By Raj Nana, Attacq CFO
Just over two years ago the world was upended by the Covid-19 pandemic, an unprecedented global health crisis. Earlier this year, further geo-political upheaval in Europe through the Russian invasion of Ukraine has either directly or indirectly affected South Africans. The global effects of these shocks cannot be understated and require a heightened level of resilience and agility from businesses, their boards and financial and operational teams alike.
The property sector was significantly affected by the various national lockdowns during the first 18 months of the pandemic. Around 50% of Attacq’s portfolio consists of retail (retail experience hubs) with the balance comprising office (collaboration hubs) and light industrial (logistics hubs).
Our response was simple: keep our clients in business, keep our assets fully occupied and be proactive in managing these risks with our stakeholders. During this period, we assessed each client’s situation on a case-by-case basis and provided R187m in total Covid-related relief. The silver lining was that most of our clients weathered the storm and our relationships with them are stronger than they have ever been. Since then, our retail valuations have stabilised and the most recent turnover performances show a marked improvement, exceeding pre-pandemic performances.
In addition, our other focus during this period was managing the balance sheet – ensuring we had a strong balance sheet together with a healthy liquidity position. Sometimes, this required difficult decision making. We could not predict the length and breadth of the pandemic and therefore acted prudently. We identified assets for disposal and executed on these in a short time frame. During this period, R2.8bn of assets were disposed of, and gearing reduced from 46.6% to 38.0%.
A renewed post-Pandemic focus
Recently, the focus has shifted to income and yields. Much of the lease deal making during the pandemic was short term, with a view of not locking in low pandemic-level rentals, but to rather be able to renegotiate these once the market had ‘normalised’.
This is now bearing fruit. Retail trading densities are up 12.1% with Mall of Africa exceeding 18% year on year and most retailers are seeing improved performances of their own. All our retail experience hubs are more than 96% occupied and our Waterfall Precinct has recently transferred more than 235 residential units in its premium Ellipse sectional title development and Waterfall currently has more than 34,000m² of developments under construction. Consequently, our strategy of owning and managing high quality precinct focused assets has paid off.
Maintaining the momentum
New initiatives that are aligned with our purpose of creating smart, safe and sustainable precincts are gaining momentum and these are sometimes borne from the infrastructure challenges we have in SA. These initiatives have an ‘environmental’ underpin providing either energy or water resilience, or they play their part in reducing the cost thereof, and always have a yield enhancing angle to them. Robust budgeting processes are critical when top line growth is muted and there are no sacred cows, but we appreciate that costs in support of new revenue initiatives are required with long-term decision making taking priority.
Balance sheet management is ongoing – capital allocation is critically important, especially so in our stagflationary (high inflation, low economic growth) environment that we are currently experiencing. Our Waterfall City development pipeline continues to attract high quality multi-national clients and managing these development costs is of paramount importance.
Furthermore, supply chain challenges and high inflation on construction costs have required the team to develop strategies to mitigate these risks. Securing key components of the construction with reputable suppliers and conducting open-book transactions (rentals and selling prices based on actual final capital expenditures) are some of these mitigants. The interest rate hiking cycle is well underway and our policy of hedging at least 70% of our interest-bearing debt will assist in managing the interest rate risk.
In business, much as in life, we will face challenges, but the resilience and agility we’ve developed will stand us in good stead in finding the opportunities that lie therein.