Township property fund Safari Investments, listing on the Johannesburg stock exchange next week, has a loyal group of investors that is determined to stay for the long haul. That much is clear in this interview with its CEO Francois Marais, who says the pension fund-like quality of the fund is proving very attractive. The Real Estate Investment Trust generates a steady income stream for investors through a portfolio that includes three popular township malls. Francois has a refreshing attitude to the underlying assets: he likes to think that his malls are making people happy. Instead of having to travel for long distances for retail therapy, township residents can get their fix close to home. There is money to be made out of this happiness factor. “If you have a happy shopper, you have a happy tenant and you have a happy investor,” says Francois. – JC
ALEC HOGG: Safari’s Board of Directors informed investors that the private placement of shares undertaken by the company was oversubscribed and that they had received applications for over 60 million Safari shares. Joining us for the insight on that and for more on the forthcoming listing is Francois Marais, Chief Executive of Safari. It reminds me of when I did what you’re doing at the moment. It was back in 1999. There was an Internet boom and we could have placed ten times as many shares back then as the little R10m, we were looking for, so it does tell us something about the market conditions Francois, and the business, I guess.
FRANCOIS MARAIS: Yes, and thank you for the opportunity. It’s certainly very exciting for us, as an entirely new venture and we’re very excited about the fact that we were oversubscribed. We’ve placed 170 million shares, which is a total subscription of around R375m, and the yield on the share will start at nine percent. It is a REIT listing, as you know, and it means that the pre-tax income per share yield will be nine percent.
ALEC HOGG:Â So, a nine percent yield, R7.63, and about R1.3bn market cap, but you have big plans.
FRANCOIS MARAIS: Yes, a name we have among others is Standard PIC. A very interesting one is Women’s Development Business, which is a very exciting investor that was started by Thabo Mbeki’s wife, which is very exciting for us, as well as Grindrod Fortress, which is the investment arm of the Resilient, which, for us, was very exciting. It’s a nice thing to see from an opposition company; that they have trusted you enough to invest in you. There are also some other names such as Sasfin where there were investors, so it’s a whole group of investors, which we’ve attracted.
GUGULETHU MFUPHI: Those are heavy-hitters you’ve mentioned, Francois.
FRANCOIS MARAIS:Â I beg your pardon.
GUGULETHU MFUPHI: Those are heavy-hitters (the names you’ve mentioned), but why go it alone especially after we’ve seen so much consolidation in the property sphere?
FRANCOIS MARAIS: We have a very simple philosophy about the company. We promised our shareholders ten years ago, that we would start issuing dividends this year or returning profits to them and REIT listing actually suited us like a glove, so we are just fulfilling the promise. We have some other exciting new ventures, which we’re busy with: new expansion, we’ll probably expand the portfolio to around the two billion mark in the next two years quite comfortably – maybe even more than that – and we would reach the three billion mark in about three or four years from now. These are things, which are not guesswork. These are things, which are currently on the table, either in the construction form or in the formation.
ALEC HOGG: Swakopmund Waterfront – interesting. Those guys who came in ten years ago, what has their return been in the last decade – your initial investors? You said that ten years ago you told your investors you’re listing in 2014.
FRANCOIS MARAIS: We had a year-on-year growth over the last ten years of around 28 percent, so people who invested with us…we simply rolled over the company profits, and that gave them a growth of around 28 percent. We don’t have a single investor who sold his shares in the last ten years, so we have some very happy investors.
ALEC HOGG:Â So you did things differently to Sharemax – in what way?
FRANCOIS MARAIS:Â Firstly, I think we were simply honest, you know.
GUGULETHU MFUPHI: Yes, that’s a good place to start.
FRANCOIS MARAIS: Yes, we never promised people something we couldn’t fulfil.
ALEC HOGG:Â How many investors do you have, Francois?
FRANCOIS MARAIS: By the way, it’s very interesting. We start now – pre-listing – with 190-odd different investors and after listing, they will still hold the 72/73 percent interest in the company, which for us, is very encouraging, too. None of them withdrew. They could have withdrawn some of their investments when we turned loan accounts into shares in the last six months, and only two percent said they would wait for the listing to do so, but everybody else turned their loan accounts into shares. We don’t know of anybody who is going to sell of big, but with some of them it will be interesting to see what it is to speculate with, but other than that, there’s nothing else in the pipeline, of a funny nature. We made this promise to our shareholders. Essentially, one could say that we’re – in a certain sense – almost like a Pension Fund. What was encouraging to us was that most of the new investors, who came to us, had the same idea.
They see it as an income-producing fund and this, for us, is the essence of our type of investment. We have a very nice investment by the way (I think it’s very nice). We currently have four income-producing units in our company – four shopping centres. Three of them are in townships. The other one is not in a township. Somebody branded us as township developers. We don’t see it as that, but these are very sensible investments. They’ve given very good returns. We have an average rental of almost 50 percent below national averages, so we have a nice potential for growth, which is something you just have to manage well and we manage most of these things ourselves in the company. We presently have a small company, which is doing the management for us, and because of their success, we have a zero vacancy factor, which is also very nice.
GUGULETHU MFUPHI:Â The expansion projects you mentioned: would they still focus on shopping centres?
FRANCOIS MARAIS: We are currently under construction on two expansions: one to the Atteridgeville node where we have the one shopping centre, and the other one is in Sebokeng where we’re expanding that investment by about 30 percent, so we have the two of those and then the other one is the Swakopmund investment. We are however, looking at further investments.
ALEC HOGG:Â But when you have an existing property, you know all about it and the return you make is usually higher and less risk, if you just add on rather than going to a whole new location.
FRANCOIS MARAIS:Â Exactly, yes.
ALEC HOGG: Francois, a little while ago, we had Marc Wainer in the studio here, who complained bitterly about doing business in the kinds of areas you’re doing business in. He said there’s a lot of bribery and corruption, which is demanded by city councillors or councillors in that area. Have you experienced any of that?
FRANCOIS MARAIS: You have attempts at it. I wouldn’t say that you don’t have people with an ‘underneath the table’ for them. We never succumbed to that. We never listened to that. We’ve done straight business and we find it extremely rewarding. It’s a good market we’re in. In a certain sense, we were pioneers in the market. We were the first, after 1994, to invest in a major shopping centre in a township, and it has been very rewarding. We built the first centre in Mamelodi. Mamelodi, to give you an idea…it’s a very interesting thing because it has visitation of around 1.5 million per month. It’s around 40 to 50 persons per square metre, which is a manner of measurement. If you compare that to Menlyn in Pretoria, Menlyn in Pretoria is around 20, so it gives you an idea of just how busy it is.
ALEC HOGG: Great foot traffic…
FRANCOIS MARAIS: It’s also reflected in the trading densities of these centres. The trading densities range from 35 percent to 50 percent above national averages.
ALEC HOGG: And you’re bringing proper shopping to people who didn’t have it in the past. Francois, all the very best. We look forward to seeing your listing on the market. You wanted to say one more thing.
FRANCOIS MARAIS: We save the people in the townships by saving them travelling, by being able to do all the shopping in the townships – around 50 million per month between the three centres. This is a major contribution. You know, that’s 600 million per year. That’s a major contribution to people’s happiness. If you have a happy shopper, you have a happy tenant and you have a happy investor.
ALEC HOGG: A very happy landlord, and a happy 190 investors who entrusted Francois Marais up front. That is Safari Developments, a company that as he was saying earlier, do focus in areas that are underserved
