Doing well in the small residential rental sector

Indluplace Properties is carving itself an attractive niche for investors who desire exposure to listed residential property.

The company’s main assets are residential units priced at R2,500 - R7,000 each. Indluplace has added more than R500m worth of assets to its portfolio since listing, despite the sector coming under pressure.

It now has a portfolio worth more than R2bn.

“We feel we have grown strongly since listing, and [believe] shareholders are beginning to appreciate that we are the only [purely] residential real estate investment trust (Reit) on the JSE offering shareholders regular, attractive income payouts,” CEO Carel de Wit says.

Indluplace was sprung out of Arrowhead Properties’ residential portfolio and was listed on the JSE at R10/share last year in June. It is now trading at R9.80/share, due to some share dilution. It listed with a capitalisation of R1.76bn.

Arrowhead, which was founded by listed property doyen Gerald Leissner, has done a good job of growing portfolios and then listing them as separate propositions. Arrowhead was a first mover with respect to listed funds investing in residential property. The listed sector had been dominated by retail, office and industrial assets.

Now many property investors have come to appreciate the demand for residential property in SA’s major metropolitan areas. But only a few development companies have created investment-grade properties.

De Wit wants the company to grow aggressively into a sizable specialised Reit. “There are many opportunities in the residential space for listed companies which are looking to gain exposure to the sector. However, not everything that comes onto market is investment grade. There is a skill in finding assets which would meet the criteria for a listed property company and then making deals to acquire those assets,” says De Wit.

Indluplace has a market capitalisation of about R2.3bn, and room to grow. “It takes time to build a sizeable quality portfolio and I can appreciate that not many listed funds have managed to do this with respect to residential assets so far.

“We are still a small fund, so acquiring a R200m portfolio would make a difference to us, but it would not make much of dent to a large listed property company,” says De Wit.

He says his tenants have gained knowledge about the characteristics of good residential assets within their market segment. This means Indluplace has to work harder to win over tenants, as residential developers and managers can offer strong stock that is competitive. Much of Indluplace’s competition has been from the private sector.

“Indluplace, being the first