Page 30 - Integrated Annual Report

OPERATIONAL OVERVIEW(CONTINUED)
HCI PROPERTIES DIVISION (“HCIP”) www.hciproperties.co.za Introduction:
HCIP did well in a financial year which fell almost entirely within the National State of Disaster period caused by the COVID-19 pandemic.
The HCIP team alongside our partners managed to exceed the portfolio’s original pandemic adjusted rental collections, serviceability, and profitability forecasts, through active tenant engagement, operational cost reduction initiatives, and prudent capital and cash flow management. Type, geography, and occupier diversification underpinned by some nodal dominance assisted.
Although our focus has been somewhat defensive, HCIP continued with existing developments such as the Dentsu Aegis Cape Town Head Office in Woodstock and concluded the exit of Makro Port Elizabeth and The Kings residential development in Sea Point. We also took the decision to exit our position in the Fulcrum (residential development) with the intention of moving away from residential development risk.
Financial Results:
Rental income declined by only 7%, largely driven by the rental relief provided to our tenants. We exhibited a strong collections rate, securing 91% of contracted rental across the portfolio for the period ending 31 March 2021. Revenue decreased by 48% year-on- year, largely due to Gallagher Estate’s conferencing and exhibition businesses not being able to operate under COVID-19 restrictions.
Our operating costs were well contained and were disproportionately lower than the drop in revenue. This is testament to the efforts of our hands-on management
team. Our pre-tax losses (prior year profit) include fair value write downs of R18 million and a R87 million loss relating to the exit of the Fulcrum. Management also elected to have the entire portfolio revalued by an independent registered valuer which resulted in less than a 1% drop in the portfolio’s gross value.
Finance costs decreased for the year under review due to the renegotiation of existing facilities and the lower interest rate environment. In anticipation of COVID-19 cash flow constraints, the team secured credit lines that in the end, did not need to be utilized. The portfolio rather decreased its gross borrowings by circa R120 million and ended the period cash flow positive. The Headline Earnings decreased by 56%, which is reflective of the combined contraction in our revenue and rental income.
Retail:
The hard lockdown and associated trading restrictions had a major effect on retail rental collections. The ability of tenants to survive was hugely dependent on the type of retail offering, COVID-19 risks associated risks, and the willingness of landlords to afford deferrals or relief where appropriate. HCIP strategically hold convenience, neighborhood and dominant regional malls that have performed particularly well by servicing the essential needs of shoppers. The HCIP retail portfolio has a vacancy level of less than 2%.
Offices:
The COVID-19 Pandemic has brought about a paradigm shift in the commercial office space arena with many businesses deciding to work from home or adopt a hybrid approach. South African landlords have had to be creative and navigate a sector that was already plagued by an oversupply correction pre-2020. There has been increased churn, renewals, and new signings across the balance of
HCI Properties : GLA (by Property Type)
25% 41% 18% 16%
HCI Properties : GLA (by Region)
Industrial Retail Mixed-Use Office
28% Western Cape 45% Gauteng
13% Northern Cape 14% KwaZulu-Natal
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INTEGRATED ANNUAL REPORT 2021
HOSKEN CONSOLIDATED INVESTMENTS LIMITED