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Thursday Jul 23, 2020

'Prominent business failures' will impact Investec Property Fund's results

Investec Property Fund (IPF) has warned that “several prominent business failures will impact” its results for the financial year to March 31, 2021 as South Africa's economy weakens through the Covid-19 pandemic.

IPF, which owns 98 properties in South Africa, Europe and UK, said in an update on Friday that leasing activity in South Africa would likely be slower than anticipated, with longer void periods and more pressure on rental levels. The share price closed 0.31 percent lower at R9.65 on the JSE on Friday.

More than 80 percent of its tenants are large or listed companies. Tenant failures were expected to pose “a significant risk” to IPF's ability to grow revenue, the group said in an operational update.

In the past year large companies including Edcon and ELB Engineering, which had accounted for R38 million of annual gross income to IPF, had gone into administration.

The Pan European Logistics (PEL) portfolio was less impacted by the Covid-19 pandemic - logistics has been the most resilient of the real estate sectors globally through this crisis.

But PEL had not been immune to tenant failures, with a large logistics business occupying two properties going into business rescue in May 2020.

“In South Africa, demand for space in the office, retail and industrial sectors weakened in the first quarter, and leasing activity has slowed as expected, with lease negotiations becoming more protracted. This will result in vacancy rates edging higher and will impact rental levels,” the group said.

The R743m raised from the sale of a 9 percent stake in Investec Australia Property would be used to de-gear.

IPF had sold five properties in South Africa for R886m. With the reopening of the Deeds Office, two had been transferred, generating R282m of proceeds, while the Musina property (R517m) was expected to transfer before the end of July.

Talks were under way with potential investors to acquire a 10 percent stake in the PEL platform.

IPF's gearing, with asset sales and a sale of the 10 percent stake in PEL, was expected to reduce to 35 percent, post the PEL refinancing.

Rental relief discussions with tenants in South Africa was likely to lead to short-term income shortfalls due to rent-free periods and other leasing incentives provided to secure the extended leases.

European letting activity showed strong progress since May 2020, but also experienced a marginal slow-down due to lockdown restrictions and the inability to travel and access assets.

In South Africa, post rental relief provided, cash collection in June was 99 percent.

IPF had agreed R87m of rental relief to qualifying tenants, equal to 5 percent of annual gross income.

“The pace at which arrears are collected in South Africa is slowing, leading to higher debtor balances for longer periods, creating an inherent increase in the risk of bad debt,” the group said.

A final dividend decision for 2020 had been deferred to early September 2020, so the economic impact of the pandemic could be further assessed.

The Star Late Edition
20 Jul 2020


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