March 14 2023
JSE-listed Attacq which owns various assets in Waterfall City including the majority of the Mall of Africa, had an impressive first half of its June end 2023 financial year, with its distributable income per share rising 27.3%. However, its office rentals did come under some pressure.
The group declared a dividend of 29.0c per share for the interim period as Waterfall City, Gauteng’s fastest growing node, in Midrand, continued to experience new commercial activity.
The node is performing well against the backdrop of the country’s low growth environment, record unemployment, poor business confidence levels, and a generally weakening economy exacerbated by the country’s electricity crisis.
In the period under review, the Waterfall precinct totalled 53 697m2 of gross lettable area, with a total cost at so far of R915.4m. Waterfall is becoming a central and popular node and investors are taking notice. In fact, recently as much as R2.8bn was invested in Waterfall City post the reporting period.
The Government Employees Pension Fund (GEPF) which is represented by the country’s largest investor, the Public Investment Corporation (PIC) announced that it would pump R2.8bn cash into Waterfall City through a transaction with Attacq. Attacq owns the Waterfall Investment Company (AWIC).
The GEPF would acquire 30% of AWIC. AWIC is a wholly owned subsidiary of Attacq and holds the company’s completed real estate portfolio and development and leasehold rights in Waterfall City.
The investment would be made made through issuing new AWIC equity, acquiring AWIC shareholder equity and shareholder loans from Attacq, as well as the extension of an additional pro-rate shareholder loan by the GEPF.
Attacq’s CEO Jackie van Niekerk said that during the six month reporting period, the fund saw an increase in the use of its co-working and collaboration hubs as more businesses returned to the office. The group’s retail assets also performed well with the weighted average trading densities of the portfolio growing by 14.7%. In particular, the Mall of Africa’s trading density sat at 22.8% which would compete with the likes of Sandton City.
“Our sustained growth and success can be attributed to our continued dedication to our strategy which has equipped us to address the rapid changing environment in which we operate Our results indicate that we are on track in delivering on our purposeful strategy focused on creating smart, safe, and sustainable community spaces, while enhancing the experience of our clients and shoppers within our office, retail and industrial hubs,” said van Niekerk.
However even though Attacq’s overall portfolio has been performing well, there were some challenges with the company’s offices, which was not unexpected given that most office owners have found it harder to fill offices over the past few years. Attacq was experiencing negative rental reversions at certain of its assets.
A negative rental reversion is when a tenant pays a lower rental on a lease than they did before.
Portfolio manager and director at Meago Asset Managers, Jay Padayatchi said: “The results are largely in line with expectations. Negative reversion persists across the portfolio although at lower levels.”
“Office remains a concern in terms of the medium term outlook, given current zoning within Waterfall being skewed to office. Amendment to this zoning is crucial,” he said.
Attacq meanwhile also highlighted it had embarked on initiatives to curb the continuous use of generators as a result of increased load-shedding. The company would reduce energy consumption and reliance on generators through things, including retrofitting lights, installing generator management systems to shut down generators after hours for specific buildings and adding approximately 2.3MWp from rooftop photovoltaic (PV) systems, with a further 4.7MWp of rooftop PV systems in planning as well as battery backups for buildings and precincts.
Once Attacq’s deal with the GEPF has been completed, it will see its gearing reduce significantly providing balance sheet capacity to develop out Waterfall City more quickly. Attacq’s capital structure will also be optimised resulting in a reduced cost of capital thereby enhancing returns for Attacq’s shareholders, its chief financial officer, Raj Nana said.
Prior to interim-period end, the group successfully refinanced R1.1bn of existing debt at a weighted average reduction in margin of 64bps.
“For the interim period, amidst tough economic conditions, through our focused approach, we delivered a 27.3% increase in DIPS, with a strong performance from our key strategic node, Waterfall City, which grew by 49.9%. The balance sheet remains healthy with a gearing ratio of 38.0% and available liquidity of R1.4bn. We are also pleased to have declared a dividend of 29.0cps,” Nana said.
Attacq intends to spend the majority of its available capital on its Waterfall development pipeline by holding its 6.5% stake in MAS Real Estate, a east European focused and JSE-listed landlord.
Attacq’s management said its portfolio was expected to continue to generate income growth and given the current capital structure, prudent interest rate hedging and available funding and liquidity, its full year distributable income per share guidance was between 8.0% and 10.0% growth. This was based on paying out 80.0% of its distributable income as dividends.