Small-cap real estate investment trust (Reit) Accelerate Property Fund has become the latest counter not to pay a full-year dividend, due to significant pandemic pressure on rental income and a R660 million write-down of its investment properties.
Accelerate, which owns a 50% stake of Fourways Mall and the landmark Portside Tower office building in Cape Town, did not report a distributable income for the year ended March 31, 2021.
The other 50% stake in Fourways Mall is effectively owned by the Georgiou family. However, Accelerate’s CEO Michael Georgiou is listed as a major shareholder in the JSE-listed fund.
Accelerate’s latest R660 million write-down brings the total devaluation of its property portfolio to R1.66 billion over the last two financial years (FY 2020: just over R1 billion).
The group’s share price weakened almost 3% and closed at R0.56 a share on the JSE on Wednesday, valuing the fund at just under R670 million.
Accelerate’s decision to retain distributions is aimed at bolstering its weakening balance sheet in the face of the Covid-19 financial fallout.
Its move not to pay dividends, which was expected, comes as the fund provided R182.5 million in rental relief to tenants most affected by pandemic-related lockdowns during the financial year.
This knock to rental income, together with property vacancies hitting 15%, had a ripple effect on property values. However, the increase in vacancies (from 10% to 15%) excludes the vacancies under a “head lease” structure for Fourways Mall.
Nevertheless, the group pointed out that the Fourways Mall head lease has been reduced from around 22 000m2 to 15 000m2 and that post year-end its overall portfolio vacancy had reduced to 14%.
Reits that have urban mega malls in the country – such as Liberty Two Degrees, Hyprop and Attacq – have been particularly badly affected by property devaluations. However, these groups have comparatively lower vacancies in major shopping centres such as Sandton City, Canal Walk and Mall of Africa.
Despite the sale of properties during FY2021, Accelerate’s loan-to-value (LTV) or gearing level deteriorated.
“Fair-value adjustments include the R660 million write-down in investment properties as a result of Covid-19 impacts, as well as a positive mark-to-market revaluation on swaps of R63 million,” the group revealed in a results media statement.
“This increased LTV from 46% to 48.5% in the year under review is due to additional valuation write downs counteracting the effects of property sales, whilst the interest cover ratio remained stable at 2 times,” it added.
Accelerate pointed out that revenue for the reporting year reduced from R1.09 billion to R742.7 million, mainly due to Covid-19 rental relief assistance and a negative straight-lining rental adjustment of R 78 million.
“The financial year ended 31 March 2021 has no doubt been one of the most challenging in Accelerate’s history as a listed company,” Georgiou said in a media statement.
“Notwithstanding the structural shifts within the sector and Covid-related headwinds, we have used this time to stabilise the fund and are busy positioning it for growth as the economy starts to recover … Considering the third wave we are currently operating under, this recovery will largely depend on effective vaccine rollouts,” he added.
The group however noted that it expects “another difficult 12 months” considering the third Covid wave, slow vaccine rollout and continued consumer pressure.
“For us to achieve our goals, we have to execute in two areas, namely the selling of non-core assets and secondly, the unlocking of additional income and value on existing assets,” Accelerate’s chief operating officer Andrew Costa said.
“In 2018, we embarked on our balance sheet strengthening exercise in anticipation of payments we would have to make for the equalisation of ownership at the redeveloped Fourways Mall. Since then, we have successfully disposed of R1.3 billion worth of assets,” he pointed out.
“In 2020 we completed disposals worth R188 million with approximately R200 million in disposals currently awaiting transfer, whilst R759 million of non-core assets remain in our disposal pipeline.”