FIFI PETERS: We’re getting into some results from the property sector now. Residential property group Indluplace reported a 16% drop in its net income in the six months to September. Net income was impacted by the increase in residential vacancies over the period, as well as expenses.
We have the CFO of Indluplace Properties, Terry Kaplan, on the Market Update for a bit more. Terry, thanks so much for your time. What stood out is that for most of the company results I have been looking at and that we have been discussing on the Market Update things have started to look a lot better from the hardest parts of the pandemic and the lockdowns.
But for Indluplace it looks like things are still pretty tough out there.
TERRY KAPLAN: Good evening and thanks for having me. I suppose quite a tough question to start off with. No doubt, being for September, if we compare the results this year versus last year, Covid kicked in last year in March 2020, the first half of last year was pre-Covid. For only six months last year did we feel the effects of Covid. For this year obviously we had 12 months of Covid.
Half-year vacancies were higher and in terms of vacancies we finished the year on about 12.8%. The average for the year was a little bit lower, just under the 12%.
Our tenants are under pressure; it’s a challenging, challenging economic climate. They are feeling the pinch and I suppose that is reflected in the results. Municipal costs – all of that playing a bit of a part in that. But I also don’t think we are the only ones. Just from a residential point of view guys in the industry are feeling a little bit of pressure as well.
FIFI PETERS: Just in terms of the tenants and the pressure they’re under, we did see a lot of property companies providing relief in all forms of reduced rentals and taking on leases at a much lower cost. I’d just like to understand how long you can continue to provide a soft landing, as it were, for your residential tenants.
TERRY KAPLAN: In terms of the relief, we provided relief during the course of the previous year. In the current year there was much less relief and part of that is because the vacancies did pick up. As to the vacancies that means we’ve got tenants who can afford to pay, who’ve been credit-vetted. We’d rather have that type of tenant than having the bad debts and the like. We look at all of those things, but there is a focus. We want to make sure that we get the right tenant in, a tenant that can afford [the rental].
During the course of this year we’ve also gone through, I suppose, the toughest economic climate, so we internalised property management. We’ve taken things away from external property managers. We’ve got a great team doing a good job. From their point of view, even though maybe some of the numbers went backwards, the team has kept the business in a stable position.
FIFI PETERS: That move to internalise the function of property management – how meaningful will it be for your cost line in the medium term?
TERRY KAPLAN: What’s very important is that as soon as we internalise property management we’ve got valid control of the people who interact with the tenants. We’ve got our own letting team – and going back to probably January/February there was no letting team. So we’ve got our own letting team, we’ve got our own team which does the credit vetting, a full-on finance department and maintenance department. So most importantly we can deliver, we believe, a much better service to our tenants, number one. That’s most important.
In the past we were paying about 5.5% to 6%-odd in terms of collection commission. And there has been a duplication in the current year. As you can imagine, as you start from a year base, it’s going to be a month or two before you have property in-house, where with the duplication we’ve got to make sure the previous guys and we are running it correctly.
I think going forward we do expect to see an improvement there, but what’s also important is that as soon as we make a dent in the vacancies, all of that good news will drop straight down to the bottom line because we don’t have to pay a collection commission to an external property manager.
FIFI PETERS: Then what are the plans to make a dent or to arrest the increase in your vacancies? What’s the strategy?
TERRY KAPLAN: Also a very good question. In our presentation earlier today, I may have said that for me an ideal number would be 0% in vacancies and 0% in bad debts. That’s never going to happen. As I said, we’ve a great team and I think there’s been a renewed focus on ensuring that we give value for money to the tenants, number one, as well as a great service. We want to make sure that we respond to them very quickly. So all of that really has improved the service. The letting department is probably doing upwards of 320-odd leases on a monthly basis. What’s very important for us is we started from a zero base. We go back six, seven months when we’re doing a handful of leases. We’ve grown the team. I don’t want to say that there are green shoots, but we are very positive about the team that we’ve got and that we can make a dent in those vacancies. If we bring it back by a couple of percentage points, as I said, that should improve the numbers almost immediately.
FIFI PETERS: So what are you perhaps asking your shareholders to hold on to in the period ahead? What can they look forward to by way of value and increased returns?
TERRY KAPLAN: What we’ve done is that, despite Covid last year and the pressures that we’ve been under, we paid a dividend last year. We paid a dividend during the current year. That is our responsibility towards our shareholders.
I don’t want to dive into what the numbers are going to be, but really there is such a positive feeling and I’m very positive about the team that we’ve got. I’m looking forward, once again, to continue to pay dividends. We have had a retention in terms of the payout, which allows us to reinvest into properties to uplift them for capex and the like. We’re improving the quality of the building and things like that. So really stick with us. We have paid a dividend and we look forward to continuing that.
FIFI PETERS: Right. Terry, thanks so much for your time and honesty. That’s Terry Kaplan, the CFO at Indluplace Properties.