Despite the uncertain macroeconomic and political environment, Accelerate’s property portfolio value increased 30% year-on-year to R11.8 billion, resulting in a total portfolio GLA of 637 577 m² at the end of the reporting period. Focused on strategic nodes that are deemed to have good economic fundamentals and superior growth potential, Accelerate reported NAV growth of 21.3% year-on-year.
“We continue to work hard to extract and enhance the value of our local portfolio through active asset management and the redevelopment as well as upgrading of our existing portfolio. Organic growth is currently achieved through the redevelopment of our flagship Fourways Mall, Cedar Isle BMW bulk development of 8 400m², the planned redevelopment in the Cape Town Foreshore and 3 085m² extension at Eden Meander in George,” said Michael Georgiou, Chief Executive Officer of Accelerate Property Fund.
The Company continues to target a LTV of 35% to 40%. Given the recent acquisitions Accelerate sit at an elevated LTV. Numerous steps are being undertaken to reduce leverage. These include ongoing negotiations on a potential BEE transaction (sale) with an approximate size of R1.2 billion, the recycling of certain assets to the value of approximately R1 billion, the sale or joint venture on available bulk as well as the development and sale of residential units at the Cape Town Foreshore.
The Fourways Mall redevelopment remains the Company’s focus and is expected to be completed at the end of the 3rd quarter of 2018. The Mall will proactively differentiate itself through unique children’s entertainment offerings, including a Bounce, comprising 4 700m² that opened during late 2016, as well as a safe and unique interactive ‘city’ built entirely for children, KidZania, comprising 8 000m² which will anchor the family entertainment offering within the mall.
“Fourways Mall is expected to be close to 200 000m² of GLA upon completion, this includes Leroy Merlin adjacent to the Mall, transforming it into a super-regional mall anchoring the Fourways node, attracting top-quality tenants in the retail and office segments. We are very excited about the broader development of the node and expect it to become the most dominant retail market in South Africa,” said Georgiou.
The constant focus on tenant optimisation and retention to protect our income stream bared fruit. Notwithstanding the tough operating conditions and the resultant impact on the consumer, Accelerate achieved positive rental reversions of 3.1% and a tenant retention rate of 90.1% while the weighted average lease expiry remained defensive at 5.3 years. Lease escalations achieved were strong at an average of 7.5% although vacancies increased somewhat from 6.91% at 31 March 2017 to 8.38% as at 30 September 2017. The company’s cost-to-income ratio improved to 15.3% at 30 September 2017 from 16.9% at the 2017 year-end as a result of firm cost management.
“Significant letting progress has been made at Portside Tower, based in Foreshore, Cape Town and Citibank in Sandton. Vacancies at Portside reduced from 74.1% at 30 June 2016 to 21.0% at the end of the reporting period due to the successful letting of smaller boxes and the high demand for P-grade green buildings in the Foreshore node.
“When we acquired the Citibank building in Sandton in February 2017, the property was 22.9% vacant. Through concentrated efforts our leasing team worked hard to decrease these vacancies to 5.9% within seven months, well below the average A-Grade office vacancies in Sandton of 13%, according to the Rode property report,” commented Andrew Costa, Chief Operating Officer.
Accelerate successfully accessed the debt capital markets through the DMTN programme in August 2017. The Company refinanced R525 million of bank debt maturing in December 2017, well in excess of the initial R264 million required. All funds were utilised to refinance maturing debt. The weighted average term of debt subsequently increased to 2.5 years while the weighted average cost of debt for the fund remains at 8.4%. Debt is hedged at a prudent 82.3% with a weighted average swap maturity of 2.1 years.
The underlying fundamentals of Accelerate’s core South African retail portfolio remain solid during challenging economic periods. Strategic spend and investment in our core assets positions the fund favourably for the future.
“As a fund, our focal point is to optimise value within our current focus nodes and we are excited about the local growth opportunities as well as growing our offshore diversification over time.
“It is important to note that no opportunities which form part of our pipeline has been factored into the forecast communicated in June 2017. We are confident that the potential pipeline and active asset management measures in place should result in a recovery of our distribution growth profile from 2019 onwards,” concluded Georgiou.