Catch­ing the at­ten­tion of more in­vestors

Financial Mail - Investors Monthly - - Analysis - Joan Muller

Since the UK’s mid-2016 vote to exit the EU, SA in­vestors have shunned most of the JSE’s 12-odd prop­erty coun­ters that gen­er­ate a size­able chunk or all of their earn­ings in Bri­tain.

Worst hit are for­mer mar­ket dar­lings Cap­i­tal & Coun­ties Prop­er­ties, mall owner Intu Prop­er­ties, RDI Reit and Trade­hold, the off­shore prop­erty arm of Christo Wiese — all down at least 40% since mid-2016.

Though there is un­cer­tainty about how Brexit will play out, there is a view that UK-fo­cused prop­erty stocks have bot­tomed — so it may be time for value chasers to re-en­ter the mar­ket se­lec­tively. In­dus­trial-fo­cused At­lantic Leaf Prop­er­ties is start­ing to ap­pear on the radar of in­vestors look­ing for a small­er­cap real-es­tate play with solid growth prospects.

At­lantic Leaf was listed on the JSE and Mau­ri­tius Stock Ex­change in March 2014 by Paul Leaf-Wright, the Cape Town-based founder of cor­po­rate ad­vi­sory group Leaf Cap­i­tal. Man­age­ment has since made im­pres­sive strides to grow the port­fo­lio — as­sets un­der man­age­ment are up from about £27m at list­ing to more than £304m. The mar­ket cap has bal­looned from less than R300m to R3.5bn.

A key deal ear­lier this year was the ac­qui­si­tion of a 45% stake in a joint ven­ture with Lon­donMet­ric Prop­erty, which owns 10 re­tail ware­houses across the UK val­ued at £98m. The deal has taken At­lantic Leaf’s port­fo­lio to 59 prop­er­ties: mostly ware­houses and lo­gis­tics/dis­tri­bu­tion cen­tres spread across the UK.

De­spite a 12% run in the share price since early Au­gust, At­lantic Leaf is still trad­ing at a dis­count to NAV and an at­trac­tive div­i­dend yield of more than 9% (in ster­ling). The dis­count is likely to close over the com­ing months, as an­a­lysts ex­pect a re-rat­ing if the com­pany’s pro­posed con­ver­sion later this year into a UK Reit is suc­cess­ful. This should lure more in­vestors. The fact the com­pany is start­ing to ap­proach a mar­ket cap of R4bn should also make it more ap­peal­ing to a wider au­di­ence.

This month, At­lantic Leaf re­leased a solid set of re­sults for the six months end­ing Au­gust. Earn­ings were up 5.5% and an in­terim div­i­dend of 4.65p was de­clared, up 3.3% year-on-year. Leaf-Wright warned that the sec­ond half of the 2018 fi­nan­cial year will be more chal­leng­ing than ex­pected due to the fail­ure of UK re­tailer Home­base. As a re­sult the rent for one of At­lantic Leaf’s prop­er­ties fell by 45%.

He is con­fi­dent a re­place­ment ten­ant will soon be found. The com­pany’s earn­ings in the six months end­ing May will also be af­fected by a slightly higher cost of debt, up from 3.3% to 3.6% on the back of higher UK in­ter­est rates.

Leaf-Wright is pro­ject­ing full-year growth in earn­ings of 2%-3%, lower than the 5% tar­get set ear­lier in the year. How­ever, if At­lantic Leaf suc­cess­fully con­verts to a UK Reit in Novem­ber, the div­i­dend pay­out for the full year to end-May 2019 will re­main close to the fore­cast of 9.5p. That rep­re­sents growth of close to 5%, at­trac­tive given the UK’s low in­fla­tion en­vi­ron­ment.

At­lantic Leaf is backed by SA-fo­cused Vuk­ile Prop­erty Fund, which has a 21% stake in the com­pany. It owns a large port­fo­lio of shop­ping cen­tres in SA and re­tail parks in Spain.

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