Specialists in affordable residential letting, Indluplace Properties, ended its financial year to the 30th of September 2020 with a solid balance sheet and steady cash generation. This follows the demand for its properties remaining high, despite the impact of Covid-19.
The residential-focused REIT offers investors a relatively simple business. Remaining South African focused, while earning the bulk of its revenue from Gauteng, it also operates properties in three other key provinces: the Free State, Mpumalanga, and KwaZulu-Natal. The fund owns 9 688 residential units with just over 18 000sqm of associated retail space.
A dividend of 44.02 cents a share was declared for the year to September 2020, after the introduction of a 75% pay-out ratio. Contractual rental fell to R527.3 million compared to R546.5 million in the previous year as residential vacancies rose to 11.3% at the end of September. Assistance to tenants affected by lockdown took the form of deferrals of rental payments during the lockdown and while this was relatively small, most of this has been recovered.
At the close of the reporting period, the group’s secured financial liabilities were marginally lower at R1.44 billion from R1.48 billion and it held available cash of R150 million resulting in a relatively conservative Loan to Value (LTV) ratio of 35%. The property portfolio was realistically valued at R3.8 billion (2019: R4.2 billion) reflecting a policy of independently valuing one-third of the portfolio each year. The loan facilities have recently been renewed to spread its maturity profile with the first renewal to occur at the end of 2023.
“Although turnover increased to 5% from 3% last year, as tenants under financial pressure moved out, Indluplace was encouraged by the very good letting performance of the past few months at current rentals” commented Carel de Wit, CEO of Indluplace. “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.”
Indluplace took the opportunity to fine-tune its operations during the national lockdown 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 capex programme to ensure the units continue to offer value and will dispose of properties that no longer fit the company’s strategy, a progress that started in 2019. It is in the process of disposing of 22 properties for about R80 million.
“Our focus on the residential market, which we find more defensive than other segments in the property sector, stood us in good stead during this period,” de Wit said. “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.”
De Wit said it would take years for the South African economy to recover from the effects of the Covid-19 pandemic. Major rental reversions are unlikely, but he warned 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,” he concluded.