(Photo: iStock) In the property game, negative reversions are painful. Very painful, in fact. A negative reversion is experienced when a new lease is signed at a rate that is lower than the lease it replaces. In other words, income for that property has gone backwards at a time when inflation is roaring.
This is a function of the oldest economic rule of the lot — supply and demand. During the pandemic and in its aftermath, tenants have held negotiating power over landlords. In the lead-up to the pandemic, it was firmly the other way around, so nobody can blame the tenants for enjoying their time in the sun.
The recovery in property is strongly dependent on the type of property in general. Office portfolios are still suffering, as in Emira where negative reversions for the four months to October were -12.6%. In good news, that fund’s office vacancies improved by 150 basis points to 13.5%. Attacq may call them “collaboration hubs” rather than offices, but the vacancy trend between June and October has been the same, improving from 17.6% to 16.9%.
Looking broadly, there are reasons to feel some Christmas cheer if you’re an investor in real estate investment trusts (REITs). Emira’s group vacancies improved from 5.3% to 5.0% and negative reversions of -7.7% were significantly better than -15.2% in the year ended June. Resilient is managing to achieve positive reversions in the year ending December, a particularly good result. Vukile has also achieved positive reversions, not just in the South African portfolio, but in Spain as well for the six months to September. Fairvest’s vacancies have improved to 5.9%, as confirmed in a set of numbers that now includes the Arrowhead business after that merger.
Footfall generally hasn’t recovered to 2019 levels, but retail spend is higher, thanks to inflation and increased basket sizes for shoppers. With Black Friday behind us and Christmas still to come, consumers may defy the odds this year and inject some happiness into a sector that was battered by the pandemic.
Trouble at Sasol
Sasol shareholders had an unhappy day on Thursday after the company released a trading statement that was light on financial details and heavy on reasons to be worried.
To trigger the release of a trading statement, earnings must differ by at least 20% from the comparable period. When you see a company issue a trading statement with guidance of at least a 20% move, you need to be careful. It can happen that the company is playing it coy, with detailed results coming down the line that will disclose a much larger move.
In the case of Sasol, uncertainty reigns. Although headline earnings per share (Heps) for the six months ending December are expected to be at least 20% higher (a move firmly in the right direction), the announcement also highlights potential adjustments and valuations of balance sheet items that could impact this significantly.
In other words, shareholders are largely in the dark about the earnings range.
The share price dropped by 4.5% on the day of the announcement and that wasn’t just a reaction to uncertainty in earnings. It was probably a nod to the operational update in the Secunda coal value chain, where the combination of rolling blackouts and rainfall is causing major issues in the coal business and downstream issues in the chemicals value chain. Combined with problems at Transnet, this led to the declaration of a force majeure on the local supply of ammonia in November.
With only a 7.5% year-to-date gain and a drop from the peak in June of more than R438 to the current levels of R285, it’s been a roller coaster ride this year for Sasol shareholders. This is another reminder that cyclical companies are not buy-and-hold investments.
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News from small tech
There are two small technology companies on the JSE that are well on their way to being less small.
At Capital Appreciation Group, the market hated the news of the GovChat impairment and then gave the share price a prompt recovery as soon as full results were released. The core business grew revenue by 22.5% and the company invested heavily in employees in preparation for growth, which means Ebitda was flat and the Ebitda margin contracted by 600 basis points to 25.6%.
Ebitda pressure aside, the company announced interim dividend growth of 13.3% and a 20.1% increase in cash available for investment, which puts it in a solid position in this environment. Investors will keep an eye on the sale of terminals, the largest contributor to revenue and a business that has cooled off after a red-hot 2021.
At PBT Group, organic revenue growth was 14.5% and Ebitda headed in the right direction (albeit modestly) with a 3.2% increase. The international segment is under significant margin pressure and the group paid high incentives in this period based on last year’s profitability. Good progress has been made in selling non-core assets.
Gaming, tourism and coal: the right mix in 2022
In a brief note on Hosken Consolidated Investments (HCI), it’s not every day that a diversified group posts growth in Heps of well over 300%. With exposure to hotels, gaming and coal mining as the three largest segments, HCI has been in the right place at the right time this year. The interim dividend is back, with 50 cents per share declared to shareholders. DM/BM