Getting deep inside today’s new JSE listing Attacq and its critical Waterfall development
Sometimes one gets the opportunity to dig really deeply during an interview. That happened in my discussion with Morne Wilken, CEO of today's new listing Attacq, which hit the market at R16.75 providing a quick profit for IPO investors offered the stock at R14.50. Its big play is in the Waterfall development between Johannesburg and Pretoria. Wilken admitted during our discussion that a large part of the upside (between a third and half) depends on the success of this venture. Some fascinating insights from Wilken and Coronation's property specialist Anton de Goede. – AH
ALEC HOGG: Real Estate Company Attacq listed today on the JSE. The company, which owns the development rights at Waterfall City near Midrand and stakes in prime shopping centres such as Brooklyn Mall in Pretoria and Garden Route Mall in George, listed at an initial market cap of R8.5 billion. I remember this day quite clearly from my own perspective. It is a big day, a huge day for the company itself, and particularly for the Chief Executive. In 1999, I listed Moneyweb on the Stock Market. The share price went through the roof – more than double the listing price. Everybody was happy and that was, kind of, the happiest it got because we had the Internet bubble burst and that saw Moneyweb drop from R2.10 all the way down to 18c. Well, Morné Wilken, I hope it does not happen to you like that, but you have a different business. It is a nice, stable, solid operation.
MORNé WILKEN: Yes, we do. It is a nice business. It is predominantly property-related, developments as well as investments.
ALEC HOGG: It is not exactly a newbie, but there is a little feeling of the Internet bubble in the property market. Are there a lot of high ratings?
MORNÉ WILKEN: That is correct. I think Attacq in itself, is a little bit different to the existing property counters. We have a capital growth play rather than an income play, so we actually have a development angle where we develop our own product at the end of the day.
ALEC HOGG: Sometimes development is good – sometimes not so good. You have Waterfall. Usually every new property development they say, the first person goes bust. The second person manages to get through and the third person makes the money. So far, you are the first person.
MORNÉ WILKEN: We are the 'first person', but I think our big benefit is that we have paid in cash for the land, so we do not have debt against the land and I think that is the big competitive advantage. We have a bit of a timeline to develop this out, so I do see it as a bit of a different animal.
ALEC HOGG: What was behind the idea to list?
MORNÉ WILKEN: The idea was basically threefold. We wanted to lift the company's profile. I think we can grow the business further. We can raise capital easier and create liquidity for our shareholders in the long term.
ALEC HOGG: I was driving through Pretoria on Friday and saw your billboards. This is why I am going back to that whole Internet story, that Internet bubble story. It has been a long time since we have seen new listings market themselves in the way that you have done with Attacq. You have really let people know, not just in Pretoria, that you are coming to the market.
MORNÉ WILKEN: I think what makes Attacq different, is that we actually did the marketing. I think it is quite appealing to the retail market where it is not just predominantly the institutions, where many of the other income funds are just for institutions. This company we started, comes out of the Atterbury stable. We started in 1994. I think it is quite a milestone in our story and that is why we actually wanted to share that with the public.
ALEC HOGG: How many people took the bait?
MORNÉ WILKEN: Well technically, we have shareholders in excess of 570 and obviously, we did the IPO of R800m, which we got quite a lot of.
ALEC HOGG: How many new people came in?
MORNÉ WILKEN: There were 55 million shares issued. I cannot say exactly what the quantum of shareholders was that came in.
ALEC HOGG: But it was successful marketing to the retail market?
MORNÉ WILKEN: It was, definitely. Many private clients came to the market, so you do not exactly know what the number is. We will actually get that detail a little bit later.
ALEC HOGG: The results that you released last week, on the top line anyway – they did not really look great, disclosing a loss before listing.
MORNÉ WILKEN: I do think where we are in terms of our financials; many of the developments in the ground are in Waterfall and I see that up-tick coming through in the near future.
ALEC HOGG: Tell us about Waterfall, because you are either going to shoot the lights out if Waterfall does spectacularly well, or heaven help us if it does not.
MORNÉ WILKEN: What is unique about Waterfall is the in-fill development. In-fill development means Johannesburg and Pretoria have grown to each other and effectively you are going to fill up space. It is not like something we develop on the outside and we have to cause people to move towards our Waterfall development. I think that is the big difference. The other big difference is that you have the ability to plan a city from scratch. We see a lot of interest from people consolidating in Waterfall, and our big one is Mall of Africa. If you look at the attraction we get from the retailers – it is definitely going to work. Then you have some mixed use, so you effectively have some retail space and some office space. You have some industrial, so as the market goes through its cycles some of it will be in demand and some will not, but you at least have a way to play around with those.
ALEC HOGG: I have been around long enough to remember Century City in Cape Town and that had a fantastic plan, but the plan took a long time to come together and a couple of companies in fact, went bust in that instance. Why should it be different at Waterfall? Why is it that you are going to be the first owner actually, to make this work?
MORNÉ WILKEN: I think what gives us the flexibility, and how we try to mitigate our risk a lot of the time, is not trying to do everything by ourselves. We actually like to do joint ventures a lot of the time. In Waterfall we will do it in a joint venture with people or developers and thereby mitigating our risk. We are definitely not out there to develop everything ourselves. We are quite risk-averse.
ALEC HOGG: Now that you are a public company, I am sure many shareholders are happy to hear that. Anton de Goede joins us now from Coronation Fund Managers. Anton, the share price: R16.75 – where it is trading now, is quite a nice premium on the listing level.
ANTON DE GOEDE: Yes, I think there was a lot of talk in the market about what level the share price will actually open at, if you take into account the initial placement price that happened last week – of R14.50. In all likelihood, there is a bit of a hype in the share price, to be honest, and I think we will have to give it a week or two just to settle at a certain level.
ALEC HOGG: Are you comfortable at this level though, that it is reflecting fair value?
ANTON DE GOEDE: I think it is definitely reflecting some of the fair value. It all depends on how you value your development Pipeline in Waterfall City because that is where a lot of the upside sits within the stock. It all depends on the timeline that you assume the build-out will take place, and the discount rate you apply to that build-out.
ALEC HOGG: So shareholders who did not participate at R14.50: would you suggest that they wait a little while? You did mention there is a bit of hype in the stock.
ANTON DE GOEDE: Yes, I think you should give it some time to settle and wait for the next set of results to see how the company has gone in the last six months. Basically, to clean up the balance sheet and the income statement.
ALEC HOGG: But from your perspective, you are hanging in there.
ANTON DE GOEDE: Yes, at this stage liquidity is quite tight within the share and therefore, if you have stock, I would rather hang onto the stock and see where it goes.
ALEC HOGG: Anton, thank you. Morné, that is interesting – R16.75. Usually CEO's of companies like to see their share prices much higher. I had some thoughts that it would come on as high as R20.00. Where did you pitch it?
MORNé WILKEN: I think the price that we are seeing is a fair price, and that is more or less, where we were thinking – about the 16/17 mark.
ALEC HOGG: I was interested to see that you have a Thys du Toit and a Johan van der Merwe on your Board of Directors: are those the two gents, I think they are?
MORNé WILKEN: Yes. If you are thinking of the CEO of SIM, Johan van der Merwe, and Thys du Toit, ex-Coronation, that is correct.
ALEC HOGG: How did you manage to twist their arms?
MORNé WILKEN: Well Johan has been on our Board for quite a number of years. He is representing Sanlam which has a big share in Attacq. Thys, we actually approached just pre-listing and we asked him if he would be interested in joining us.
ALEC HOGG: That is interesting, putting the Board together before you go to the market. Do you have any property experts too?
MORNé WILKEN: Well I think we have quite a wealth of experience in property in terms of us having Stewart Shaw-Taylor. He is the non-exec, well known to the market in terms of property. We also have Louis van der Watt, one of the founders, Francois van Niekerk, and basically, myself, so we definitely have some property knowledge on the Board.
ALEC HOGG: You have a good rating. When I talk to people in the industry – the construction industry in particular – they like working with you. Are you going to be working a lot more with them in terms of other parts of the continent? You did say you want about a fifth of your portfolio in non-South African Africa.
MORNé WILKEN: Ja, we've got a fund – the Africa Fund. It is a joint venture with the Atterbury Private Company as well as Hyprop. That is driven quite a bit on retail and sub-Sahara Africa. That is going very well and we have a very good relationship with our construction companies. What made Attacq and Atterbury very successful, up until now, is that we are very open to joint ventures. It is not as though we try to do everything ourselves. We will try to identify who is key in certain areas and we would rather partner with these people than try and do it ourselves.
ALEC HOGG: Why?
MORNé WILKEN: I think that is just the way we have been operating. Rather than try and be the best at everything, which you cannot be, we will rather find a specific person that is key so we can understand that market better. Doing it with them rather than trying to say 'we know how to do everything'. You add value in that way, because you take a development and you collaborate with a local partner. He may have the expertise of the specific area, and what to do, and you can add some value to that Pipeline.
ALEC HOGG: Well you are on a treadmill now, so we are going to be seeing you probably every six months – maybe even more often when you do different acquisitions. If we sit down, or when we talk in a year's time, what would you like to be able to tell us that you have achieved? In other words, the targets you are setting yourselves.
MORNé WILKEN: I think the big target that we are setting for ourselves is what we want to develop in terms of Waterfall, and we've set ourselves some internal targets that we want to achieve. I would like to show a new pipeline coming out after we had our initial discussions, and actually to see some of those profits coming through.
ALEC HOGG: How important is Waterfall to you?
MORNé WILKEN: Waterfall is very important, it gives us a type of game changer to the other things, but we also have many other developments that do not relate to Waterfall, so it is mitigating our risk in a way.
ALEC HOGG: Maybe putting it differently: how much of the share price is going to be dependent on whether Waterfall succeeds or not?
MORNé WILKEN: I think it is quite important to Waterfall's success.
ALEC HOGG: A third or half?
MORNé WILKEN: I would not say half – at least a third.
ALEC HOGG: Well, good to see you, Morné Wilken; congratulations on a big day today and congratulations on a good start for Attacq. Share price at R16.75. Their shares were placed last week in an R800m pre-listing fundraising exercise at R14.50; a good, quick profit for those who bought in earlier.