Texton Property Fund is reconfiguring large office space into small units to cater to smaller businesses in a strategy to diversify its revenue stream as large corporate tenants consolidate their office space to embrace a hybrid work model.
The property company said on Friday it would repurpose 13,000m2 of office space for alternative use, an indication of the extent to which the office market is under pressure.
SA’s fourth-largest insurer, Momentum Metropolitan, said earlier in March it expects an ongoing hybrid way of working and longer-term cost savings from the reduced need for office space. However, with SA and the broader world seemingly getting to grips with the Covid-19 pandemic, it is unclear if the hybrid work model will be widely adopted by businesses.
Texton’s portfolio in SA is heavily weighted towards the office sector, which suffered the most since the beginning of the pandemic as corporates dealt with lower business growth and being forced to embrace a remote working environment to keep employees safe.
“We are investing heavily in the reconfiguration of large and obsolete office space into smaller units that will provide SMEs with the space and services to support their growing businesses,” the company said in a statement.
“In addition, we successfully launched the pilot programme of Tex-space.co.za and aim to continue the rollout across our office parks. The implementation of our SME strategy will result in a larger tenant base, diversified cash flows and reduced overall portfolio risk.”
Tex-space.co.za is an innovative lease offering to SME tenants in SA, which the company said had proved popular for tenants looking for convenient, safe and flexible office space. Texton has already invested about R20m in its SA properties to preserve capital values in the context of shifting trends in the property market.
Vacancies in the core SA portfolio rose to 16.6% in the six months to December from 10.5% on June 2021, driven by the non-renewal of a lease with state-owned Transnet Ports Authority. The group’s net property income was down 38.6% to R96.2m year on year.
Texton, which was founded in 2006 and listed on the JSE in 2011, has been selling some of its assets to repair its balance sheet and invest in other asset classes. Its direct total portfolio, which straddles office, industrial and retail, stood at R3.26bn during the review period.
Its debt relative to assets, as measured by the loan-to-value ratio, was at 31.2%, comfortably below the 40% threshold that fund managers deem unsustainable.
Texton restored an interim dividend of 10c a share, which sent its shares soaring as much as 22% at one stage on Friday, before pulling back to end 16.82% up on the day at R3.75.
The company also said it has successfully integrated the property management team into the Texton head office structure, providing a direct line of communication with tenants and enhancing their ability to react to customer requirements.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.