Rebosis Property Fund sold 32 office properties for R6.2 billion in the past three months, the proceeds of which would be used to deleverage the company, outgoing chief executive Dr Sisa Ngebulana said yesterday.
He said at the release of the results for the year to August 31 that the successful disposals would reduce loan-to-value from 71 percent, to about 42 percent, in line with acceptable loan-to-value levels for REITs.
“The transaction will restructure the business as a retail-focused fund. On conclusion of the deal, we expect to resume dividend payments to shareholders, provided that a stable macro-economic environment is maintained with no material tenant failures or prolonged economic lockdown periods,” Rebosis’ new chief executive, Otis Tshabalala said.
Rebosis turned around its retail portfolio performance in the year to August 31 and lifted distributable income before tax, excluding once off items, to R83m from R62m.
However, no dividend was declared for the third consecutive year – the payout of at least 75 percent of distributable income as dividends is a key metric of REITS.
The higher distributable income followed lower overhead office costs of R151m (R175m), and lower finance costs of R602m (R828m) due to the repo rate cuts and the repayment of facilities using the proceeds from the Medscheme building sale.
“Despite significant macro-economic headwinds, exacerbated lockdowns and the July riots, we maintained a ‘business as usual’ approach, supported by our solid property fundamentals. We met debt obligations and invested in new capital expenditure and value enhancement of our assets, whilst maintaining surplus cash in the business,” Dr Ngebulana said.
Rental collections improved to 103.9 percent, although the fund was obliged to provide a further R100m (2020: R148m) to tenants, comprising rental concessions of R27m and bad debt write-offs of R73m, to mostly smaller tenants who continued to struggle with the impact of Covid-19.
There was no damage to its retail portfolio as a result of the July social unrest.
The retail portfolio reported trading density – a measure of performance in retailing calculated as the revenue generated by a given area of sales space – at an average growth of 4.2 percent when compared with the 2019 financial year, despite limited economic lockdowns during the period.
Restaurants, entertainment venues and liquor outlets were more negatively impacted by the lockdown restrictions. The Eastern Cape assets showed particularly strong trading density growth of 7.4 percent, with Gauteng reporting a contraction of -0.2 percent growth.
New leases comprising 11 962m² in the retail portfolio and 6 111m² in the office portfolio were concluded at an average escalation rate of 6.6 and 8.1 percent respectively.
This supported the weighted average lease expiry of the retail portfolio at a solid 3.5 years and the office portfolio at 1.3 years.
Several bulk government tenanted office leases have not been renewed in anticipation of the disposal transaction, whereby the buyers would be entitled to renew on longer lease terms. These leases were at advanced stages and the company anticipated their renewal by the end of the calendar year, which is expected to have a positive impact on the WALE.
Vacancies in the retail properties accounted for 9.8 percent of the portfolio, with the mainly sovereign-let office portfolio reporting vacancies of 21.7 percent.
The combined average portfolio vacancy was 17.3 percent, excluding office properties earmarked for conversion to student accommodation.
The retail and commercial portfolios were independently valued at year end, taking into account Covid-19 considerations, with the overall value remaining stable at R13.1bn.
Tshabalala previously served as the chief operating officer of SA Corporate Real Estate and has over 28 years’ experience in the commercial property sector, with more than 12 years in property finance.