Indluplace not confident of 2019
Residential-focused Indluplace Properties is the latest real estate company to feel the brunt of a weak economy, warning it is likely to do even worse in 2019 and report a drop in dividends.
Residential-focused Indluplace Properties is the latest real estate company to feel the brunt of a weak economy, warning it is likely to do even worse in 2019 and report a drop in dividends.
A number of SA property companies, including Rebosis Property Fund, Octodec Investments and Delta Property Fund, have reported weak results in the latest reporting season and have warned of even worse times ahead.
Indluplace, which is the only purely residential fund listed on the JSE, released disappointing results for the year to September 2018, reporting flat dividend growth. Its performance was weakened by problems around a head lease at its Highveld View property in Witbank.
The overall residential vacancy rate across its portfolio was 8.4% at the end of September, in part due to problems surrounding the Highveld View property and the fact that it struggled to fill vacancies at its newer properties as consumers were under pressure.
Head leases refer to agreements signed with one tenant, who then sub-lets the property to other clients. The tenant at Highveld View had chosen not to extend the lease as it could not find enough sub-tenants.
CEO Carel de Wit said Highveld View had housed contractors whose work on Eskom’s Kusile power station had been postponed. “If this building was excluded, the vacancy rate for the remainder of the portfolio was 5.2%,” said De Wit.
Indluplace said it expects vacancies in the remainder of the portfolio to remain at about 5%. “We are looking at various options to deal with Highveld View, with a view to dispose of the property in the medium term,” said De Wit.
The company also forecast a drop in dividends. “Taking into consideration the non-renewal of bulk contracts at Highveld View and the expected slow take-up of individual units, at lower market rentals than previously obtained, Indluplace expects dividends for the next year to be down by between 3% and 10%,” the company said.
Indluplace had grown its residential portfolio by more than 265% to 9,788 units valued at about R4.3bn since listing in June 2015.
The company, which is a subsidiary of Arrowhead Properties, declared a dividend of 97.75c per share for the 12 months to September. This was the same amount delivered in the year to September 2017.
The company will dispose of underperforming assets over the next few months.
De Witt and financial director Terry Kaplan said the fund is still optimistic about the rental residential market in the longer term and would continue to look for opportunities in SA.
“I realise that these may look disappointing but our main headache has been Highveld View. We feel Indluplace is well set up for the long term with a conservative loan-to-value of 30% and a portfolio of highquality assets,” Kaplan said.
Evan Robins, listed property manager at Old Mutual Investment’s MacroSolutions, said the poor guidance was a surprise to fund managers.