Attacq shifts focus to income generation and capital return | Fin24

Attacq shifts focus to income generation and capital return

Jun 18 2018 13:57
Glenda Williams

Now a fully-fledged real estate investment trust (REIT), Attacq’s focus has shifted away from concentration on capital growth, to both distribution and capital growth. 

More predictability in earnings will bring the prospect of enhanced share liquidity and share price rerating.

The property company, responsible for the development of the mammoth 340ha Waterfall precinct, located about halfway between Johannesburg and Pretoria, listed on the JSE in 2013 with assets of R13.35bn. 

After a year-long conversion process, Attacq got the JSE nod for REIT status on 29 May.

One of the conversion challenges Attacq faced was fulfilling the 75% rental income requirement, since its focus used to be on capital growth rather than income generation.

REITs distribute rental income as dividends to shareholders. 

The substantial dividend income derived from its 22.7% holding in MAS Real Estate put Attacq, with its now R28.2bn gross assets, over the line. 

“In converting from a developer to a REIT, the market will now not only pay attention to NAV growth, but also the achievability of the guided dividend growth,” says Stanlib analyst and portfolio manager Lawrence Koikoi. 

The now income-focused REIT is targeting a maiden dividend of 73c/share payable in October and dividend growth of 20% per annum for the next three years. 

For the six months to end December 2017, net asset value (NAV) per share grew 10.12%, rental income rose by 6.91% and gearing improved from 41.4% to 36.2%.

High gearing used to work for the former capital growth company, but as a REIT it no longer does. 

Therefore, it would need to exit assets that do not produce cash, including some of its assets in the rest of Africa.

Attacq’s gearing is within REIT industry norms. But the company’s interest cover ratio deserves attention.

It improved from 1.1 at June 2017 to the current 1.6 as a result of Attacq’s sale of its assets in Cyprus and Serbia. 

But industry standard is around 2.5.

“Our focus is on improving our interest cover ratio. That means reducing gearing. We will continue to recycle assets, exiting those that reach maturity, taking the equity in that and reducing debt,” says Melt Hamman, interim CEO of Attacq.

Central and Eastern Europe-focused MAS remains a key value driver for Attacq, accounting for 10.5% of its asset base, but the need to reduce debt means cash won’t be going into increasing its MAS shareholding or offshore exposure anytime soon.

“The company strategy has been streamlined to a focused approach by reducing exposure to all the direct offshore investments, except for MAS Real Estate,” says Koikoi. 

But challenges of a relatively high loan-to-value (LTV) and exit strategy for investments in the rest of Africa remain, he adds.

Hamman says Attacq will concentrate on improving its close to 60% LTV ratio to somewhere nearer 40%. 

Investment in Africa outside SA comprises 4% of gross assets. Mall of Namibia was however sold after the December reporting period. 

Remaining investment comes via Attacq’s holding in AttAfrica in Ghana and Zambia and a 25% share of Ikeja City Mall in Lagos, Nigeria. 

Attacq’s South African portfolio, which comprises 73.2% of the asset base, includes a mix of retail (52.8% by value), office and mixed-use, industrial and hotel properties. 

Its local portfolio “is one of the most defensively positioned in SA through long leases [6.7 years] and low vacancies [down to 3.2% post December 2017]”, says Koikoi. 

“Waterfall precinct continues to attract good-quality tenants in an environment where tenant demand is weak in general and the Mall of Africa as anchor asset seems to be settling well post-opening, with 11% turnover growth versus December 2016.” 

The Waterfall precinct, where around 1m square metres of developable bulk remains, is where focus will remain, says Hamman.

Attacq has already developed 24 buildings in Waterfall, including the iconic Mall of Africa, 25-storey PwC office tower and soon-to-be-expanding City Lodge Hotel. 

Multiple developments, including the Deloitte head office, mixed-use buildings and 180-room hotel, are under construction. 

It also has residential developments in planning. 

Stepping into the residential sector is a first for Attacq. It aims to develop 500 residential units in Waterfall by the first quarter of 2020. Its first residential high-rise launches in September. 

The 125 apartments will be retained as rental stock, adding to Attacq’s portfolio of SA income-generating assets. 

This article originally appeared in the 21 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

investment  |  property  |  real estate

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