Recently listed Accelerate Property Fund has just delivered interim results on target with an aggressive set of expectations, its share price has seen a 16 percent increase since it listed in May last year, on face value the real estate investment trust seems to be performing smoothly without much cause for a great deal of excitement. However, its future plans for development are definitely worth taking note of, with Tito Mboweni serving as Chairman on its Board, a pot R468m waiting to be spent on strategic developments and plans to expand Fourways Shopping Centre from 64,000m2 to 175,000m2 this REIT is definitely one to watch. Alec Hogg was joined on CNBC Africa’s Power Lunch by the group’s COO, Andrew Costa. – LF
ALEC HOGG:Â In the unaudited (as they always are) interim results for the six months to end September, Accelerate Property Fund reported distributable profit of R141.6m. In the studio with us, to unpack the numbers is Andrew Costa, who is Chief Operating Officer of the Company Chaired by none other than the former Reserve Bank Chairman. Tito Mboweni was in here a little while ago, ahead of your listing. He was very excited about this. He said, you guys own Fourways.
ANDREW COSTA: That’s correct.
ALEC HOGG: But why aren’t you giving us better numbers because the figures just, just made what you projected in the prelisting statements?
ANDREW COSTA: Correct, we’re happy that we’ve made what we’ve predicted.
ALEC HOGG: So you were aggressive.
ANDREW COSTA: We came out with a 9.7 percent yield that’s pretty…
ALEC HOGG: That’s aggressive.
ANDREW COSTA: But we listed after May of last year. There was a bit of a re-rating in the market, especially in the property market so we needed a bit of a higher yield, so nine-point-seven was a pretty good yield. We’ve rerated nicely downwards to eight-point-two as of now, and we’ve delivered on what we had hoped to deliver as set out in our pre-listing statement.
ALEC HOGG: Well, you did it. You managed to get to the numbers. You were aggressive beforehand and as we were saying off-air, you offered the stock at R4.88. It’s now R6.00. No one can be too concerned about that, but Gary Booysen and I were both scratching our heads at this deal that you’ve done with Whitey Basson on the Shoprite Distribution Centre in Cape Town – 13.8 percent yield. Lots of people would be saying ‘what’s happened to Whitey’.
ANDREW COSTA: We didn’t actually buy it from Checkers. We bought it from a third party. Checkers is the tenant.
ALEC HOGG: Why would they sell it at 13.8? Is this guy emigrating or something?
ANDREW COSTA: I’m not really sure. We’re quite happy with the deal. It works for us. We have very low exposure to industrial. We only have two properties out of 51 properties, so we like industrial. We said in our pre-listing, that we’d like to increase our exposure a little bit without really diminishing our retail bias, as we are a retail fund. We like industrial, multi-purpose…
ALEC HOGG: At 13.8 percent yield today, everybody would like that. Are there no hidden issues there that you might encounter in time? What kind of due diligence do you do in a transaction like that?
ANDREW COSTA: It’s normal due diligence. We have a team that would check the leasing. We check the actual property, itself – whether it has refrigeration, what we can do if the tenant goes, and what the existing prevailing market rentals are if the tenant does go. We know that Shoprite is probably (down the line) starting to build their own, so on this deal we need to make sure that if they do leave, we can always let that property again.
ALEC HOGG: So that’s the reason why you’re getting such a good deal now. They may move at some point in the future.
ANDREW COSTA: They may move at some point.
ALEC HOGG: How long is their lease?
ANDREW COSTA: There are two years left, with an option of three.
ALEC HOGG: Outside of that though, the Fourways Shopping Centre…clearly, your benefits or your rentals are related in some way to how people are spending. How’s it going in that part of the world?
ANDREW COSTA: We’re quite lucky. We love Fourways. Fourways is currently the heart of our fund. We listed on our vision on Fourways. We have the densification there. The traffic is a problem, but it tells a story of its own as well. You have the people. The trading in the mall and in our other retail offerings out there do really well, and we’re looking forward to starting the development, which will take the existing Fourways Mall (64,000m2) to 175,000m2. There are five development properties, with the mall being one of them. We’re going to be developing 90,000m2 of retail and once we’re finished, I believe it will be the biggest super regional in South Africa.
ALEC HOGG: That’s extraordinary. Bigger than Sandton City?
ANDREW COSTA: Bigger than Sandton City.
ALEC HOGG: And how long will that take?
ANDREW COSTA: We’re looking at a three-year timeline for that. For us, we’re not looking to compete with Sandton City. We’re looking to be another Sandton.
ALEC HOGG: Well, given the traffic, you don’t compete with Sandton City. People from Fourways tend to stay out there. You have R468m that you are going to be spending in the foreseeable future. Is most of that going into Fourways? Excluding, of course, this DC you’ve bought.
ANDREW COSTA: The other part of the acquisition we’re talking about now is a portfolio that we quite like. One of our other strategic nodes is the Charles Crescent, which is at the bottom of Katherine Road in Sandton. It’s adjacent to Cramerville. We own quite a few properties in the crescent. Part of that R468m portfolio that we’re buying, includes two other properties in that crescent. For us, once we own that whole crescent, it’s a long-term future. It will be another big development for us, but the number one development for us is Fourways. We want to get that started ‘yesterday’.
ALEC HOGG: So Fourways is the big one, then Charles Crescent, and you have a little bit of an industrial feel there with Shoprite as one of your clients in Cape Town.
ANDREW COSTA: Yes. We also have two other strategic nodes for ourselves, with the one being the Cape Town Foreshore. We own four office blocks down there. We’re spending R40m on the Thomas/Petula building, upgrading that into an A-grade building.
ALEC HOGG: So a lot’s happening. What’s Tito like as a Chairman?
ANDREW COSTA: We’re really lucky to have him.
ALEC HOGG: Is he quite strict?
ANDREW COSTA: Absolutely, and that’s why we wanted him. From our point of view, the business evolved from a family-run business and we needed to make sure that we had the right corporate governance, we had a very strong Chairman who would ensure that we have the right blend of entrepreneurial flair, and corporate governance on the other side.
ALEC HOGG: Well, you’re very ambitious and if Fourways flies, so will Accelerate. Well named. That was Andrew Costa, the Chief Operating Officer of Accelerate Property Fund.
