ON THE REBOUND
THERE SEEMS TO BE good reason for punters to start adding SA Corporate Real Estate Fund (previously Martprop) stock to their property portfolios. The Old Mutual-managed fund, which has delivered a less than spectacular performance in recent years, is starting to see long-awaited rental growth kick in. Last week the fund surprised the market with better than expected distribution growth of 18% for the five months to end-December 2006 (year-on-year) – the new financial year-end.
SA Corporate is also involved in a number of deals that provides potential upside. The share price of the Durbanbased property counter has already rallied some 14% since mid-January when it announced the proposed buyout of sister fund SA Retail. The merger should boost SA Corporate’s size and liquidity significantly, placing it among the sector’s five largest funds, with a combined portfolio value of R6bn. It will also enhance sectoral and geographic spread, with increased exposure to the retail property sector – SA Corporate has previously been an industrial focused fund.
The portfolio has a strong pipeline of investment opportunities through its tie-up with Old Mutual Property Group. There’s talk that a sizeable chunk of top performing Pretoria regional mall Menlyn Park could be listed through SA Corporate.
Craig Ewin, CEO of SA Corporate, says 29% of the portfolio’s leases will come up for renewal this year, providing opportunity for rental upside. Current rentals from SA Corporate’s industrial portfolio are below market at an average gross R26/sq m – market rentals are at around R32/sq m with new industrial stock fetching up to R50/sq m.
At Maydon Wharf in Durban, upward rental reversions of at least 10% are expected when a number of industrial leases expire in October. Ewin says the last time these leases were renewed was five years ago.
There’s also plenty of room for rental growth to flow from the Sharemax acquisition, with some 75% of those leases coming up for renewal over the next two years. SA Retail MD Peter Sparks says the through rate for rentals on the Sharemax portfolio is currently only R65/sq m while SA Retail is fetching R85/sq m on a similar profile of properties.
SA Retail takes beneficial occupation of the 10 shopping centres acquired from Sharemax in a R1bn transaction on 1 March this year.
Lease renewals offer rental upside. Craig Ewin