JSE-listed property group Heriot Reit says on a like-for-like basis the value of its investment property portfolio increased by 5.4% from June 2022 to the end of June.
Heriot, which owns a diversified property portfolio of 48 properties that are mainly retail and industrial assets located in areas with high-growth potential, saw value increase from R5.084bn in June 2022 to R9.258bn.
The company said the value increase is due to the inclusion of the Safari Investments portfolio, comprising nine properties valued at R3.720bn including two assets held for sale, and growth of R289.3m in the value of its portfolio.
“The overall increase in the value of the portfolio is reflective of the resilience shown by the retail and industrial portfolios,” said the company.
Its property valuation increased by R289.3m, which was supported by the positive rental escalations achieved on renewals and re-lets across the portfolio during the period.
In July, Heriot increased its stake in Safari Investments from 56.8% to 57%. Heriot, which had held failed merger talks with Safari in 2020, thinks its portfolio of shopping centres is complementary to Safari’s business and has been looking to increase its shareholding.
In the period under review, the group had R408.957m of capex for asset improvements, of which R241.805m relates to assets held for sale.
Both the Heriot and Safari boards have approved the capex, and costs will be funded by group cash reserves, as well as unused and committed credit facilities.
Heriot completed the development of the 8,141m² extension to the Siyabuswa Mall, which opened in November 2022. The R95.4m extension is expected to yield 15%.
Its 50% interest in a small residential development in the Johannesburg northern suburbs was transferred to an investment property at its fair value of R40.3m on completion in August 2022.
Heriot commenced with the R90m refurbishment of a property in the Cape Town central business district (CBD) at a 14% yield in January, with operations expected in December 2023. The 4,946m² commercial property will be converted into a mixed-use property offering commercial and residential space. The strategy for residential space is to adopt the apartment/hotel model.
Furthermore, the group is redeveloping one of its Cape Town CBD property valued at R91.3m into student accommodation.
During the reporting period, net operating income grew by 13.8% while specialised portfolio recorded growth of 8% from 6% through normal rental escalations.
Vacancies reduced from 3% in June 2022 to 2.4%, and post-year end, vacancies had declined further to 1.9%.
The company said the reduction in industrial portfolio vacancies has resulted in increased rentals on lease renewals, the retail portfolio benefited from the extension of Siyabuswa Mall and short-term lettings boosted the residential portfolio.
“However, the office sector is still suffering the effects of the Covid-19 pandemic with challenges in filling vacancies and reduced rentals on lease renewals,” the company said.
Distributable earnings grew 4.2% to R271.552m, or 106.33 cps, from 102.05 cps in June 2022. Its average cost of borrowings rose by 2.39% from 6.29%, to 8.68%, reducing distributable earnings growth to 4.2%.
Management is pursuing growth of 3% to 7% in the distribution per share for the year ending June 2024.
“We will continue to explore strategic opportunities that will extract value from the existing portfolio and grow the asset through the acquisition of high-yielding properties,” said the company.
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