Residential-focused Indluplace is concerned about SA's weak economy, as are many property groups. Picture: SUPPLIED
Residential-focused Indluplace is concerned about SA's weak economy, as are many property groups. Picture: SUPPLIED

Residential-focused Indluplace Properties is the latest real estate company to feel the brunt of a weak economy, warning that it is likely to do even worse in 2019 and report a drop in dividends.

A number of South African property companies have reported weak results in the latest reporting season and have warned of worse times ahead, including Rebosis Property Fund, Octodec Investments and Delta Property Fund. 

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. The company’s 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 was5.2%,” said De Wit. 

Indluplace expected 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,” De Wit said.

Drop in dividends

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 under-performing assets over the next few months.

De Witt and financial director Terry Kaplan said the fund was 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 high quality assets,” Kaplan said.

Evan Robins, listed property manager of Old Mutual Investment’s MacroSolutions boutique, said the poor guidance was a surprise to fund managers.