Accelerate Property Fund says a tough retail environment and the rising cost of doing business will see its dividend shrink in 2019.
The real estate investment trust (Reit) said in a trading statement on Thursday that it expected its dividend to shrink by between 8% and 11% for its full financial year to March. The group said it had also delayed the long-awaited relaunch of the extended Fourways Mall, to August 22 from April 25 2019.
Accelerate COO Andrew Costa said the company believed that its exposure to the growing commercial node, Fourways, would hold it in good stead in the long term. The company owns a number of assets in Fourways, including the Buzz shopping Centre, Cedar Square and Fourways Mall, which is set to be the continent’s largest shopping centre when it is completed.
The company is predominantly a retail fund, with shopping centres providing 67% of its revenue. The majority of its retail exposure, or 64% of retail by revenue, is located in the Fourways node.
“Fourways Mall is expected to be about 200,000m² of gross lettable area upon completion and the positive impact of this super-regional centre on the Fourways node and the fund cannot be overstated. The development remains the key priority of the fund and management,” said Costa.
But until the mall is relaunched and all its additional stores begin to trade, Accelerate will have to deal with a number of challenges.
“Despite a number of ongoing initiatives to reduce costs and fill vacant space, the fund has experienced considerable income pressure on a number of fronts, including increased rates and utility costs, softer rentals to retain tenants, and increased finance costs,” said Costa.
Tenant retention and protecting income streams were key focus areas for Accelerate’s management. By the end of January, the fund had achieved a tenant retention rate of about 92% .
“To achieve this, however, given current market conditions, we had to be proactive in our approach to assisting tenants, where necessary, with a combination of softer leases, increased tenant installation allowances, rent-free periods, and the like,” Costa said.
He said costs had been well controlled considering the operating environment in which SA retail landlords operated but that municipal rates and taxes were still rising too quickly and by too much.
“Unfortunately, these efforts have been outweighed by excessive rate increases by council,” he said.
Many property landlords have told investors over the past few months, that rising municipal costs are making the cost of doing business excessively high. SA Property Owners’ Association CEO Neil Gopal said in March that rates and taxes had risen 10% a year for a decade.
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