A small property counter worth a big punt

One firm is focusing on strong returns, another looks to gain from online retailing and the third has been battling to increase profits

FAIRVEST

Share price: 156c JSE code: FVT

THIS IS A WELL-RUN PROPERTY FUND that could be primed for a takeover. Many of its assets are in lower-income areas but the fund is expected to turn these assets around.

At one point the company, which has made significant inroads into revamping the Nyanga Junction retail precinct in Cape Town, even tilted at buying a slab of properties in rundown Johannesburg suburb Yeoville. However, the proposed deal never came off.

Gradually Fairvest is convincing the market that by focusing on retail assets in lower-living standards measure nodes it can generate strong returns. For the six months to December 2015, the company achieved an interim distribution of 8.171c/share — slightly more than 10% increase on the comparable period last year and exceeding the distribution guidance of between 9% and 10% growth.

Ma’alot Investments head fund manager Maurice Shapiro says Fairvest is a well-managed retail real estate investment trust with convenience and community shopping centre assets that provide investors a low-risk, predictable rental income stream.

He says distribution growth guidance remains at 9.25% and 10.25%, showing that such assets remain strong even in the prevailing tough economic environment.

“We find it strange that the share trades at below its NAV, and believe that given time, as the company’s market capitalisation grows and the shares trading liquidity improves, early investors should be rewarded.”

EQUITES

Share price: R13,60 JSE code: EQU

EQUITES PROPERTY FUND HAS delivered strong distribution growth of 18.3% for the financial year to February. The company has grown aggressively since it listed in June 2014, gaining a foothold in industrial property when that was still an unpopular asset class. It listed with 17 properties and now sits with more than 30.

Equites’s pre-listing target was to grow its property portfolio of offices and industrial distribution centres in the Western Cape and Gauteng from R1.2bn to R4bn in five years. It has managed this within two years.

CEO Andrea Taverna-Turisan says Equites is pleasing the market because of its specialist industrial-sector focus, which guarantees low vacancies and long-term leases on its properties. He says South African businesses are importing more and more.

There is also a growing shift to online retailing, which requires more distribution centres. In the year to date, The company’s share price has gained almost 7%.

Equites recently concluded a development lease with Puma Sports Distributors for the construction of a new 16,262m2 distribution centre and head office in Atlantic Hills in Cape Town. The property has a capital value of R155m and a lease of nine years and 11 months. Puma, a German sports equipment and fashion retailer, recently expanded its operations in SA and other emerging markets.

The development is set be completed in August next year.

INGENUITY

Share price: 85c JSE code: ING

THIS PROPERTY DEVELOPMENT company has struggled to grow its profits in recent times. Its basic and diluted earnings per share for the six months to February this year came out at 5.4c/share, compared with 7.2c/share for the comparative six months to February 2015. The group’s total property portfolio value now amounts to about R3.6bn, and it is doing work in the Strand and other parts of the Western Cape.

Ingenuity says that subsequent to its February reporting date, the total value of its portfolio increased to R4.2bn with the acquisition of its Great Westerford property in Cape Town’s vibrant southern suburbs.

The company contends that despite tough market conditions it has been able to acquire quality growth opportunities through sound and prudent business principles. The latest financial report notes: “The asset base has significant value-add opportunities that will deliver superior returns in the years to come.”

Some investors may view the underappreciated Ingenuity as a takeover target in the future.

But right now there seems only a smattering of market interest in the largely illiquid stock, and there are many other small to medium property counters on the JSE that appear to offer more exciting prospects.

At this juncture, an offer to minority shareholders and a delisting from the JSE might be a likely outcome.