- Declared a dividend of 47,95 cents per share.
- Revenue up by 1% from R300,3 million to R303,2 million.
- Net property income up 2% from R208,2 million to R212,4 million.
- National, listed and blue-chip tenants by GLA remained steady at 61,9%.
Texton Property Fund Limited has announced their interim results, declaring an interim dividend of 47.95 cents per share for the six months ended 31st of December 2017. This is in line with market guidance provided at the last shareholder update and the prior year dividend. Net property income improved 2% from R208,2 million to R212,4 million.
“While the rationalisation of our portfolio has yielded pleasing results, we continue to operate in a challenging economy with weak local property fundamentals. While the Company is defensively positioned, downward pressure on rentals, combined with a sluggish economy impacting tenants, has resulted in a low growth environment for Texton. We continue to maintain a defensive office portfolio, which has performed admirably considering the oversupply and vacancies currently experienced in the major property nodes. Our industrial portfolio has performed in line with budget other than the vacancy at Hermanstad. Our retail portfolio has remained robust, with tenant waiting lists at Woodmead Commerical Park.
Operationally, the past six months have been about changing the way we do things and being aligned with the right service providers. We believe the results of this change will start to show in the way we operate and the unlocking of efficiencies. Furthermore, managing a tight ship with arrears is important in this trading environment as that will be the key to income protection alongside strong tenant covenants” comments Nosiphiwo Balfour, CEO of Texton.
The company paid a fee of R180 million to cancel the asset management agreement and the the Manco Internalisation was effective from 1 October 2017. The internalisation of the external management function had a dilutionary impact on earnings, however, the property portfolio performed well with an uptick of 2% in net property income, ensuring Texton could deliver flat growth in distribution to the company’s shareholders. The company is in a great position to chart a new direction and continue to deliver returns for shareholders.
In response to the tough macro-economic environment, Texton embarked on a drive to fill its vacancies, with proactive asset management ensuring tenant retention and improved efficiencies. Vacancies increased from 4,9% to 7%, mainly impacted by the relocation and consolidation of a single tenant that occupied Scott Street and St George’s Mall. The company however remains confident that vacancies will remain below the South African Property Owners Association (SAPOA) average to the year end 30 June 2017.
Texton concluded 14 new leases of 2 489m2 and renewed 32 existing leases amounting to 43 154m2 between July and December 2017.
“This is pleasing given our focused and proactive approach to tenant retention in a challenging market. Our lease expiry profile has improved significantly since June 2017 when it was reported that 42% of leases (by revenue) expire in the 2018 financial year. This figure has reduced to 14,3% with the weighted average lease expiry being 4,1 years.” added Balfour.
In South Africa one of the main highlights was the renewal of the Foretrust, a government tenanted building with gross lettable area of 24 000m2 in Cape Town, given the tough market conditions and lease renewal backlogs at the Department of Public Works. Texton is assessing its options with this asset in the medium to long term with an opportunity for conversion to a mixed-use development, given its prime location in the Foreshore area. In the UK, the industrial sector has remained an outperformer in both investment and occupier markets.
Texton is in the process of realigning the capital management with the aim of ensuring that the UK assets are financed with UK debt and South African assets are financed with South African debt. In line with this strategy, Texton is in the process of finalising a GBP10 million facility with HSBC.
“During the interim period, we renewed facilities totalling R285 with tenures of two and three years and are proactively engaging with banks on rolling existing facilities well in advance of expiry. We are also establishing relationships with other lenders to further diversify the lending portfolio.” commented Texton’s Financial Director, Inge Pick.
The Texton board has reaffirmed the interest rate hedging strategy that at least 80% of borrowings must be hedged against interest rate risk. The company is 85% hedged and it has further hedged its currency exposure through various derivative instruments.
The highly attractive forward yield at which the company is trading presented an opportunity for the company to implement share buybacks from November 2017. Due to this high forward yield, yield accretive acquisitions are limited and management’s goal in the medium term is to de-gear the balance sheet and create the capacity to pursue acquisition opportunities both local and offshore.
“We will continue to explore possibilities to increase exposure to prime industrial assets in South Africa and reduce the office exposure because we recognise that, from an acquisition perspective, high-yield assets in the industrial sector are limited. We have continued the disposal of smaller assets below the R50 million threshold, which are management intensive” concluded Balfour.
Read more here: SENS – Texton Property Fund – Interim Results
