupancy of 22%.

As at September 30, the building was 67% leased, and this grew to about 73% at the end of October, Harris told Engineering News Online.

“In light of the success that we’ve had on the leasing front, we view the property as having been de-risked from the bulk lease risk and we’re quite comfortable with the position of the building going forward,” he commented.

Indluplace now owns 9 917 residential units, up from 9 788 at the end of the previous financial year, with a vacancy rate of 7.3%, or 6.1% excluding Highveld View at end of September.

The portfolio is diversified across locations, rental levels and building types, which aids in offsetting weak conditions in particular segments of the rental market. The group holds 47% of its residential units in Johannesburg suburbs, 31% in inner-city Johannesburg and 10% in Pretoria and Midrand.

The diversity in building locations, De Wit told Engineering News Online, is in an effort to ensure that properties are available to customers in suburban, and even outlying, areas. This, he added, should help with the sustainability of Indluplace’s portfolio in the longer term.

Almost half of the portfolio (about 47%) comprises two-bedroom units and another 21% one-bedroom units.

Total debt at the end of the reporting period amounted to R1.4-million, which was slightly higher as a result of the Golden Oaks acquisition. Comfortable with the company’s balance sheet, FD Terry Kaplan mentioned that 61% of the company’s debt is hedged at a weighted average cost of 9.2%.

“We are comfortable with our loan-to-value rate of 33.6%, which still leaves us a measure of headroom for growth should the opportunity arise and positions us well in a very uncertain local environment,” he said.

GOING FORWARD

With South Africa’s current economic environment considered to be the most difficult in recent times, Indluplace’s customers are expected to remain under pressure. The company’s management team anticipates that rental escalations will remain subdued and that the highly competitive rental market will continue, with vacancies remaining relatively flat.

“It’s been a tough year, but we’re all feeling very positive about the sector and our portfolio,” De Wit said on Wednesday, adding that Indluplace’s management team “feels that [the company] will be at a more sustainable base over the short and longer term”.

The group has declared a distribution of 78.25c a share for the year to September 30, compared with 2018’s distribution of 97.75c a share.

Next year’s dividend, however, will likely remain under pressure, De Wit warned.

While the 2019 financial year’s dividend may be down, it was, effectively, in line with the previously provided guidance, Kaplan told Engineering News Online.

The dividend per share in 2020 will be between 6% to 9% lower than 2019, and although the market remains difficult to predict, De Wit said the company believes that the level of performance of the company's portfolio will be sustainable.