Property investment company Attacq has started a project to manage being without water for up to five days as shortages become a feature in Gauteng, where its assets are concentrated.
“Attacq’s primary concern is water security and distribution efficacy,” the company that owns the Mall of Africa and is developing the Waterfall City complex in Midrand said in its annual report.
“Water availability in some urban areas, particularly Gauteng and surrounding areas where we have a high concentration of assets, has deteriorated over the past year due to environmental factors, infrastructure deficiencies, management challenges, and increasing demand.”
Phase II of The Lesotho Highlands Water Project was designed to increase supply to Gauteng, but it has been beset by delays and is only expected to be completed by 2028, meaning distribution continues to be a concern in the province.
“Inadequate management of infrastructure may pose risks beyond our control, requiring vigilant monitoring by our management,” said Attacq.
The extended water crisis also prompted other property owners in Gauteng to prepare for frequent water outages. Redefine announced plans in July to spend more than R200m on new water tanks to ensure a reliable supply of up to five days at its properties in the region.
“An increasingly unreliable water supply could disrupt our and our clients’ operations, as well as negatively affect our shoppers’ experience. Consistent water flow is crucial for building safety, regulatory compliance and securing associated insurance,” said Attacq.
Like most businesses and consumers, the real estate investment trust (Reit) is also contending with higher rates and taxes and has said not all of these additional costs can be passed on to clients, affecting overall profitability.
“Rates and taxes that are recoverable will increase the cost of occupancy for our clients, reducing the overall value proposition,” Attacq said. “The disparity between the rate of increases in rates and taxes and the deterioration of service delivery in SA highlights continued systemic issues which may widen in the absence of reforms at local government level.”
To combat the issue, the group has concluded a service level agreement with Rates Watch to monitor changes and manage objections on its behalf.
“Additionally, active lobbying through the SA Property Owners Association (Sapoa) is being pursued to contain increases in municipal rates,” said Attacq.
According to Sapoa rates have consistently outpaced consumer inflation since 2008. Sapoa CEO Neil Gopal said property operating costs as a percentage of gross income continued to rise in 2023, putting pressure on property owners’ net income.
Gopal said increases in rates and electricity tariffs on the commercial property sector over the past five years had led to total operating costs consuming 43.1% of gross income by the end of 2023. The increase was primarily driven by an 11.8% increase in total operating costs, which outpaced the 10.8% growth in gross income.
In its financial year ended June the occupancy rate for Attacq’s SA portfolio increased to 92.5% while its weighted annual trading density, which is calculated as turnover in relation to space used, experienced 5.8% growth. But its net operating income decreased 8.1% to R1.6bn.
The group’s property expenses rose 9.8% to R979.4m, mainly as a result of higher municipal expenses.
That increase aside, the group still concluded the sale of 30% of Waterfall City to the Government Employees Pension Fund.
“The 2024 financial year will be remembered for the landmark Waterfall City transaction, which strengthened our capital structure, reduced debt costs, and positioned us to enter the debt capital market,” Attacq CEO Jackie van Niekerk said in the annual report.
“We allocated R2.9bn to reduce interest-bearing debt, improving our interest cover ratio to 2.31 times (June 2023: 1.69) and lowering our gearing to 25.4% (June 2023: 37.3%).”
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