Indluplace CEO Carel de Wit
JSE-listed real estate investment trust Indluplace has warned of a 20% decrease in its dividend for the financial year ended September 2019, as difficult trading conditions previously flagged have turned out to be “considerably worse”.
The residential-focused property fund on Thursday declared a 37.49c dividend for the six months ended March 31, 2019, which is 23% less than the dividend of 48.56c a year earlier.
Indluplace previously said dividends would be down by about 3% to 10% in the 2019 financial year.
In the interim period ended March, distributable income fell by 22% to R120.48-million.
Total revenue, excluding straight line rental income, decreased from R334.7-million at March 31, 2018, to R318.3-million. R16-million of the decrease relates to the nonrenewal of bulk leases at Highveld View – a property in Emalahleni, which housed contractors working on the construction of the Kusile power station.
CEO Carel de Wit tells Engineering News Online that Indluplace traded within a tough environment, in which it was unable to secure significant rental escalations, as tenants were under pressure with low salary increases.
The low escalations have helped Induplace to keep vacancies under control, with vacancies increasing to 8.7%, from 6.3% in March 2018. Excluding Highveld View, vacancies would have been around 5.7% which is similar to the comparative previous period.
De Wit confirmed in an interview that Indluplace would consider selling Highveld View if it was offered “the right price”. Negotiations with potential buyers were under way.
Meanwhile, Indluplace said the challenging economic environment experienced over the last year had validated its strategy to focus on housing in the inner city and suburban areas, where affordability considerations for low income families were paramount.
This was especially the case, given the mounting pressures on disposable incomes emanating from rising utility and transport costs and food prices, the organisation said.
Indluplace FD Terry Kaplan commented that Wednesday’s national election was not seen as the “silver bullet” to stabilise the challenging environment, bearing in mind accommodation, municipal and other costs. However, he remained hopeful that, in the long run, stabilisation of the economic environment, would indeed be the outcome following the results of the elections.
“We believe some of these pressures will ease as the operating environment improves and will, therefore, in the interim remain focused on ensuring that we maintain a hands-on management approach and continue to mitigate downside risks in order to deliver stable returns to investors over the medium-term,” Kaplan noted.
Touching on the company’s hand-on management approach, De Wit explained that this comprised outsourcing property management functions to well-known market specialists, as well as increasing Indluplace’s in-house team to manage the difficult times better.
Some announcements in this regard can be expected in “the near future”, he added.
“We anticipate that the performance of the portfolio will improve in the second half of this financial year and look forward to less political and economic uncertainty, which should result in improved investment returns,” said De Wit.
Meanwhile, the current economic environment further encouraged the property company to “crystallise [its] strategy” and to deliberately shift from student accommodation and head leases to concentrate on providing value for money options to individuals choosing to rent in well-managed and well-maintained buildings.
“We believe that we have a strong balance sheet, irrespective of the decrease in dividend over the last year. With our loan-to-value ratio sitting at under 33%, we hope that this stands us in good stead into the future,” Kaplan concluded.