ORYX PROPERTIES – Shining Star in a Strained Market

Of all the developing countries in the world, few would have welcomed the coronavirus pandemic like Namibia. Already facing an economic slowdown that is seriously hampering conditions in the country, this new threat is set to further entrench negativity and uncertainty in the sub-Saharan African nation that was for so long an example of relative stability.

Pre-Covid, Namibia was already in a tough place. For a long time the economy had been in turmoil, producing little or no growth. Traditionally strong industries had waned. The last time Namibia recorded three months of growth above 4% was at the start of 2015. The third quarter of 2019 showed a N$372 million GDP decrease on the same period for 2018. Even during the 2008 Global Financial Crisis, Namibia has not performed this badly. With more than 30% of the population unemployed the desperate reality is clear: not only is the country’s national cake not growing, it is in fact shrinking.

Former Finance Minister, now Minister for Agriculture, Water and Land Reform, Calle Schlettwein said in October that consolidation was needed to bring stability to the market an avoid further downgrades and uncertainty.

“Achieving economic growth, which is the necessary condition for the reduction of public debt, revenue generation, the creation of jobs and the reduction of poverty and inequality, is by far the most important objective over the short and the long term,” he said.

RIPPING THE RUG OUT

But even the most pessimistic of onlookers could not have predicted the impact that coronavirus would then have on the global economy, compounding Namibia’s issues and bringing further uncertainty, instability and fear.

“The coronavirus and its economic implications threaten to take out the bottom of our already fragile economy. Investments to improve the productivity of the agricultural sector may offer the best opportunity for survival. Food security and prosperity are the two main objectives,” Schlettwein tweeted at the start of April.

“The negative impact on the economy must be minimised, but has to be accepted as collateral damage,” he had said in an earlier tweet.

Like governments around the world, Namibia’s has stepped up with bold words, claiming it will do whatever it takes to ensure stability of the economy during the pandemic. Hage Geingob, while being sworn in for a second term, said job creation and economic stimulation would form part of a new plan.

“In the midst of challenging economic conditions, exacerbated by Covid-19, we will present an economic recovery plan to mitigate anticipated negative impacts on our economy. The single-minded objective is to stimulate quality economic growth and generate more jobs.

“We will do whatever it takes to safeguard our economic sovereignty and humanity,” he stated.

For companies active in Namibia, what was a challenging time just got even more difficult.

But there is hope. For those businesses that are well prepared, with carefully planned strategies, and efficient operations, tricky times can indeed become times laden with opportunity.

STRONG & STABLE

Oryx Property, the Windhoek-based NSX-listed property loan stock company, has emerged from the economic sloth of the past five years in a stronger position than most to battle in the future.

Established in 2001, the company listed in 2002 and has, over the years acquired a significant portfolio. Today, it owns 25 properties in premium-quality retail, industrial and office real estate. Its mission, ‘to acquire premium quality retail, industrial and office real estate, as well as investments in listed property to generate growing income streams’, has largely been achieved year-on-year. The company boasts Windhoek landmarks including the Maerua Mall and the Gustav Voigts Centre as part of its portfolio.

Expansion into South Africa, and more recently into the European market, have proven the ambitions of this very-Namibian business. And now is the time for ambition. Leveraging all of its experience and knowledge, the company is busy rolling out a strategy to protect assets and maximise revenue in a strained economy. It will be hard in Namibia, but Oryx is positioned to undertake successfully.

For the year ending June 2019, the company posted decent results with CEO Ben Jooste saying that further diversification was necessary to avoid the impact of the slow local market.

“2019 was a continuation of the challenging year experienced in 2018 as most businesses had to tighten their belts and diversify or reinvent themselves to survive the current recession,” he said. “Oryx is heavily exposed to the Namibian economy and was not immune from these challenges. This resulted in an intense focus to strengthen and diversify our balance sheet from being overly exposed to the local economy. Continued negative economic growth is forecasted as the Bank of Namibia (BoN) revised GDP growth forecasts downwards from 1.5% to (1.7%) for 2019. This is due to lack of growth in the primary industries (agriculture, mining and construction) and tertiary industries, which include wholesale and retail trade. Namibia’s long-term economic outlook was downgraded by Fitch Ratings to negative, reflecting Namibia’s weak growth performance and prospects. This has adverse implications on government’s ability to stabilise the public debt trajectory.”

INTERNATIONALISING

Against this backdrop, Oryx looked to externalise investments while drastically reducing its vacancy rate at home in Namibia. In July 2018, the company concluded a transaction which would see it enter the European market. Focussing on Croatia, the Tower Property Fund, which Oryx has invested 26%, gives the company exposure to property worth N$300 million. Since the transaction was concluded, Croatia has been on a better course than that of Namibia. Recording 18 consecutive quarters of GDP growth, including 2.4% in the final quarter of 2018, Croatia is a buoyant and growing European hub.

“All credit rating agencies upgraded Croatia’s outlook to positive based on a budget surplus and steady economic growth. The total value of commercial real estate transactions reached €800 million in 2018. Similar levels are expected in 2019 as demand continues to outstrip supply,” Jooste said. “We invested N$300 million in Euro (€) equivalent by acquiring a 26% share in Tower International Limited. The underlying real estate portfolio was worth €93 million on acquisition. It consists of four retail centres (three in Zagreb and one in Dubrovnik), and an office tower in Zagreb. The portfolio was revalued at €100 million in May 2019. Of the N$300 million investment, N$100 million was earmarked to acquire Yazaki, an industrial facility for a Japanese automotive manufacturer comprising two buildings, which was partially concluded during the financial year.”

In Namibia, work continued to ensure the company’s portfolio remained industry leading.

“Oryx continued its defensive strategy to invest in the Group’s assets and add value through renovations to keep assets relevant and improve their offering to consumers’,” detailed Jooste. “The GVC renovations were finalised at a cost of N$94 million. This project forms part of our commitment to regenerate assets within Windhoek’s central business district (CBD) and improve the offering to cater for shopper’s and business evolving needs. Oryx started development on its latest project, Urban Village at Elisenhein. This new convenience lifestyle offering will serve about 1400 residents in the area. The project is a three-phase, mixed-use development. The first phase is a N$100 million project which includes the land cost of the entire three-phase development and is due to be completed in the 2020 financial year. This is the third investment project that Oryx undertakes in a recessionary environment. We further acquired Steeledale in Windhoek in December 2018 through a vendor placement and consideration. The asset’s location and makeup provide an excellent opportunity to create long-term value.”

In South Africa, where the economy has also been underperforming, Oryx disposed of what it classed as risky assets. It continues to view South Africa as a long-term opportunity but is cautious about ‘high-yielding, high-risk’ assets.

“Oryx continued disposing of high-yielding, high-risk assets in South Africa. The Isando Industrial Warehouse was the last property sold in June 2019. This property was vacant for almost two years, following the liquidation of the tenant and accounted for 53% of the vacancy rate across the entire portfolio. Smaller, non-core assets have also been identified to be disposed of,” explained Jooste.

Demonstrating the strength of the company and its resilience in tough times, Jooste gave details of a reduced vacancy rate, alongside a large cost reduction. Clearly, Oryx is nimble enough to move with the times but large enough to weather storms.

“Our activities and solid operating performance helped create a sustainable platform for growth this year. Although rental income was under pressure during our GVC renovation project, overall rental income improved by 7.8% year on year,” stated Jooste. “We reduced vacancies to 3.2% (2018: 6.5%) since the first quarter for three consecutive quarters in this financial year. This is significantly below the industry average and an excellent achievement given the current economic climate where vacancy rates are trending upwards. This achievement testifies to the Group’s focused approach to reduce vacancies. We successfully reduced expenses in a sustainable, long-term manner. This included reducing some large recurring expenses by up to 20%, including security, cleaning and information technology (IT) costs.”

As market conditions inevitably worsen, this will be a historic point in the history of Oryx – a business that has achieved so much in a relatively short space of time.

While the company remains well-positioned, even the strongest will be threatened in the months to come as economic slowdowns resonate throughout all industry sectors. By diversifying its N$2.326 billion portfolio, and streamlining its cost base in 2019, Oryx, like its namesake, should be able to survive and thrive, remaining strong while waiting for positivity to return to the market.