Tuesday saw undervalued property counter Attacq post sector-beating distribution growth for its financial year ended June 30, 2019.
Attacq, which owns a majority stake in Mall of Africa and is driving Gauteng’s Waterfall City mega-development, increased its annual dividend per share (DPS) 10.1% to 81.5 cents. The group had given DPS growth guidance of 7.5% to 9.5% for the year.
South African property assets make up 75.6% of Attacq’s R27 billion property portfolio, while 22.8% is held offshore via a stake in Europe-focused MAS Real Estate. The SA real estate investment trust is looking to exit its ‘rest of Africa’ property holdings in countries like Ghana and Nigeria, which has seen it suffer impairments of around R570 million since acquiring the stakes.
Speaking during a results media briefing, Attacq CEO Melt Hamman said despite tough market conditions locally, the group’s strong performance was “underpinned by its quality South African portfolio” largely centred on its Waterfall development. However, he noted that MAS also made a noteworthy contribution.
“Overall, Attacq’s distributable earnings per share increased by 17.1% to R664 million. However, R89.5 million of this came from cash interest received from shareholder loans advanced to AttAfrica, which we excluded due to it being non-recurring income. This brought our distributions down to 10.1%, which still exceeded the top end of our guidance.”
Hamman says the non-recurring income will be used to pay off debt and lower the group’s loan-to-value ratio, which at year-end increased to 37.7%. Another priority is to increase Attacq’s interest cover ratio, which he believes is contributing to its poor share price performance. The group increased its interest cover ratio to 1.85 times from 1.78 in 2018.
Hamman says the group’s largest asset, Mall of Africa, which contributed some 15% of income, is excelling.
Retail trading densities up
“Overall retail trading densities in Attacq’s SA portfolio were up 6.8%, which is great given the tough consumer and retail market locally. However, trading density at Mall of Africa was up 13.1%, which is exceptional for a super-regional mall that has only been operating for three years.”
Mall of Africa’s trading density (reflected in terms of sales turnover per rentable square metre) was up from R2 832/m2 a month to R3 202/m2. In comparison, its closest Joburg super-regional competitor Sandton City boasts a current average monthly trading density of R4 838/m2. Sandton City is seeing trading density growth of 6%.
The spike in Mall of Africa’s trade came despite vacancies increasing from 0.6% to 2.8% at the 131 000m2 centre, following the closure of the Hamleys toy store and Edcon reducing its Edgars presence to one floor at the mall.
Attacq chief operating officer Jackie van Niekerk says that post year-end, vacancies at the mall have been reduced to 1%. This comes as a new 4 000m2 Pick n Pay supermarket is set to open later this month in the space vacated by Edgars. In addition, the Pepkor group will open a new Pep store and Dealz outlet in the old Hamleys space, while other new tenants include Yuppiechef, PNA and Exclusive Books.
“With the new store openings and reduced vacancies post year-end, we are expecting further growth in trading density at Mall of Africa,” says Van Niekerk.
Retail property makes up 51.8% of Attacq’s portfolio, while office and mixed-use properties account for 37.8%. Light industrial makes up the balance. The group says office vacancies in its portfolio decreased from 16.7% to 11.8%, while industrial property vacancies were even lower at 3.2%.
Hamman says Attacq’s guidance for its 2020 financial year is between 8% and 10% DPS growth, barring any major shocks such as a downgrade in SA’s credit rating by Moody’s.
Resilience may be tested further
“While Attacq’s quality portfolio has been resilient and delivered good results, we are still operating in a tough and uncertain environment as SA Inc,” says Hamman. “Policy uncertainty with regards to prescribed assets, the NHI [national health insurance] and lingering uncertainty around the expropriation-without-compensation land debate is all having an impact. Uncertainty around the Moody’s rating is also an issue for the listed property sector.”
Craig Smith, head of research and property at Anchor Stockbrokers, says Attacq delivered “pleasing results” given the poor local economic environment.
“Last year Attacq gave guidance for DPS growth of 7.5% and 9.5% for 2019 and 13% and 15% for its 2020 full-year,” he says. “By achieving DPS growth of 10.1% for the year ended 30 June 2019, it is creating a higher DPS base.”
Smith notes that the board’s decision not to distribute rental income relating to its Edcon leases will negatively impact distribution for Attacq’s 2020 financial year. “Taking this into account, Attacq is now targeting DPS growth of between 8% and 10% for 2020.”
He adds that the rollout of its development pipeline will be key.
“Attacq will also need its share price to rerate significantly in order to raise equity or, ideally, will need to find a strategic partner. However, the business is becoming more focused and management is disciplined.”