PICK OF THE MONTH

Best known as the developer behind the mixed-use Waterfall precinct just off the N1 highway between Sandton and Tshwane, Attacq hasn’t exactly topped fund managers’ stock pick lists in recent years.

The counter was popular when it listed at around R17 in October 2013, but has steadily lost steam since it peaked at R27 in early 2015.

For traditional property investors it fell between the cracks — it wasn’t a pure capital growth (or development) play, given its exposure to a number of income-producing properties, but neither did it pay a dividend.

However, following its recent Reit conversion, which compels it to pay out at least 75% of its earnings, Attacq is bound to appear on more investor radars. It paid a maiden dividend in October 2018 and released a solid set of interim results this month, which hasn’t gone unnoticed.

In fact, investment manager Allan Gray, traditionally underexposed to listed property, rates Attacq as one of three SA property shares currently worth buying (the other two being logistics play Equites Property Fund and inner-city landlord Octodec Investments).

Attacq’s R28bn portfolio has an 84% exposure to the SA retail, office and industrial sectors (including a R2.6bn development pipeline at Waterfall). Its SA retail portfolio features stakes in nine shopping centres including Mall of Africa at Waterfall, Brooklyn Mall in Pretoria, Eikestad Precinct in Stellenbosch, Garden Route Mall in George and Newtown Junction in central Joburg.

The company also offers a rand hedge component via a R900m stake in six shopping centres in Africa (Ghana, Zambia and Nigeria) and a R3.3bn exposure to Europe-focused MAS Real Estate. The latter owns a €900m portfolio of properties in Romania, Bulgaria, Poland, Germany, the UK and Switzerland.

Management, led by CEO Melt Hamman and COO Jackie van Niekerk, this month declared an interim dividend of 40.5c a share for the six months ended December. This equates to healthy growth of 9.5%, comfortably ahead of the average 4%-5% reported by the listed property sector year to date.

Income growth was supported by a stellar performance by MAS as well as newly completed developments at Waterfall. Attacq’s SA shopping centres also impressed with average trading density growth of 6.9%. Unlike that of many of its peers, not one of Attacq’s malls recorded negative sales growth last year, which is no mean feat in the depressed spending environment, and speaks to the company’s strong asset management skills.

Attacq’s largest and most valuable asset, the 130,000m2 Mall of Africa, was the star performer and notched up 12.7% trading density growth for the December period. Eikestad Precinct, the dominant retail offering in Stellenbosch, also outperformed at 7.7%. At Attacq’s results presentation, Van Niekerk ascribed Mall of Africa’s strong performance to its prime location and extensive tenant mix that appeals to a broad consumer base. She expects the mall to continue to benefit from the influx of new office workers to the Waterfall node.

The new headquarters of accounting firms PwC and Deloitte alone will bring in about 3,000 potential new shoppers. Van Niekerk believed that the recent launch of Attacq’s first residential development, Ellipse, next to Mall of Africa, will further enhance Waterfall’s appeal as a live, work, play community. Ellipse will have 620 apartments on completion.

One concern is Attacq’s exposure to the rest of Africa. Earnings from the retail assets Attacq co-owns with Hyprop Investments in Ghana, Zambia and Nigeria took a knock, which led to a valuation impairment of R370m for the six-month period. Management is looking to exit these investments — hopefully sooner than later.

Allan Gray portfolio manager Mark Dunley-Owen is bullish on Attacq’s prospects. He believes the stock offer value at current levels — the company is priced at a substantial (about 40%) discount to NAV. He cites high debt and questionable free cash flow as concerns, but says these are being addressed by management.

“Our focus is on companies run by management teams that are aligned with shareholders, use appropriate financial gearing, focus on cash flow rather than accounting earnings, and prioritise long-term value over short-term metrics,” he says. And though it is difficult to find property companies that tick all these boxes, he believes Attacq comes close.

Attacq’s largest and most valuable asset, the 130,000m2 Mall of Africa, was the star performer