Brilliantly named Attacq adds spice to property sector, but there’s also risk
Since opening its doors in 1994, the team behind Pretoria-based Atterbury Property has built a good reputation. The company is highly ambitious. It's Century City-lookalike Waterfall development between Johannesburg and Pretoria, has enormous potential. On the other hand, Century City lived up to the old saying that only the third owner makes money out of large property developments – the first one goes bust; and the second one often follows them. So the risk, if only because of history, is clear. There's no doubt this thought is shared among some of the 400 existing shareholders in Atterbury's soon-to-be listed associate Attacq. The business hits the Big Board on October 14. The newcomer will have its supporters, not least those institutions wanting something spicier than a pure property income fund. From the strong case he makes in this interview, Coronation's Anton de Goede, is sure to be among them. – AH
ALEC HOGG: Listed property accounts for almost four percent of the total market capital of the JSE. Anton de Goede is Portfolio Manager at Coronation. He joins us now. Anton, are you guys as excited about this listing as it appears as though Morné thinks that everybody else is?
ANTON DE GOEDE: Alec, I do think that the listing does provide something different for the sector. Management have proven their skills over the last few years, creating value out of the existing portfolio, as well as development pipeline and therefore I think it is a listing that one should consider.
ALEC HOGG: They are highly-rated, the Atterbury guys, aren't they?
ANTON DE GOEDE: Quite correct. They have created value and they have shown their skills over the last few years through different cycles in positive times and in negative times, so they are highly-rated.
ALEC HOGG: And not lacking ambition.
ANTON DE GOEDE: I think you need ambition within the property sector because that is the way that you create value.
ALEC HOGG: What was interesting, going through the details of this business – nice name as well – Attacq, is the way they have moved into Africa, starting with Mauritius. I guess that investment there at the Bagatelle Centre is something that is already starting to reap rewards.
ANTON DE GOEDE: I think Africa provides investors with an interesting angle. It is not the first fund listed on the JSE property sector that has some Africa exposure. You've got High Prop which they are partnering with as well as Resilient. Rock Castle is another listing on the JSE that has some Africa exposure so I think it is something that will come through, but one needs to be quite careful in how you look at Africa/ex-South Africa especially when it comes to your rental income stream and if you are actually getting a Dollar income stream or you are getting a local currency income stream because you have risks with that as well.
ALEC HOGG: What is the percentage of non-South African revenues generated by Attacq?
ANTON DE GOEDE: Well, Attacq is looking, eventually, at about 30% of their assets outside of South Africa; some of that within Europe and some of that within Africa/ex-South Africa.
ALEC HOGG: I guess the difference about this company as well is that it has got a shareholder base – a strong shareholder base; Sanlam (18%), Royal Bafokeng (13%), so it isn't one of these cobbled-together new property listings.
ANTON DE GOEDE: Ja, I think if you look at what the company did a month or two ago, they did go to their shareholder base over a rights issue and that was a rights issue that was over-subscribed, so they have a shareholder base that has been supportive over the last few years; so they're not really desperate in that sense to come to the market for capital and that does make a difference; that the shareholder base that there is, continues to support them.
ALEC HOGG: Anton, how important is the Waterfall project to this company?
ANTON DE GOEDE: I think it is very important, not only for the company as value creation, but also I think, for the property investors in general in Johannesburg and Pretoria. I think Waterfall City will create a different note as an alternative to notes like Sandton, like Woodlands, like Centurion, even like Menlyn, and therefore the value that they can create out of the development pipeline there will be huge.
ALEC HOGG: So it is almost like creating a new city in a way, or a bit like a Melrose Arch.
ANTON DE GOEDE: I would compare it more to a Century City/Canal Walk in Cape Town and I think it will be much bigger even, on scale, than Century City.
ALEC HOGG: And the risk?
ANTON DE GOEDE: Well, there are always risks with property development, but I think that management has shown in the past that they can manage those risks and that they secure tenants before they actually start any development.
ALEC HOGG: Anton, to be a little skeptical now; they are coming to the market at this point in time. They probably have had a good run. If you were putting yourself into their shoes; why the timing?
ANTON DE GOEDE: If you look at the potential build-out at Waterfall City and their investor base; at one or other time they would require substantial capital for Waterfall City. I think it is coming to the market now and creating the additional shareholder base for the eventuality of the additional capital when they may require it in 18/24 months' time. I think secondly, because they come to the market as an NAV play rather than an income play, the fact that bond yields have been quite low for a long time shouldn't really play a role in why the company has come to the market now. I think it is more a result of their development cycle.
ALEC HOGG: Alright. So we do not have to worry about this perhaps being 'mining the market at the opportune moment'.
ANTON DE GOEDE: No. I think the volatility that we've seen over the last three or four months within the sector, should have actually scared them coming to the market and said 'alright, let's rather not come to the market because we've seen a lot of volatility within the sector', and they still continue to come to the market so I don't think that's really the main reason behind it.
ALEC HOGG: The other project that Morné Wilkins spoke to Lindsay about earlier was in Newtown, Johannesburg. 75,000m2 – that's substantial.
ANTON DE GOEDE: Yes.
ALEC HOGG: Do you have any feeling on how that's going?
ANTON DE GOEDE: Well, that's not only retail. That's part retail and part office, and Nedbank is going in with them with that development and Nedbank will be a substantial office- user within that node, and I think they've got a good pre-let already on some of the retail there. We all know that CBD's in general in South Africa…retail remains strong within CBD's and something a bit more formalised should be able to attract the feet and get the returns that the retailers want.
ALEC HOGG: CBD's including Johannesburg's.
ANTON DE GOEDE: Well, I think if you just walk in the streets of Johannesburg you can see that there is a footfall that needs to shop and that people actually need to shop where they work and not necessarily shop where they stay, especially when it comes to the CBD-type shopper. Therefore, creating retail for them there should be good.