Tenant mix hedges against cycles like pandemics
Retail is naturally diversified
Industrial and retail is a nice value chain
Distributors occupy warehouses and supply its retailers
Letlole La Rona’s (LLR) property assets are heavily weighted towards industrial which the company said has proved to be a resilient asset class over the years. It withstood COVID-19 and recessions and Chanda Masendu-Kusane, the company’s Chief Property Officer (CPO) said they will continue to look for more opportunities in that sector.
Letlole has been invested in the industrial sector since its formation and it is safe to say the group is most knowledgeable about this asset class. “One thing about owning a property is that eventually, you get to know who the tenants are, where the tenants’ base comes from,” Masendu-Kusane said during the group’s results presentation for the year ended 30 June 2023. She is quite confident about this particular sector given the announcements by the government of Botswana pertaining to the manufacturing industry. “So we believe there is potential for this sector in the future and there is intent at a macro level, this asset class is continuing to perform.”
Another key asset class is retail currently the second largest asset class which the company has been increasing. This sector was due to increase due to impeding the transaction the company embarked on. Post the reporting period, LLR concluded the acquisition of the additional 25% shareholding in JTTM which owns Rail Park Mall domiciled at the Gaborone Bus Rank. LLR now holds a majority stake of 57.79% in JTTM and has taken management control of its mall.
LLR CEO Kamogelo Mowaneng said during the presentation of the results for the year ended 30 June 2023 that retail remains a resilient asset class. “Despite that malls were closed during the lockdown, there were some shops open; supermarkets,” she said adding that even at its Watershed Mall in Mahalapye, the only retail mall the company owns directly, it was still paying rentals.
Mowaneng explained that this was because the majority of the tenants sell necessities. “So even when we do look at retail, we look at the tenant mix.” The nice thing she observed about retail is that it is naturally diversified because of the tenant mix. “We tend to mix our tenants in such a way that the majority of our tenants are able to trade even when there are these cycles like pandemics,” Mowaneng told her audience adding that “we are quite deliberate in terms of our tenant mix to make sure that we have a strong base”.
It’s a lesson the boss recalls the group learned from COVID to say “You cant onboard everybody”. In a property of 10 tenants, Letlole wants to make sure that at least 8/7 are strong tenants that can withstand economic headwinds. SMEs will come in every now and again. In terms of the customer onboarding process, it is now strengthened to make sure that when “we onboard tenants, they are able to withstand shocks in the economy,” Mowaneng said. “The fact that we are industrial and retail is a nice value chain, distributors occupy our warehouses and they supply our retailers who are our anchor tenants. It is a good value chain when you have ownership across those two asset classes.”
LLR’s vacancies remained low during the reporting period at 3.1% compared to the market average of 5%. After the occupation of one of its properties, the CEO said this dropped to 1.2%. Occupancy as at 22 September 2023 was at about 98.8%.
In terms of ECL during the reporting period, the group’s Chief Finance Officer (CFO) Pulafela Isaacs said the company recorded a recovery of P1.5 million against a charge of P2 million last year. This was driven by a general improvement in economic and trading conditions as well as some key model assumptions as a result of improvements in economic conditions, Pula said adding that “this will be with regard to probabilities of defaults to some of the tenants who were defaulting”.
Collections from 2020 collections were at around 96%. This shows the difference between how much LLR has built versus how much it collects. On average, since 2021 the CEO said they have been collecting more than 100% of how much” we bill every month”. “That is a result of being deliberate about strong tenant base and making sure we have a strong collection team,” Mowaneng said. In 2020, the group created a position to have someone dedicated to collections and the CEO said they “are seeing such high collection rates post-COVID”.
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