A small prop­erty counter worth a big punt

One firm is fo­cus­ing on strong re­turns, an­other looks to gain from on­line re­tail­ing and the third has been bat­tling to in­crease prof­its

Financial Mail - Investors Monthly - - Front Page - Alistair An­der­son

FAIRVEST

Share price: 156c JSE code: FVT

THIS IS A WELL-RUN PROP­ERTY FUND that could be primed for a takeover. Many of its as­sets are in lower-in­come ar­eas but the fund is ex­pected to turn th­ese as­sets around.

At one point the com­pany, which has made sig­nif­i­cant in­roads into re­vamp­ing the Nyanga Junc­tion re­tail precinct in Cape Town, even tilted at buy­ing a slab of prop­er­ties in run­down Jo­han­nes­burg sub­urb Yeoville. How­ever, the pro­posed deal never came off.

Grad­u­ally Fairvest is con­vinc­ing the mar­ket that by fo­cus­ing on re­tail as­sets in lower-liv­ing stan­dards mea­sure nodes it can gen­er­ate strong re­turns. For the six months to De­cem­ber 2015, the com­pany achieved an in­terim distri­bu­tion of 8.171c/share — slightly more than 10% in­crease on the com­pa­ra­ble pe­riod last year and ex­ceed­ing the distri­bu­tion guid­ance of be­tween 9% and 10% growth.

Ma’alot In­vest­ments head fund man­ager Mau­rice Shapiro says Fairvest is a well-man­aged re­tail real es­tate in­vest­ment trust with con­ve­nience and com­mu­nity shop­ping cen­tre as­sets that pro­vide in­vestors a low-risk, pre­dictable rental in­come stream.

He says distri­bu­tion growth guid­ance re­mains at 9.25% and 10.25%, show­ing that such as­sets re­main strong even in the pre­vail­ing tough eco­nomic en­vi­ron­ment.

“We find it strange that the share trades at be­low its NAV, and be­lieve that given time, as the com­pany’s mar­ket cap­i­tal­i­sa­tion grows and the shares trad­ing liq­uid­ity im­proves, early in­vestors should be re­warded.”

EQUITES

Share price: R13,60 JSE code: EQU

EQUITES PROP­ERTY FUND HAS de­liv­ered strong distri­bu­tion growth of 18.3% for the fi­nan­cial year to Fe­bru­ary. The com­pany has grown ag­gres­sively since it listed in June 2014, gain­ing a foothold in in­dus­trial prop­erty when that was still an un­pop­u­lar as­set class. It listed with 17 prop­er­ties and now sits with more than 30.

Equites’s pre-list­ing tar­get was to grow its prop­erty port­fo­lio of of­fices and in­dus­trial distri­bu­tion cen­tres in the Western Cape and Gaut­eng from R1.2bn to R4bn in five years. It has man­aged this within two years.

CEO An­drea Tav­erna-Turisan says Equites is pleas­ing the mar­ket be­cause of its spe­cial­ist in­dus­trial-sec­tor fo­cus, which guar­an­tees low va­can­cies and long-term leases on its prop­er­ties. He says South African busi­nesses are im­port­ing more and more.

There is also a grow­ing shift to on­line re­tail­ing, which re­quires more distri­bu­tion cen­tres. In the year to date, The com­pany’s share price has gained al­most 7%.

Equites re­cently con­cluded a de­vel­op­ment lease with Puma Sports Dis­trib­u­tors for the con­struc­tion of a new 16,262m2 distri­bu­tion cen­tre and head of­fice in At­lantic Hills in Cape Town. The prop­erty has a cap­i­tal value of R155m and a lease of nine years and 11 months. Puma, a Ger­man sports equip­ment and fash­ion re­tailer, re­cently ex­panded its oper­a­tions in SA and other emerg­ing mar­kets.

The de­vel­op­ment is set be com­pleted in Au­gust next year.

IN­GE­NU­ITY

Share price: 85c JSE code: ING

THIS PROP­ERTY DE­VEL­OP­MENT com­pany has strug­gled to grow its prof­its in re­cent times. Its ba­sic and di­luted earn­ings per share for the six months to Fe­bru­ary this year came out at 5.4c/share, com­pared with 7.2c/share for the com­par­a­tive six months to Fe­bru­ary 2015. The group’s to­tal prop­erty port­fo­lio value now amounts to about R3.6bn, and it is do­ing work in the Strand and other parts of the Western Cape.

In­ge­nu­ity says that sub­se­quent to its Fe­bru­ary re­port­ing date, the to­tal value of its port­fo­lio in­creased to R4.2bn with the ac­qui­si­tion of its Great Wester­ford prop­erty in Cape Town’s vi­brant south­ern sub­urbs.

The com­pany con­tends that de­spite tough mar­ket con­di­tions it has been able to ac­quire qual­ity growth op­por­tu­ni­ties through sound and pru­dent busi­ness prin­ci­ples. The lat­est fi­nan­cial re­port notes: “The as­set base has sig­nif­i­cant value-add op­por­tu­ni­ties that will de­liver su­pe­rior re­turns in the years to come.”

Some in­vestors may view the un­der­ap­pre­ci­ated In­ge­nu­ity as a takeover tar­get in the fu­ture.

But right now there seems only a smat­ter­ing of mar­ket in­ter­est in the largely illiq­uid stock, and there are many other small to medium prop­erty coun­ters on the JSE that ap­pear to of­fer more ex­cit­ing prospects.

At this junc­ture, an of­fer to mi­nor­ity share­hold­ers and a delist­ing from the JSE might be a likely out­come.

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