Do­ing well in the small res­i­den­tial rental sec­tor

Financial Mail - Investors Monthly - - Analysis -

Ind­lu­place Prop­er­ties is carv­ing it­self an at­trac­tive niche for in­vestors who de­sire ex­po­sure to listed res­i­den­tial prop­erty.

The com­pany’s main as­sets are res­i­den­tial units priced at R2,500 - R7,000 each. Ind­lu­place has added more than R500m worth of as­sets to its port­fo­lio since list­ing, de­spite the sec­tor com­ing un­der pres­sure.

It now has a port­fo­lio worth more than R2bn.

“We feel we have grown strongly since list­ing, and [be­lieve] share­hold­ers are be­gin­ning to ap­pre­ci­ate that we are the only [purely] res­i­den­tial real es­tate in­vest­ment trust (Reit) on the JSE of­fer­ing share­hold­ers reg­u­lar, at­trac­tive in­come pay­outs,” CEO Carel de Wit says.

Ind­lu­place was sprung out of Ar­row­head Prop­er­ties’ res­i­den­tial port­fo­lio and was listed on the JSE at R10/share last year in June. It is now trad­ing at R9.80/share, due to some share di­lu­tion. It listed with a cap­i­tal­i­sa­tion of R1.76bn.

Ar­row­head, which was founded by listed prop­erty doyen Ger­ald Leiss­ner, has done a good job of grow­ing port­fo­lios and then list­ing them as sep­a­rate propo­si­tions. Ar­row­head was a first mover with re­spect to listed funds in­vest­ing in res­i­den­tial prop­erty. The listed sec­tor had been dom­i­nated by re­tail, of­fice and in­dus­trial as­sets.

Now many prop­erty in­vestors have come to ap­pre­ci­ate the de­mand for res­i­den­tial prop­erty in SA’s ma­jor met­ro­pol­i­tan ar­eas. But only a few de­vel­op­ment com­pa­nies have cre­ated in­vest­ment-grade prop­er­ties.

De Wit wants the com­pany to grow ag­gres­sively into a siz­able spe­cialised Reit. “There are many op­por­tu­ni­ties in the res­i­den­tial space for listed com­pa­nies which are look­ing to gain ex­po­sure to the sec­tor. How­ever, not ev­ery­thing that comes onto mar­ket is in­vest­ment grade. There is a skill in find­ing as­sets which would meet the cri­te­ria for a listed prop­erty com­pany and then mak­ing deals to ac­quire those as­sets,” says De Wit.

Ind­lu­place has a mar­ket cap­i­tal­i­sa­tion of about R2.3bn, and room to grow. “It takes time to build a size­able qual­ity port­fo­lio and I can ap­pre­ci­ate that not many listed funds have man­aged to do this with re­spect to res­i­den­tial as­sets so far.

“We are still a small fund, so ac­quir­ing a R200m port­fo­lio would make a dif­fer­ence to us, but it would not make much of dent to a large listed prop­erty com­pany,” says De Wit.

He says his ten­ants have gained knowl­edge about the char­ac­ter­is­tics of good res­i­den­tial as­sets within their mar­ket seg­ment. This means Ind­lu­place has to work harder to win over ten­ants, as res­i­den­tial de­vel­op­ers and man­agers can of­fer strong stock that is com­pet­i­tive. Much of Ind­lu­place’s com­pe­ti­tion has been from the pri­vate sec­tor.

“Ind­lu­place, be­ing the first

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