Futuregrowth fund’s portfolio grows to more than R7bn
Retail specialist and unlisted entity Futuregrowth Community Property Fund (Comprop), which invests in township and rural malls for clients, mainly pension funds, has grown its portfolio to more than R7.3bn from about R100m in 1996.
The fund acquires dominant shopping centres with strong national tenants that can grow income in the long term.
Comprop is a flagship fund among Futuregrowth Asset Management’s suite of developmental investments. The fund, established in 1996 with five assets, acquires and expands shopping centres, catering to the needs of underserviced communities in eight provinces.
Some of its malls include Alexandra Plaza, Diepsloot Mall and Eyethu Orange Farm Mall in Gauteng; Kanyamazane Centre and KG Mall in Mpumalanga; The Crossing Shopping Centre in North West; Murchison Mall in KwaZulu-Natal; and Opera Place in the Western Cape, among other establishments.
The recent acquisition of Sam Ntuli Mall in Katlehong, Gauteng, for an undisclosed amount increased the fund’s assets to 24 shopping centres with a gross lettable area (GLA) of more than 420,000m².
Capital Land, Comprop’s asset and property manager, is responsible for the leasing and marketing of the shopping centres as well as assisting with acquisitions, expansions, refurbishments and the disposal of properties.
“Our township and rural malls are situated in high foot traffic areas, and they service the low- to middle-income households with the aim of delivering essential goods and services at affordable prices to the community,” Smital Rambhai, Comprop fund manager, told Business Day.
He said their shopping centres in Gauteng, KwaZulu-Natal, Mpumalanga, Limpopo, the Free State, North West, the Eastern Cape and the Western Cape measure 2,000m²-40,000m².
Measuring over 30,000m², the recently acquired Sam Ntuli Mall is anchored by Shoprite, Pick n Pay, Boxer and Cashbuild, along with a number of other retailers. It has commuter access with an on-site taxi rank servicing local routes and the main taxi rank located nearby.
At a time when many investors are taking a wait-and-see-approach due to rising interest rates making it difficult to access capital to fund new acquisitions, Comprop has been lucky to have the backing of its clients.
Rambhai said the fund has a strong balance sheet, and banks have no challenge against lending to the fund given how well run the properties have been over the years.
“At end-April, the fund generated a return of 13% per annum over the past 20 years,” he said. “Over the years, our clients have invested capital on the back of the returns we have delivered, and the social effect we have created in the communities [in which] we operate.”
Rambhai said investing in property requires a long-term view and constantly reinvesting in existing assets to remain competitive, as the retail sector and shopper habits continually evolve. “Adapting to the changing environment is key to survival in the property sector.”
He said between November 2017 and May 2023, the fund reviewed 377 investment opportunities and only concluded seven transactions through direct engagement with property owners.
“There are few quality properties available in the market, and our strategy is to invest in quality assets that are priced right and have long-term property fundamentals to deliver returns.”
Rambhai said the fund takes a conservative approach with a long-term view to ensure that assets are selected for the right reason and not just to bulk up assets in the short term so they can earn more fees as this is not sustainable.
CHALLENGES
Given increased load-shedding, Comprop will prioritise investment into battery energy storage systems (BESS).
To this end, the fund has commissioned this system to be installed at Heidelberg Mall in Gauteng as a pilot project before being introduced to the rest of its shopping centres.
“The running of generators and related diesel costs is not sustainable both financially and environmentally. BESS investments are capital intensive, but pricing and technology have considerably improved, making it economically viable given the high levels of load-shedding,” said Rambhai.
He said together with solar installed at the majority of its malls, BESS will ensure their tenants can trade on a sustainable basis, reducing the negative effects to their turnover.
Rambhai said SA has many areas that remain underserviced in terms of essential goods and services. In some instances, pensioners have to travel more than 20km to access their government pensions of just over R2,000 per month.
“Travel costs reduce the disposable income considerably, and having shopping centres in these localities reduces the cost of transport while also bringing essential goods and services at affordable prices to these communities.”
He said when a shopping centre is constructed, it becomes a ratepayer to the municipality in the area, which boosts revenue for the municipality. This revenue can be used to further bolster infrastructure and essential services to the community.
As an example, Compropowned Bridge City Shopping Centre in KwaMashu, KwaZuluNatal was the catalyst for the development of the 500-bed Dr Pixley Ka Isaka Seme Memorial Hospital, regional magistrate’s court, railway station and housing in the area.
“The biggest challenge in the retail sector remains load-shedding and further economic deterioration, which could result in riots.”
“Within our portfolio, we have improved security on the back of the riots, and also invested in alternative power solutions such as solar and batteries to ensure our malls can trade during load-shedding.”
Rambhai said online retail is not a huge concern for the fund, as their target shoppers are mostly cash-based consumers with an average daily spend of between R50-R200, and also need access to social grant payouts at physical pay points.
“Underserviced localities together with the type of shopper that we target give us confidence in investing in this segment of the market,” said Rambhai.