JSE-listed SA Corporate Real Estate is confident of more growth as it continues to sell noncore assets to optimise its portfolio after reporting a satisfactory interim performance.
Since January its disposal pipeline, including pending transfers and divestments transferred, is valued at R1.3bn. Should the proceeds be used to settle debt, distributable income growth for the full year is forecast to be similar to that achieved for the first half of the year, said CEO Rory Mackey.
Distributable income for the six months to end-June rose 5.2% year on year to R362.3m, while net property income rose to R594.8m from R589.9m. Distributions were up 26% to 12.97c a share.
“We wish to retain optionality and flexibility with respect to use of asset sale proceeds,” Mackey said.
SA Corporate is a JSE-listed real estate investment trust (Reit) which owns a diversified portfolio in SA and Zambia. At end-June, assets under management had grown from R16.2bn in December 2021 to R16.4bn.
Its SA portfolio of properties is valued at R15.1bn, while the value of its joint venture in three Zambian entities with three properties rose to R1.1bn from R789.4m a year earlier.
Mackey said the company’s focus is on three defensive segments: industrial, retail and residential, with only about 2% of its portfolio office properties. These are earmarked for disposal as the sector is losing its appeal for investors due to oversupply and remote working.
SA Corporate has contracted the sale of its Bellville, Cape Town, office property and is preparing the Greenpark Corner building in Johannesburg.
In Durban, the Musgrave Centre office building will be converted to residential apartments, while the Davenport Square offices will be converted to discount retail with improved access and visibility.
“We will continue to sell off smaller and noncore industrial properties.”
Low vacancy
Mackey said the company’s industrial portfolio is 81% logistics, and it intends increasing these assets in the long term, though they are not “fixated” with duration or a specific target number.
Its industrial portfolio will continue to perform with low vacancies. The residential portfolio is expected to experience rental increases, he said. The AFHCO residential portfolio comprises affordable rental apartments, retail, commercial, and light industrial assets in the inner city of Johannesburg.
Vacancies in the SA retail portfolio, which accounts for 44.2% of assets by value is likely to reduce further from 3.2%. Mackey says convenience retail will increase. To this end, the group is improving these offerings and redeveloping or revamping some of its centres.
Stefan Swanepoel, equity analyst at M&G Investments, said SA Corporate’s interim results are “slightly” ahead of their expectations and those of the market, given the positive reaction of the share price, which rose 7.48% to R2.30 at the close on Friday (the company published its results after the market closed on Thursday) giving the group a market value of R5.783bn.
“We remain pleased with the continued refinement of the company’s strategy and the disposals to date, resulting in SA Corporate ending up with very little office compared to its more diversified peers,” said Swanepoel.
The company has a healthy balance sheet, a positive attribute amid rising interest rates and a tougher macroeconomic environment, he said.
Swanepoel said vacancies, which reduced from 3.6% to 2.7% with AFHCO residential portfolio vacancies falling from 8.4% to 4%, coupled with the higher inflationary environment, should support reversions and escalations .
“We think SA Corporate is well positioned to take advantage of the cycle and we would expect it to continue to perform well,” said Swanepoel.
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