Indluplace braces for declining property values
The group has deferred a dividend decision as it expects Covid-19 to batter the property sector
Indluplace Properties, which owns residential assets in SA’s major cities, says it expects property values to decline in the short term as Covid-19 batters SA’s economy.
The company, which has a portfolio of 9668 rental units worth R4.1bn, has deferred its dividend for the six months to end-March, having paid out about R120m in the year-earlier period.
“Even though rental collections were in excess of 85% for April and over 70% for May, it is likely that property values and revenues will decline in the short term due to the expected economic downturn,” the group said.
This would be as a result of rental concessions granted to tenants, increased provision for bad debts as tenants are unable to work and minimal annual rental escalations if any, the group said.
CEO Carel de Wit said on Wednesday that Indluplace would help a battling tenant as much as possible rather than losing them.
Contractual rental income increased from R265.2m at March 31 2019 to R275.3m a year later. The increase related to the improved letting at the company's Highveld View combined with the acquisition of an additional 210 units in Golden Oaks during the course of the 2019 financial year.
Cash and cash equivalents increased from R2.3m at March 31 2019 to R23.2m a year later.
De Wit said that while Indluplace could pay a dividend, it would be best to hold onto its cash at least until the end of its September 2020 financial year.
“The rapidly changing environment, lack of predictability and difficulty in estimating the overall impact of the pandemic and subsequent lockdown on the future performance requires Indluplace to retain as much capital as possible to protect its balance sheet and assist with liquidity,” the group said.
The company was not yet able to ascertain the full effects of the Covid-19 pandemic on its tenants, many of which were working-class families.
"At the end of March, our business was in fairly good shape. Then Covid-19 hit and the world changed. We are choosing to be conservative at the moment and are confident that our investments will remain resilient and things will get better. Most of our tenants have been able to pay so far and we are helping those who haven't. This can include them paying off one-month rental over a few months," De Wit said.
He said Indluplace would consider investing in residential properties located near the busiest areas of Gauteng in terms of economic activity. As much as 42% of Indluplace's portfolio was in Johannesburg's suburbs, and 37% was in the inner city.
Indluplace reported distributable income of 34.17c per share for the six months to end-March, an 8.8% decrease, towards the lower end of its guidance of a fall of 6%-9%.
The share price closed unchanged at R2.68.