Against the odds

In­vestors reap re­wards from in­ner-city bet

Finweek English Edition - - Companies & markets - JOAN MULLER joanm@fin­

WHEN MOST PROP­ERTY own­ers be­gan flee­ing the Jo­han­nes­burg and Pre­to­ria CBDs in the mid-to-late Nineties, many were un­der­stand­ably scep­ti­cal about for­mer An­glo Amer­i­can Prop­er­ties stal­wart Ger­ald Leiss­ner’s strat­egy to hold on to his in­ner city stock.

But 10 years on, Leiss­ner’s de­ci­sion not to fol­low the crowd to trendy sub­ur­ban lo­ca­tions has paid off hand­somely. ApexHi Prop­er­ties, the loan stock com­pany Leiss­ner helped as­sem­ble six years ago out of the for­mer Apex and Amaprop funds in An­glo’s prop­erty stable, has man­aged to con­sis­tently out­per­form many of its higher-rated coun­ter­parts since list­ing in March 2001.

In­vestors who bought ApexHi units when the com­pany first listed its in­no­va­tive A and B spli­tu­nit struc­ture have seen the value of their in­vest­ments grow nearly four­fold. The units re­alised a com­bined to­tal re­turn of 386% from 1 March 2001 to end-De­cem­ber 2006, com­pris­ing 264% cap­i­tal growth and 122% in­come re­turn.

It’s in­ter­est­ing that many in­vestors ini­tially ex­pected the A units to fare bet­ter as they were re­garded as a far safer play than the “high-risk” B units. But the B units proved the bet­ter bet, de­liv­er­ing a hefty 560% since list­ing (399% cap­i­tal growth and 161% in­come re­turn). The B units, orig­i­nally is­sued at R4 each in 2001, were trad­ing at an all-time high of around R18 last week.

ApexHi’s C units have also had an ex­cep­tional run since list­ing in Oc­to­ber 2006, touch­ing highs of around R5,25 last week, up from R2,80 at the close of the first trad­ing day three months ago. The C units in fact recorded the high­est re­turn of all listed prop­erty coun­ters in 2006, ac­cord­ing to Cat­a­lyst Fund Man­agers’ latest monthly over­view of the listed prop­erty sec­tor.

The strong rally in the C unit prices re­cently pushed ApexHi’s com­bined mar­ket cap (A, B and C units) to more than R9bn – up from R2bn four years ago – mak­ing ApexHi the JSE’s sec­ond­largest listed loan stock com­pany af­ter Growth­point Prop­er­ties (R13bn).

Al­though ApexHi has ag­gres­sively stream­lined its port­fo­lio over the past 12 months, the bulk of its prop­er­ties are still lo­cated in so-called sec­ondary ar­eas. Says Leiss­ner: “ Rather than fo­cus­ing on lo­ca­tion, ApexHi fo­cuses on qual­ity A-grade ten­ants and sus­tain­able in­come streams.”

Leiss­ner says that with a port­fo­lio of more than 440 build­ings, the as­set-man­age- ment com­po­nent of the busi­ness is cru­cial to en­sure all build­ings are adding value to the port­fo­lio. The aim is to in­vest in high­yield­ing, rev­enue-en­hanc­ing prop­er­ties with sound ten­ant pro­files. Leiss­ner says build­ings that no longer fit th­ese in­vest­ment cri­te­ria are sold.

The fund’s most re­cent dis­posal was its iconic di­a­mond build­ing in down­town Jo­han­nes­burg – 11 Di­ag­o­nal Street – sold to Absa for R104m. That brings the num­ber of prop­er­ties sold to 53 over the past six months alone, net­ting a to­tal of R440m.

A num­ber of ac­qui­si­tions have also been made in re­cent months. Last month, three in­dus­trial prop­er­ties were bought from In­vestec for R245m, bring­ing the num­ber of in­dus­trial prop­er­ties ac­quired since 1 July 2006 to 10.

Leiss­ner says th­ese ac­qui­si­tions have seen a shift in the fund’s sec­toral spread, with industrials now ac­count­ing for 21% of the fund (up from 17% in July 2006). Of­fices, which have de­creased sig­nif­i­cantly over the past three years, rep­re­sent 36% and re­tail 43%.

Given the strong share-price run that ApexHi units have al­ready en­joyed, the ques­tion in­evitably arises as to whether there’s any up­side left. Mac­quarie First South Se­cu­ri­ties prop­erty an­a­lyst Leon Al­li­son says that while ApexHi’s A and B units are still trad­ing at fair value, the C units are look­ing a tad ex­pen­sive, with the lat­ter’s share price pos­si­bly com­ing un­der pres­sure over the next few months, par­tic­u­larly if in­ter­est rates are in­creased by more than the ex­pected 0,5% this year.

Al­li­son says al­though ApexHi is fully priced com­pared with the sec­tor, it re­mains a de­cent bet for in­come-seek­ing in­vestors. The fund of­fers a large, well-di­ver­si­fied port­fo­lio on a for­ward yield of 9%, com­pared with a sec­tor av­er­age of 7,8%.

Al­li­son ex­pects ApexHi to post a 16% growth in dis­tri­bu­tion for the 12 months to end-June 2007 on the back of strong rental growth and lower va­can­cies, once again out­per­form­ing the in­dus­try av­er­age of around 11%.

Lo­ca­tion not ev­ery­thing. Ger­ald Leiss­ner

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