Concerns that cash-strapped Accelerate Property Fund, co-owner of the country’s biggest shopping centre, is going belly-up, have been dispelled by management.
That comes after the real estate investment trust (Reit) released its annual financial statements three weeks late. The holdup prompted the JSE to issue a suspension warning and raised speculation that Accelerate may be in serious trouble.
However, joint CEO Abri Schneider tells the FM that reporting delays weren’t caused by anything untoward. He says the company switched auditors — from EY to PwC — and underwent several management changes last year, including the appointment of new financial director Marelise de Lange.
So it simply took longer than expected to finalise statements. Cash flows for the previous financial year to March 2023 were also restated to allow for improved disclosure, he says.
Schneider dismisses speculation that Accelerate could go the same route as the now-defunct Rebosis, which delisted and went into business rescue 18 months ago after unsuccessful attempts to recapitalise the debt-laden Reit.
He says Accelerate has passed the auditors’ liquidity and solvency tests. More importantly, debt facilities have been renewed with most of its funders.
Rand Merchant Bank, for one, extended R1.1bn of Accelerate’s loan facilities to March 31 2025 and a further R230m to May 31 2025, while Sanlam extended R302m to August 30 2024.
Schneider says: “Our bankers wouldn’t have extended loans if they were worried that Accelerate would go to the wall. Their support is a vote of confidence in the future of the business.”
Still, Accelerate reported a loss of R624.7m (R594.2m in 2023) for the 12 months to March and suspended dividends for the second consecutive year.
The Reit’s disappointing performance is due mainly to higher debt funding costs (up 42.2%) and further property devaluations. Vacancies are also up, from 18.3% to 21.1%.
The upshot is that the loan-to-value (LTV) ratio increased from 47.2% to 49.7%. That’s only marginally below the 50% lending restrictions.
In addition, the group’s interest cover ratio remained at an uncomfortable 1.7, in line with the covenants set by its bankers. The latter determines whether a company has enough cash flow to repay its debt funding costs.
However, Schneider is confident that the LTV will be reduced to below 45% by March next year on the back of an aggressive disposal programme.
Management has already made good headway in this regard. In the year to March, R202m of debt was repaid from proceeds of the sale of two properties: Leaping Frog Shopping Centre and the Ford showroom, both in Joburg’s Fourways.
Another seven properties have been transferred and sold for a combined R739m after the March year-end. Last month, Accelerate also concluded a R200m rights offer, fully underwritten by major shareholder iGroup, which will be used to pay down debt.
A further 14 properties valued at just under R1bn have been earmarked for sale. The latter excludes the crown jewels such as Fourways Mall, Cedar Square shopping centre and Portside, one of the tallest office blocks in Cape Town.
Schneider says given that the company is still in the middle of a restructuring process, the benefits — including the resumption of dividend payouts — will likely flow to the bottom line only in the 2026 financial year.
But property valuation writedowns have already reduced, from R744.6m in the prior financial year to R396m, which Schneider says is encouraging as it points to stability in the company’s asset base.
Investors will keep a close eye on the extent that the struggling Fourways Mall, of which the company owns 50%, is able to turn the corner
Meanwhile, investors will keep a close eye on the extent that the struggling Fourways Mall, of which the company owns 50%, is able to turn the corner.
The R7.89bn shopping centre on the northern outskirts of Sandton is Accelerate’s largest single asset. Its vacancy sits at a hefty 19%.
The unfortunate timing of the mall’s extensive redevelopment is a key reason for the Reit’s financial woes. The project, which saw Fourways Mall nearly triple in size from 64,000m² to 177,000m² to become South Africa’s largest shopping centre, was completed only in September 2019, shortly before the pandemic hit.
Trade at the mall, which was already affected during the four-year construction period, has taken longer to bounce back than other regional and super-regional shopping centres. The general market view is that the mall is too big and has been poorly designed with a confusing layout.
However, Schneider expects a “big dent” to be made in the tally of empty shops at Fourways Mall within the next six months given the lease negotiations under way with potential new tenants.
That comes after Accelerate earlier this year appointed highly regarded retail developers Flanagan & Gerard, together with the Moolman Group, as the new asset and property managers of the mall.
About R400m has been earmarked on initiatives to reposition the centre and tweak the tenant mix. Cosmetic changes will include improved internal signage for better navigation, better lighting in parking areas, security upgrades, external landscaping and deployment of backup power solutions.
The question for investors is whether Accelerate is poised for a strong recovery or if there is more pain to come. Despite a 20% uptick last month, the share is still trading at four-year lows and a colossal 85% discount to NAV. That compares with an average 35% discount for South Africa-focused Reits.
Ninety One portfolio manager Luqman Hamid says: “Things aren’t great at Accelerate, but it’s not all fall down.” He refers to LTV levels still being far off the 60%-70% at some of its distressed peers.
Hamid says though poor management detracted from Accelerate’s investment case in the past, the appointment of Flanagan & Gerard at Fourways Mall is a step in the right direction.
Concerns about corporate governance issues and related-party transactions have also been addressed. The latter revolved mostly around ex-CEO Michael Georgiou, who owned Accelerate’s previous property management company.
Georgiou, who still has a 29% stake in Accelerate, stepped down from the board in late 2022.
Prospects of an improved operational performance, further disposals and interest rate cuts will keep the company from falling into distress, says Hamid.
However, he doesn’t view Accelerate as a short-term recovery play. “The eventual unlock of value through NAV or earnings growth is more of a medium-term ambition.”
Independent property analyst Keillen Ndlovu agrees that Accelerate looks unlikely to go under, given the concerted effort to help save the company by supportive banks and existing shareholders.
The “new brooms” in Accelerate’s executive management team as well as at Fourways Mall, coupled to improved financial disclosure, are other positives, he says.
Still, fund managers are likely to adopt a wait-and-see approach until the disposal programme and debt restructuring are complete, Fourways Mall is fixed and vacancies fill up.
Ndlovu says: “Institutional investors will start looking at Accelerate when there are signs of improved cash flows and earnings, and dividend payments resume.”
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