Despite the human and economic impact of the Covid-19 pandemic, high demand for its properties drove affordable residential letting company Indluplace Properties to maintain a strong balance sheet and steady cash generation for the financial year ended September 30.
A dividend of 44.02c apiece was declared for the year after the introduction of a 75% payout ratio.
With residential vacancies having increased by 11.3% during the period, Indluplace's contractual rental income decreased to R527.3-million from R546.5-million in the 2019 financial year.
Indluplace CEO Carel de Wit says that, although tenant turnover increased to 5% from 3%, as tenants under financial pressure moved out, the group was encouraged by the good letting performance of the past few months at current rentals.
“This shows that our rental offering represents good value for money and that we will be able to hold our own in attracting quality tenants, despite a very competitive market.”
Assistance to tenants affected by lockdown took the form of deferrals of rental payments during the lockdown, and while this was relatively small, the company reports that most of this has since been recovered.
Indluplace remains South Africa-focused, and while it earns the bulk of its revenue from Gauteng, it also operates properties in three other provinces – the Free State, Mpumalanga and KwaZulu-Natal. The fund owns 9 668 residential units with just over 18 000 m2 of associated retail space.
At the end of the financial year, the group’s secured financial liabilities were marginally lower at R1.44-billion, from R1.48-billion in the year prior.
During the 2020 financial year, Indluplace also held available cash of R150-million resulting in a relatively conservative loan-to-value ratio of 35%. The property portfolio was realistically valued at R3.8-billion – having been valued at R4.2-billion in 2019 – reflecting a policy of independently valuing one-third of the portfolio each year.
Further, the company’s loan facilities have recently been renewed to spread its maturity profile, with the first renewal occurring at the end of 2023.
He notes that Indluplace took the opportunity to fine-tune its operations during the Covid-19 lockdown period, which has resulted in greater efficiencies, more hands-on management, improvements to systems and a focus on service delivery and communication with customers.
Management intends to accelerate the capital expenditure programme to ensure the units continue to offer value and will dispose of properties that no longer fit the strategy, a process that started in 2019.
As such, Indluplace is in the process of disposing of 22 properties for about R80-million.
De Wit says the company’s focus on the residential market, which it finds more defensive than other segments in the property sector, stood it in good stead during the 2020 financial year.
“Residential rentals are not immune to the current economic stresses, but the diversity in our portfolio and a hands-on management team have demonstrated their resilience. I am really proud of our team’s continued commitment and hard work.”
However, De Wit cautions that it will take years for the South African economy to recover from the effects of the Covid-19 pandemic and that as such, major rental reversions are unlikely. He also warns that it will be difficult to achieve growth in rentals in the short-term.
“We will increase our focus on value for money offering and service to tenants in the year ahead and expect that our performance for 2021 will be at a similar level to that of 2020,” concludes de Wit.