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Attacq foregoes dividend in effort to boost balance sheet

‘We are seeing, I think, some green shoots, especially in the retail sector, notwithstanding…some rolling lockdowns and restrictions’: Raj Nana – CFO, Attacq.

FIFI PETERS: Well, let’s get into reviewing our first set of results for today’s show. They come from property group Attacq, which has the controlling interest of the Mall of Africa and also Waterfall City development. Attacq has released the numbers and things are looking a little bit better for the group. Last year they made a loss; this time they’ve swung into a profit.

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We have Raj Nana, CFO at Attacq, joining us to review the numbers. Raj, thanks so much for your time. Does the return to profit mean that the worst is over for the group from a Covid-19 perspective?

RAJ NANA: Thanks Fifi. I think the South African business has actually performed really well in the last 12 months. As you mentioned, Waterfall City is the jewel in the crown for Attacq, performing really well. Distributable earnings from that particular segment increased by 30.6% over the prior year; and the rest of the South African business, which includes both office and a lot of retail assets, is also doing really well, growing by 9.1%. So the South African business is I think really strong, the quality of the portfolio coming through.

We are seeing, I think, some green shoots, especially in the retail sector, notwithstanding the fact that we’ve had some rolling lockdowns and restrictions. So we are very pleased with those South African-based results.

FIFI PETERS: With which part of the business are you not too pleased at this stage?

RAJ NANA: Within the last 12 months we did not receive a distribution from one of our investments, the investment in Mas. They operate in Central and Eastern Europe, are largely retail-based and had similar Covid-related lockdowns. They took a similar stance to that which a lot of property companies have done in the last 12 months – to suspend their distributions – and that had a major impact on our own earnings.

But that’s a solid team, a substantial development pipeline, with some really good fundamentals in that geography. So while we didn’t receive a dividend in the past 12 months, they have taken a decision to resume the dividend, and I think that’ll come through in our next set of results. But not an underperformance, and I think it’s a prudent decision by management to sort of pause on the dividend. That’s a separate issue.

FIFI PETERS: All right. So just a short-term measure there, nothing long term. Raj, let’s just talk about Mall of Africa and your retail offering as a whole, because what we did see in the past year was a lot of tenants knocking on the doors of landlords for relief because of the lockdowns and the loss of revenue and not being able to make the rent – and we did see landlords also coming to the party. But what is the situation looking like now in terms of the tenants who are able to pay you rent?

RAJ NANA: That’s still the downside. I think at the moment, notwithstanding curfew limitations, all of the tenants have been able to trade in the last 12 months. If we had to really single out certain sectors, it has been restaurants, and we’ve seen offerings like cinemas and gyms that have obviously been harder hit than the rest of the retail sector. But in the last 12 months we’ve provided less support to all of our retail tenants, and all of them are showing good trading numbers. In fact, Mall of Africa’s trading density year on year was up 2.4%. We’ve got the Garden Route Mall out in George, fully tenanted, performing really well. Trading density is also up there.

So I think post a hard lockdown, we’ve seen certain sectors – like I said, restaurants – whenever the alcohol restrictions are in place they do struggle. But, by and large, I think retail is really making a good, strong comeback.

FIFI PETERS: The numbers that we’re talking about are up until the year ended June, so they don’t really reflect the full impact of the third wave. I’m wondering if it got a bit worse in the higher Level 4 lockdown, and also as the third wave was under way.

RAJ NANA: If you look at our numbers for the year – and I take your point about the end of June – I think towards the end of October was the last real rental relief that we provided to tenants. Like you said, toward the end of June we had another lockdown level imposed. But the sort of relief that we provided for June and July was very limited. I think if you look at the turnovers for most of those stores, they are really picking up. So, notwithstanding maybe June and July being a little bit tougher, August and September – given that we’re going into the spring month and everyone’s looking to get out and socialise with friends – have certainly been picking up really well.

FIFI PETERS: And what about the rest of your portfolio, for instance your office portfolio? What’s the thinking there, and what are you seeing there in terms of recovery?

RAJ NANA: I think we’ve seen – and the term has been used quite often – a hybrid-type working arrangement. I think a lot of employers are contemplating introducing some sort of flexible working arrangement with their employees. Some are talking between sort of 60% in the office at any given time, and 40% working either remotely from work or elsewhere. We haven’t seen all of that focus in the discussions that we’ve had with our own clients. I think there’s still less understanding of the ‘new normal’, but certainly we’re not going to get back to the office environment that we were used to. I think what’s really important – and we see it in our own business – is that you need a central place for collaboration.

While people can work and be productive remotely, you lack that the creative flair, the collaboration that you can only really get when a team sits in the same group and starts talking about the business and the strategy. I think that’s really the future of the office. The office is going to be a place where teams come together and collaborate, and you’re going to have a hybrid type of approach where the rest of the workforce is going to work at any given time between the home and the office.

FIFI PETERS: You sound like the CEO of PSG, Piet Mouton, whom we had on the show yesterday, also saying that the office is where people can actually get the creative juices flowing. But this doesn’t ignore the fact that if you look at a lot of statistics office vacancies are pretty high. So do you see those vacancies ever returning to normal, or perhaps over what time period is the more accurate question.

RAJ NANA: It’s a good question. I think it is where we are really in a good position that in Waterfall we’ve got an extremely strong node from an office perspective, and we’ve actually started referring to our offices as ‘collaboration house’, because that’s how we see the future of the office.

In terms of that particular node, we’re fortunate that we’ve got really high-calibre blue-chip tenants and our vacancy rate in Waterfall is extremely low, less than 5%. I think there are other areas, specifically around Joburg, that have had some significant vacancies, and that’s obviously going to put pressure on market-related rentals.

If you think about an overall recovery, you’ve got headwinds in terms of a generally weak economy and perhaps changing user behaviours in terms of a hybrid working environment. I think that’s going to take some time to come through the system, and that’s where you want to be invested in high-quality real estate – which obviously Waterfall is.

FIFI PETERS: All right. Raj, point taken. Thanks so much for your time, sir. That’s Raj Nana, CFO of Attacq.

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No Raj…. the future of Offices is in your HOME…

Ask the Big Firms…. they getting rid of office space!

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