Grow­ing the listed res­i­den­tial prop­erty pot

Finweek English Edition - - IN THE NEWS - BY GLENDA WIL­LIAMS

It ’s the f i rst fo­cused res­i­den­tial prop­erty fund to be listed on the JSE. And in­vestors, pre­vi­ously un­sure about a fo­cused res­i­den­tial l ist­ing, are now ex­hibit­ing pos­i­tive sen­ti­ment to the f loat­ing of the fund. “The in­sti­tu­tional share­holder base is very sup­port­ive of the move and re­sponse has been pos­i­tive,” says Im­raan Sule­man, f i nan­cia l di r ec­tor of Ar­row­head Prop­er­ties and ex­ec­u­tive direc­tor of Ind­lu­place Prop­er­ties.

Ind­lu­place ( indlu is the Zulu word for house) is the sep­a­rate res­i­den­tial prop­erty port­fo­lio from par­ent group Ar­row­head Prop­er­ties, list­ing on 19 June. The pri­vate place­ment of 40m shares will raise ap­prox­i­mately R400m at an in­dica­tive is­sue price of R10 per share. Ar­row­head cur­rently has around 15% ex­po­sure to the res­i­den­tial mar­ket through Ind­lu­place of which it is a 70% share­holder.

It was cour­tesy of a REIT con­fer­ence in Chicago that the res­i­den­tial sec­tor and the list­ing of a sep­a­rate res­i­den­tial fund ap­peared on Ar­row­head’s radar. To­day it brings about the list­ing of Ind­lu­place Prop­er­ties, a res­i­den­tial prop­erty fund with a port­fo­lio of 95 prop­er­ties and over 3 600 in­di­vid­ual units val­ued at R1.6bn. It’s a port­fo­lio that Sule­man says they aim to dou­ble to R3bn a year from now.

“Ind­lu­place is fo­cused on own­ing and grow­ing a sub­stan­tial res­i­den­tial prop­erty port­fo­lio f rom which it will pay grow­ing dis­tri­bu­tions to its share­hold­ers. Listed res­i­den­tial prop­erty com­prises less than 2% of South Africa’s listed prop­erty mar­ket, com­pared to over 13% in de­vel­oped economies. We be­lieve there is op­por­tu­nity for sig­nif icant growth in this sec­tor,” says Sule­man.

Op­por­tu­nity and fo­cus for Ind­lu­place is t he af­ford­able hous­ing mar­ket. The port­fo­lio is made up pri­mar­ily of af­ford­able prop­er­ties, mostly multi- our view, are a lot lower than com­mer­cial and in the af­ford­able, en­try-level of the mar­ket, de­mand out­strips sup­ply. Va­can­cies across res­i­den­tial port­fo­lios are less than 3%, and ar­rears and bad debts are gen­er­ally a lot lower than com­mer­cial. The only big chal­lenge is that res­i­den­tial is more man­age­ment in­ten­sive than the com­mer­cial side,” says Sule­man.

Eighty-two per­cent of the port­fo­lio is lo­cated in Gaut­eng. Stu­dent prop­er­ties only make up 10% of the port­fo­lio, the bulk con­sist­ing of prop­er­ties for in­di­vid­u­als and fam­i­lies. Rentals range from R1 000 for a room up to around R6 500 for a three-bed­roomed apart­ment with the av­er­age rental cost, ex­clud­ing the stu­dent mar­ket, around R4 000 per unit.

Ind­lu­place plans to grow its port­fo­lio ag­gres­sively by stay­ing within South Africa’s bor­ders. If an ac­qui­si­tion op­por­tu­nity meets its cri­te­ria and pro­vided Ind­lu­place has ad­e­quate prop­erty man­age­ment in place, Sule­man says it would be one the com­pany would pur­sue. The group aims to po­si­tion it­self as an exit for de­vel­op­ers or own­ers of res­i­den­tial stock or port­fo­lios.

I nvest ment wi l l gen­era l l y be in l a r ger ur­ban cen­tres c l ose to work op­por­tu­ni­ties and trans­port in­fra­struc­ture where there is a short­age of af­ford­able hous­ing and where good de­mand ex­ists for af­ford­able stu­dent ac­com­mo­da­tion.

Sule­man be­lieves the l ist­ing of a sep­a­rate res­i­den­tial fund will also ben­e­fit those in­vestors who don’t want ex­po­sure to com­mer­cial as­sets. “The as­set class should trade at a lower yield than com­mer­cial prop­erty but as in­vestors get to know the as­set class, we be­lieve yield will fol­low,” says Sule­man.

The yield is ex­pected to trade at about 8%.

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