Picture: Matthew Jordaan
CAPE TOWN – Indluplace Properties, the largest residential-focused JSE-listed real estate investment trust, missed its guidance target after distributable income fell 22 percent to R120.5 million in the six months to March 31.

Costs such as legal fees for defaulting tenants and higher-than-inflation municipal charge increases and maintenance eroded earnings. The group had forecast at the end of September last year that dividends would fall about 10 percent for the 2019 financial year, but yesterday this guidance was lowered to a 20 percent decline over 2018’s dividend.

The group, which has one of the biggest portfolios of affordable housing in the country, declared a 23 percent lower dividend of 37.49 cents a share for the six months, compared with 48.56c in the same period last year.

Chief executive Carel de Wit said they were disappointed with the results and “we want to do better than this in the second half”.

He said the low- to middle-income tenant was under pressure financially and the business environment that the group operated in was much worse than they expected in September 2018. Since listing in 2015, Indluplace has built a residential property portfolio that provides a mix of affordable rental accommodation that caters for individuals, single-headed and mid-sized households, with its portfolio expanding by 269 percent to 9 933 units over the period.

The portfolio now comprises a significant share (47 percent) of two-bed units and bachelor and one-bed units (41 percent).

“We have had to put more resources into our marketing efforts. While we have been able to contain vacancies and tenant churn, this inevitably impacted on our profits for this period,” said De Witt.

Vacancies increased to 8.7 percent, from 6.3 percent, although the number was skewed by the impact of vacancies at Highveld View in Emalahleni, resulting from the non-renewal of bulk leases linked to the construction at Eskom’s Kusile power station in 2018.

Excluding Highveld View, vacancies would have been around 5.7 percent, which is similar to the comparative previous period. De Witt said there were some strategies in place for Highveld View, including new leases and even the possible sale of the building.

Revenue, excluding straight line rental income, declined to R318.3 million compared to R334.7m as at March 31 last year.

Non-renewal of the Highveld View bulk leases accounted for a substantial portion of the decline in revenue.

Property expenses increased 7 percent to R138.9m as a result of higher-than-inflation municipal cost increases ranging between 6 percent and 14 percent, rising maintenance costs and additional fees associated with non-paying tenants. The net expense ratio of 32.3 percent was higher than in previous years.

Indluplace shares closed 0.48 percent higher at R6.25 on the JSE on Thursday.