RDC Properties (Botswana) – 2021 Integrated Annual Report

By Published On: May 3rd, 2022Categories: Corporate announcement, Earnings

RDC Properties Limited (RDCP.bw) 2021 Annual Report

Capitalgro Chairman’s Statement

The Company has distributed R26.2 million to shareholders for the period under review, which is marginally (2.3%) up on the prior year’s distribution of R25.6 million. The distribution is equal to a nominal annual revenue return of 8.3% on shareholder loans. Included in the distribution calculation is a prudent R1.5 million adjustment for rentals billed but uncollected as at year – end.

The portfolio has continued to be hampered by vacancies, notwithstanding 25 new leases and an additional 13 renewals having been concluded during 2021. Our vacancy factor of 13.9% of Gross Lettable Area, inclusive of the committed space at Westlake, is a key metric in the portfolio’s underperformance.

Context is important – the South African office vacancy rate reached an all time high in Q4 2021 of 16% (SAPOA), which represents available space of 3 000 000m2. Whilst ratios tell a story, the reality is that the construction boom of 2007-2017 has contributed significantly to the glut of available office space. This will correct over time – the development activity is very substantially the lowest it has been since 1995, with some 68 000m2 under construction (compared to the heady heights of 3 500 000m2 in 2015), almost all of which is taking place in Johannesburg. The Cape Town Metro vacancy ratio of 13.6%, whilst below the national average, nevertheless highlights the competitive nature of a tenant driven market.

Of course, in markets such as this it becomes all the more important to contain expenditure, another key metric in determining a property’s net operating income (NOI). Whilst we have a stabilised expenditure ratio, and managers are diligent in ‘counting the pennies’ through efficient service level agreements and orders management, we have exceeded our budgeted expenditure by R2.1 million (7.3%). This is detailed in note 2 relating to the Income Statement and includes R1.5 million recovered remedial work at Voortrekker Road and Caxton Street. The offsets to this overrun include lower than budgeted electricity and property management costs.
There has been some saving in finance costs due to the rollover of the R190 million ABSA facility secured by Westlake, The Regent and Equinox, at existing terms.
This facility fell due in August 2021, but has been extended until 10 April 2022 to allow ABSA to consider our application to extend the facility by some R40 million to finance the Westlake redevelopment. All in all, after adjustments, the distribution’s materially lower than budgeted and is not a satisfactory outcome.It would be easy to blame circumstances, but the reality is we need to work harder to boost revenues and contain expenditure in 2022 and beyond.

Due to the fact that we externally valued the entire portfolio in December 2020, we elected not to incur the cost of doing so again, and have presented director valuations to the auditors for December 2021, which have been interrogated and accepted by them. Company policy and best practice call for the whole portfolio to be independently valued every three years, so we are well within these provisions. The portfolio has on the whole held its value with a small uplift from R964.5 million to R982.4 million. After accounting for the fair value gain, the revised net asset value per share is R6.81.

The main business for the forthcoming year, apart from efficient management, is completion of the Westlake Convenience Centre development and the purchase of 108 Albert Road, as previously reported. The Westlake project has been delayed by six months due to an unforeseen technicality on the zoning of the property which, after some negotiation with the City, has forced us to submit a rezoning application in order to accommodate a supermarket. We have accounted for this in the 2022 budget, and Checkers and Clicks remain committed to a 1 July 2022 opening. Increasing line-shop interest will ensure that this revitalised property will add considerable value to the CapitalGro portfolio.

The letting and completion of 108 Albert Road continues, with the property now making a striking statement in the precinct and receiving considerable interest. Once complete and fully let, the sale to CapitalGro will be triggered, and we will communicate separately with shareholders with full details of the investment and funding thereof.

Gary Fisher