Cashing in on economies of scale
I have written about this stock before. After doing some research, I’ve realised that I really like the business case for this company. The key difference between Indluplace and some of its competitors is that it operates in the residential property space, owning units that are let out to tenants. After the most recent transaction (with the Buffet Group, which will see Indluplace acquire 2 914 residential units with 3 400m2 of associated retail space for about R1.4bn), it has about 8 000 rental units with some retail space attached.
The attraction is many people are neither able nor willing to own their own property. Add to this the fact that, in these tough economic times, a lot of potential property owners are not able to buy. Either they’re being rightly cautious, unable to get a loan or raise the associated costs of buying a property. This gives great support to rental units keeping prices decent.
With about 8 000 units the company is also able to make use of the scale for operating efficiencies such as new rental agreements, unit maintenance and management of tenants.
Lastly, on a price-to-earnings ratio (P/E) of just over 10 times and a yield of over 9%, we’re being well paid to hold this property stock.
Townhouse complexes located in Indluplace’s rental area of Honey Park in Honeydew, west of Johannesburg.