Indluplace says local councils are a risk to its performance
Residential-focused Indluplace Properties says local councils remain a risk to its operations along with above-inflation increases, lack of service delivery especially in Johannesburg, and the lack of improvement in resolving billing problems.
CEO Carel de Wit told Business Day that higher-than-inflation increases for services were the biggest threat to the business’s long-term survival.
“We do not recover all municipal costs from our tenants. This erodes value for shareholders, while the high cost of water and electricity adds pressure for our tenants.”
Indluplace’s portfolio, valued at R3.4bn, comprises 9,282 residential units in the affordable end of the residential rental market in Free State, Mpumalanga and Gauteng. It also has 15,494m² of retail space, about the size of two football pitches.
De Wit said the biggest part of the fund’s portfolio was located in Johannesburg, where the municipality recently changed the way sewerage and refuse services were charged. These were also back-billed, resulting in additional and unexpected costs to property owners still recovering from the Covid-19 pandemic financial strain.
For the six months ended March, municipal costs accounted for the biggest chunk of operating expenses, and had been since 2022. In addition, though the majority of the fund’s bills were up to date, any disputes relating to amounts charged were not well received by the council which threatened to cut off services.
“We have employed additional expert staff to deal with council issues,” De Wit said.
As an example, he said for many months on end the fund had experienced numerous estimated meter readings, incorrect meters on accounts, incorrect tariffs and delays in replacing stolen or damaged meters.
BIGGEST HEADACHE
“Our biggest headache is a building in the CBD where the City of Johannesburg has been charging us incorrect tariffs for years. We obtained a court order confirming our version, but it is refusing to correct the billing,” he said.
Lack of and poor service delivery was a huge inconvenience to the business operations. Basic infrastructure repairs took longer to repair and the workmanship was substandard quickly becoming a problem again.
Street lights were not repaired timeously and this created opportunities for criminals especially in inner-city areas. Lack of maintenance of pavements and traffic lights had become dangerous for tenants and their children.
During the reporting period, residential portfolio occupancies improved 4.3 percentage points year on year to 94%, and Indluplace reported a turnaround in the student portfolio, with 2,425 beds, as occupancies surged 55 percentage points over the past year to 98%.
The portfolio recovered substantially, attracting more than 350 new tenants a month over the six months, with a record number of 472 new leases and improved occupancies in the student portfolio in February.
Average rentals across the portfolio reached R4,384 a month with 0.7% average escalation. Average inner city rentals were R3,897 with 0.1% average escalations. The company anticipates rentals to increase in line with inflation. But when looking at the retail space, the occupancy rate was 5.1 percentage points lower, at 86.3%.
At end-March, Indluplace had total debt of R1.36bn of which 73.2% is hedged with a 9.5% weighted average cost of debt. Its loan-to-value was 38.6%. Total income rose 7.2% to R302.8m and net property income 8.5% to R138.4m.
Operating profit decreased 0.9% to R136.2m, while distributable income improved 2.5% to R56.5m. Net asset value per share, used to assess the value of a real-estate investment trust (Reit), was down 4.1% to 664.07c.
Indluplace did not declare an interim dividend as it awaits a possible takeover from fellow JSE-listed Reit SA Corporate Real Estate but will pay out a clean-out dividend if all goes ahead as planned.