Residential-focused Indluplace Properties has been able to pass gradual rental increases onto tenants and improve occupancies, but warned its current operating environment remains unpredictable amid SA’s slow economic growth and as financially constrained households grapple with headwinds.
The real estate investment trust (Reit), valued at R1.01bn on the JSE, said on Wednesday in its annual results to end-September that it remains upbeat about growing its distributions, but added that improving occupancies in its student portfolio is “critical”.
Indluplace, listed on the JSE in 2015, focuses on the affordable end of the residential rental market. Its portfolio, valued at about R3.4bn, includes 9,249 residential units and 15,549m², about the size of two football fields, of retail space.
The vacancy rate of residential units improved by 4.3 percentage points to 8.5% in the year, while the retail vacancies rose 1.8 percentage points to 8.9%.
However, the student portfolio, with 2,458 beds, was hit by universities moving away from head leases, particularly in Vanderbijlpark, southwest of Johannesburg.
A head lease is an agreement between a property manager and a tenant as opposed to subletting, which is signed between a tenant and a subtenant.
“Despite various interventions, the occupancy rate [of the student portfolio] settled at around 45%, which had a negative effect on the net income,” the company said, though it expects things to improve in its 2023 year.
Almost four fifths of its residential units are in Johannesburg, with most of these in the inner city, followed by Pretoria and Midrand with 10%, Emalahleni and Vanderbijlpark with 5% and Bloemfontein with 1%.
Indluplace hiked its dividend by 13.6% to 31.96c for the year, amounting to a payout of R100.37m at a ratio of 85%.
But it warned that it cannot provide guidance on its distribution per share in the new financial year because of the “evolving and uncertain economic environment”.
Revenue slipped by 2.9% to R583.7m, operating profit 0.6% R234.45m, and diluted headline earnings per share, a profit measure that strips out impairments and one-off items, 6.75% to 47.37c.
Property operating costs were 6.2% lower at R315.8m, helped by the effect of the disposal of properties and prudent management of expenses.
“While we have managed to pass on, and in some cases absorb the higher than inflationary municipal cost increases, the punitive changes in billing methodology continues to put pressure on the group as well as our tenants,” the company said.
This includes charges for sewer and refuse services.
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