SA property fund heads for Europe

A NEW property fund exported from South Africa is getting ready to operate in Europe.

GoGlobal Properties was incorporated in Bermuda in October last year and listed on the BSX in March. A secondary listing followed on the JSE’s AltX in April.

With Arrowhead Properties CEO Gerald Leissner at the helm, GoGlobal aims to buy high-yielding European property as well as stakes in European real estate investment trusts. GoGlobal’s UK portfolio will emerge from the chrysalis of the ApexHi property fund in which Leissner was involved.

Leissner said the groundwork for a successful venture had been laid. “We wanted to start a UK-based company on the ApexHi model, but raising capital in the UK is not easy. We felt if the appetite existed in South Africa, we needed an investment vehicle where we could raise capital.

“We chose the taxfriendly base of Bermuda to house the shell of GoGlobal. We can take advantage of a technicality and transfer funds out of South Africa using the secondary listing on the AltX, but when we pay for the properties we’re acquiring we’ll list on the main board.

“So far we have 39 properties lined up, with 30 in Germany and nine in the UK. We own the nine properties in the UK already, to a value of à44- million, and we’ll buy the remaining 30 in Germany for à167million. The UK properties are industrial and offices while the German stock is mainly food retail. That will bring the total initial portfolio to à212million,” said Leissner.

What should set GoGlobal apart in this market is its level of gearing, which Leissner intends to keep as low as possible.

“The initial level of gearing will be 43% with equity of à121- million. We’re aiming to sit at a level of 35%.

“The appetite exists in South Africa among institutional investors; for example, a Coronation fund as well as a hedge fund and a property company.”

By contrast, similar property companies in Europe typically hit 65% to 70% gearing, which was considered normal, said Leissner.

This should position GoGlobal well in the event of an interest rate upswing.

“There will be opportunities for us where other companies are forced to sell assets,” Leissner said.

This is because many companies are borrowing at 3% to 4% interest and then reaping the benefits of rental yields. Their business model experiences pressure when the cycle moves upwards again.

“For the first year we anticipate that the income distribution will be 8.5% after tax, modelled on the ApexHi and Arrowhead companies.

“GoGlobal is an income fund, not a capital appreciation fund. Because there is practically no lease escalation in the UK and it’s very low in Germany, you only get to raise prices when leases expire.

“You therefore have to buy more properties to get the portfolio to grow and that’s the model we’re looking at.”