Making Sense of REITs

Making Sense of REITs

South African Real Estate Investment Trust (REIT) is a listed property investment vehicle that is similar to internationally recognized REIT structures from around the world. Listed Company REITs or Trust REITS are publicly traded on the JSE.

Monthly we publish REIT company financial results, their property strategies and highlights of their future plans. It gives the investor an insight to evaluate these companies for possible REIT investment opportunities, property education as well as sharing valuable information on how these companies have invested and progressed.

INDLUPLACE PROPERTIES

Delivers revenue growth through portfolio diversification

PIC Carel de Wit, CEO

Indluplace Properties Limited(“Indluplace”), a JSE-listed REIT with a portfolio that provides affordable rental housing, today released its financial results for the year ended 30 September 2018. Indluplace reported a dividend of 49.19 cents per share for the six months ended September, bringing the total dividend for the year to 97.75 cents per share, in line with the prior year.

Indluplace Propertiesis the only REIT listed on the main board of the JSE that focuses exclusively on rental residential property. Since its listing it has increased the value of its properties to R4.3 billion and currently owns 176 residential properties consisting of 9 788 residential units and about 18 163m2 retail space, spread mainly across Gauteng.

Indluplaceis growing a diverse portfolio by focusing on acquiring yield enhancing properties and portfolios that provide income from date of acquisition.This will be achieved by investing in rental housing, where a proven demand exists, generally in larger urban centres close to work opportunities and transport infrastructure.

Indluplaceoffers an exit for developers or owners of residential stock or portfolios and utilises specialist outsourced property managers for the appropriate portfolios.

During the reporting period, Indluplacebedded down its R4.3 billion (2017: R2.9 billion) expanded property investment portfolio following the acquisition of a R1.4 billion portfolio from the Buffet Group. As a result of the transaction, the portfolio now comprises 9 788 units across 176 properties that are spread across provinces and unit categories, making Indluplacea well-diversified and defensive property portfolio.

Highlights
– Full year dividend of 97.75 cents per share in line with prior year
– Portfolio expanded to R4.3 billion
– Focus on portfolio optimisation opportunities to ensure medium-term growth
– Strong balance sheet with LTV of 30%

Commenting on the year’s results, CEO Carel de Wit, said: Notwithstanding a strenuous macroeconomic environment, we have benefited from the acquisitions of the Diluculo and Buffet portfolios in terms of revenue generation. Our expanded portfolio provides diversity in terms of location as well as mix of unit sizes and unit types that cater for the residential rental segment, which is expected to continue growing in the long term.”

Since listing in 2015, Indluplace has grown its portfolio by an impressive 265% and has secured a significant presence in the affordable end of the residential rental market. The transformative acquisitions included in this year’s results resulted in a higher loan-to-value ratio of 30.1% (2017: 6.8%) through R1.5 billion in facilities secured from ABSA, Investec and Standard Bank.
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STOR-AGE
Outperforms sector to continue growth

PIC CEO, Gavin Lucas

Stor-Age is South Africa’s only specialist self storage REIT on the JSE. The fast-growing self storage sector is a niche sub-sector of the broader commercial property market. Stor-Age’s portfolio is differentiated by its properties’ high visibility to passing traffic, easy access off busy arterial routes and proximity to middle to upper income suburbs.

Stor-Age made a strategic entry into the UK self storage market in November 2017 and now owns the 6th largest UK self storage brand – Storage King.

The portfolio across South Africa and the United Kingdom comprises 73 properties (63 trading and 10 new developments), covering a GLA of c.414 000 m². The portfolio is concentrated in the four major South African cities – Johannesburg, Cape Town, Pretoria and Durban (49 properties), with the United Kingdom portfolio having a bias towards the East and South-East of England (14 properties).

In addition to the 63 properties trading under the Stor-Age and Storage King brands, a further 12 properties trade under licence of the Storage King brand in the UK, bringing the total number of properties trading under the Storage King brand to 26. Stor-Age earns licensing fees on these properties.

Highlights 

  • Dividend up 9.1% to 51.30 cps
  • SA rental income and net property operating income up 17.4% and 14.2%, including like-for-like growth of 9.4% and 9.8% respectively
  • Strong operating performance in UK business
  • Acquisition of All-Store and completion of new Bryanston property
  • Development of Craighall (Johannesburg) underway
  • Acquisition of Managed Portfolio (12 properties) completed post period – investment property valued at R5.3 billion

CEO Gavin Lucas says Stor-Age’s growth trajectory is attributable to persistent focus on outperformance in its key focus areas, including revenue management, developments and acquisitions. In this light portfolio occupancy closed 72 400m² up on September 2017 and total property revenue almost doubled to R225.8 million.

The acquisition of the All-Store property, located in Cape Town’s northern suburbs, was completed in April for R52 million and added 5 500m² GLA to Stor-Age’s local portfolio.

Looking ahead he remains cautious but positive. “We do not expect the SA economy to show significant signs of improvement in the short-term. However, we believe Stor-Age will continue to demonstrate its resilience through the downcycle.”

SAFARI

Niche portfolio underserved locations outperforms contacting sector

PIC, CEO Deon Engelbrecht, Safari

JSE-listed REIT Safari Investments RSA Limited today posted strong results for the interim period ending 30 September 2018.  The Company differentiates itself from other listed REITS by investing in quality income-generating properties located in regional underdeveloped peri-urban locations close to transport hubs that attract consumers and retailers to their centres.

Distributable income increased 36% to R88 million for the period and property revenue was up 7% to R126 million.

Prudent steps towards sustainability impacts distribution

  • Property revenue increased 7% to R126 million in line with rental escalations
  • Distributable income up 36% to R88 million
  • Loan to value of 17%
  • 88% of GLA to national tenants
  • Low vacancy of 2%
  • Strong acquisition and development pipeline
  • Dividend impacted by prudent steps to avoid distribution from capital reserves

Newly appointed CEO, Dirk Engelbrecht, commented:

“Our focus on regional, underdeveloped locations has proven defensive, underpinned by strong demand for our centres as reflected in the low vacancy rate of 2%, and comparatively high trading densities across the portfolio.” 

Taking the current economic climate in South Africa and Namibia into account, Engelbrecht said that “the board decided to no longer distribute from capital reserve, in order to ensure the long term sustainability of Safari and faster growth of distributable income per share”.

Management has forecast an increase on dividend per share of between 8-10% for the period ending 30 September 2019.  This forecast is based on current long-term lease agreement escalations and the current number of shares in issue.

The Group earlier announced the acquisition of Thornhill Shopping Centre in Polokwane, with effective control gained from 1 October 2018. Construction of Nkomo Village Shopping Centre is on schedule and commenced trading on 22 November 2018. The centre is anchored by Pick n Pay and Boxer Superstore with national tenants such as Mc Donalds, Builders Warehouse, Food Lovers Market, The Gym Company and Roots Butchery being introduced to the Atteridgeville community for the first time.

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NEPI ROCKCASTLE

NEPI Rockcastle announces opening of prime shopping centre in Serbia

PIC Alex Morar, Rockcastle

NEPI Rockcastle is the largest listed real-estate company focused on Central and Eastern Europe (“CEE”). The group owns and manages a portfolio of dominant retail properties in the following high-growth CEE countries: Romania, Poland, Slovakia, Hungary, Bulgaria, Croatia, Czech Republic, Serbia and Lithuania. NEPI Rockcastle has a highly-skilled in-house management team which combines asset management, investment, development, leasing and financial expertise.

NEPI Rockcastle is investment-grade rated by Moody’s, Standard & Poor’s and Fitch. Its shares are listed on the Johannesburg Stock Exchange (“JSE”) and Euronext Amsterdam (“Euronext”). The company distributes at least 90% of its recurring earnings on a semi-annual basis.

NEPI Rockcastle announces the official opening of its 59th property, Novi Sad Promenada in Serbia’s second largest city, Novi Sad. Novi Sad is a thriving city of approximately 320,000 inhabitants.

Key facts

  • Gross leasable area (GLA): 49,000m2
  • Gross building area (GBA):  158,000 m2
  • Tenants include: Armani Exchange, Cineplexx, Adidas, Calvin Klein, Converse, Diesel, Guess, Lacoste, Levi’s, Nike, Replay, Sport Vision, Superdry, Timberland, Under Armour, Univerexport, LC Waikiki, LPP (Cropp, House, Mohito, Reserved, Sinsay), New Yorker and Inditex (Zara, Massimo Dutti, Bershka, Oysho, Pull&Bear, Stradivarius and Zara Home).

Commenting on the new development, NEPI Rockcastle’s chief executive officer, Alex Morar, said,“NEPI Rockcastle continues to execute its development and acquisition pipeline, maintaining a key focus on understanding and responding to retailer and consumer demand. The positive outlook for consumer growth in the region for the next 10 years makes us look forward to our upcoming projects. I am proud to say that Promenada Novi Sad is the best product we have built so far, from a design and letting point of view, and I am sure we will improve even more in the future.”

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ACCELERATE PROPERTY FUND

PIC Michael Georgiou, Chief Executive

Accelerate Property Fund today reported interim financial results for the six months ended 30 September 2018 in line with company guidance.

Accelerate Property Fund listed on the main board of the JSE in 2013. Accelerate is a real estate investment trust (REIT) offering investors the opportunity to share in a portfolio of well-established, high-quality properties across South Africa and Central and Eastern Europe.

Accelerate’s portfolio is independently valued at R12.6 billion with a gross lettable area of 621 120 m2. The Fund is strategically focused on the Fourways Precinct, Charles Crescent in Kramerville, Sandton, as well as Foreshore in Cape Town, where it enjoys nodal dominance.

The vacancy rate is 7.8% with a weighted average lease term of 5.4 years across the portfolio. 64.8% of revenue is derived from large national tenants split across retail (67.1%), commercial offices (27.8%) and industrial assets (5.1%).

Highlights

Focus on vacancy reductions, balance sheet optimization, quality portfolio

  • Fourways super regional mall to open on 25 April 2019
  • Fourways area growing at over 3% with super regional mall to dominate northern Johannesburg retail market
  • Unique and large format fashion and entertainment brands introduced including internationally renowned Kidzania
  • 7bn balance sheet optimisation and value extraction initiatives well underway to reduce LTV to below 34%
  • Net asset growth of 8.2% year on year
  • 92% tenant retention despite recessionary environment
  • 96% hedged against increasing interest rates
  • Offshore blue-chip single tenant portfolio predominantly in Austria performing above expectations
  • Distribution per share of 27,26021 cents (2017: 28,77713 cents) in line with guidance

Michael Georgiou, Chief Executive commented: “These results are in line with what we guided the market on in September this year. What it doesn’t reflect is the hard work we’ve been putting in over the past six months.Apart from the imminent completion of Fourways Mall, we’ve been focusing very hard on managing the property fundamentals within the portfolio. Letting activity is improving with several new tenants expected to drive vacancies down further” 

Fourways Mall boasts Africa’s first KidZania, the internationally renowned children’s educational city, empowering children through play with informative career choices and creating over 500 jobs during development and ongoing operations.

De-gearing projects totaling in excess of R1.7 billion are well underway. The proceeds of these sales will be used to pay down debt, buy back shares and for reinvestment into the core portfolio. Management successfully refinanced maturing debt and is currently 96% hedged against increasing interest rates. The Fund’s total all-in cost of debt is approximately 8.3% with an extremely defensive weighted average lease expiry of 5.4 years.

“In these trying economic times, we continue to focus on cost management and value extraction from alternative but sustainable revenue streams,” said Georgiou.

These include renewable energy revenue, non-GLA revenue as well as income from advertising and development returns. To this end, Accelerate has partnered on the development of 500 complimentary residential units adjacent to The Buzz and Waterford shopping centres on Witkoppen Drive in Fourways. Total profits from this project, which is expected to break ground in 2019, is anticipated to be in excess of R100 million.

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