May 25 2023
Indluplace Properties, the JSE-listed real estate investment trust (Reit) which owns and manages residential property delivered an exemplary performance in the six months to-end March 2023, managing to grow its operating profit 7.9% during the period.
The group is likely to be taken over by SA Corporate Real Estate, another JSE-listed Reit in the next few months. SA Corporate is a diversified landlord which made a takeover offer a while back. In terms of residential assets, it owns Afhco, the African Housing Company. Should the takeover go through, Indluplace’s residential portfolio will merge with Afhco’s and Indluplace will be delisted.
Indluplace’s portfolio is valued at R3.4bn and includes 9,282 residential units focused on the affordable end of the residential rental market located in the Free State, Gauteng and Mpumalanga. It also has 15,494m² of retail space which supplements its residential rental income.
Indluplace employs more than 280 people, providing all the services that are required to manage a large portfolio which is home to almost 30 000 people. These include building based staff as well as all head office departments.
Following the successful internalisation of the group’s property management function in 2021, Indluplace’s board set targets for the company to stabilise distributions in 2022, and for it to show inflation related growth in 2023.
An improvement in residential portfolio occupancies from 89.7% in March 2022 to 94% in March 2023, a complete turnaround in the student portfolio occupancies, from 43% in March 2022 to more than 98% now, excellent collection numbers and low bad debt write-offs, as well as good performances from all other departments enabled management to exceed the growth target set by the board.
Indluplace attracted more than 350 new tenants per month over the six month reporting period, with February recording a record number of 472 new leases.
Average rentals across the portfolio reached R4,384 per month with a 0.7% average escalation while average inner city rentals were R3,897 with a 0.1% average escalation.
At the end of the reporting period, Indluplace had total debt of R1.36bn of which 73.2% is hedged with a 9.5% weighted average cost of debt. The fund’s loan-to-value (LTV) was 38.6%. LTV measures a property fund’s debt relative to the value of its asset portfolio. Fund managers tend to want Reit’s LTV’s to be below 40% as this is a prudent ceiling.
Total income rose 7.2% to R302.8m and net property income 8.5% to R138.4m.
Operating profit decreased 0.9% to R136.2m, while distributable income improved 2.5% to R56.5m. The net asset value per share fell 4.1% to 664.07c.
CEO Carel de Wit said the second half of the financial year was traditionally stronger than the first half.
“I do think these results are strong and can improve in the second half of the year,” he said.
In accordance with the scheme implementation agreement concluded between Indluplace and SA Corporate Real Estate, Indluplace would not declare an interim dividend, but would declare a clean-out dividend prior to the scheme being implemented. Should the scheme of arrangement lapse,
the board of Indluplace will revisit the declaration of an interim dividend.
It is unclear if De Wit and chief financial officer, Terry Kaplan will be retained SA Corporate succeed with the takeover. Fairvest is the majority shareholder in Indluplace, owning a 56% stake worth around R650m. SA Corporate would buyout Indluplace through a cash offer. Fairvest desires to be a retail-focused landlord.
alistair@propertyflash.co.za