Accelerate Property Fund has published its financial results for the six months ended September 2023, reporting stronger retail sales growth across its portfolio, which was offset by high interest rates, double-digit growth in municipality and utility costs, and additional expenses associated with the provision of back-up power to tenants during load shedding.
However, the company’s initiatives to bolster its balance sheet gained further traction over the period including the disposal of non-core assets and optimizing value extraction from its flagship asset, Fourways Mall.
“Interest rates are at 14-year highs with expectations of a ‘higher for longer’ environment that will continue to place significant pressure on local trading conditions. For this reason, we have prioritized the improvement of our overall credit metrics and reducing debt as key focus areas,” commented Joint CEO, Abri Schneider.
“The retail sector traded well over the past six months, with trading densities at Fourways Mall, the largest asset in our portfolio, stabilizing with a 5.1% annualized growth on a year-on-year basis.”
“Our initiatives to unlock more value from this asset are steadily making progress with exciting new brands added to the portfolio during the review period. Double-digit increases in municipal expenses as well as increased diesel costs due to loadshedding is causing significant increases in the cost of occupancy for our tenants and is putting profit margins under pressure.”
“We further made headway in strengthening our financial position through the sale of non-core properties.”
Accelerate posted a 5% (R26.2 million) improvement in revenue to R469.8 million, mainly as a result of a better trading performance in the retail sector. SA REIT Funds from operations however contracted to R26.9 million (H1FY22: R110.7 million), largely due to a 425-basis point increase in interest rates since February 2022, ongoing double-digit growth in municipal and utility costs and elevated expenses from power back-up provision during loadshedding as well as increased bad debt provisions and write-offs.
The REIT announced a capital recycling strategy comprising R1.1 billion of non-core assets as well as a potential fully underwritten rights issue to address balance sheet constraints.
Asset disposals are at various stages of completion and will see a reduction in the overall loan-to-value (LTV) of approximately 9% to 38.5% and an improvement in interest cover ratio (ICR) levels of 0.3 times.
The Leaping Frog property, which was sold for R125 million, transferred on the 30th of October 2023 and the disposal of Eden Meander in George became unconditional (except for Competition Commission and Shareholder approval) in November 2023. The group expects net proceeds of R520 million from the sale at a yield of 7.5%.
In addition, R350 million of various other smaller disposals are expected to transfer prior to the group’s financial year-end in March 2024.
During the past 12 to 18 months, Accelerate made meaningful progress in diversifying its funding base, by raising R775.0 million.
Fourways Mall represents the largest and most significant asset in Accelerates’ portfolio and reported stable vacancies during the review period of approximately 17%, including a Headlease. Approximately 3 722m2 of new tenants since March 2023 have commenced trading, with the balance at various stages of fit out.
New brands at the mall include Volvo and Chery Fourways, McDonalds, Police, Hacket London, Senqu and John Dorys. Strategic initiatives to increase footfall and dwell time are underway, with the appointment of Flanagan & Gerard as independent retail experts to manage Fourways Mall expected to expedite the optimization of the tenant mix.
The REIT further expects that Fourways Mall’s solar project will be finalized shortly and it has earmarked R200 million (comprising its 50% contribution) capex spend on Fourways Mall, which will mostly be funded from disposals.
Its portfolio vacancies reduced by 2.2% year-on-year to 17.4% and is expected to fall further to approximately 12.5% on transfer of concluded sales agreements. The weighted average lease expiry is expected to improve to normalized levels, following the conclusion of the current cycle of 5-year lease negotiations at Fourways Mall, after the shopping centre’s opening in 2019.
Accelerate has also announced its appointment of Flanagan & Gerard as the asset and property manager of Fourways Mall.
To improve the fund’s financial position, no interim dividend was declared.
