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In this special podcast, Safari Investments CEO Francois Marais explains the unique strategy which has money managers excited about his company – despite their cautious approach to the sector in general. Safari was a pioneer in township retail shopping centres and is now in the process of building its third Atteridgeville mall, complementing others in Sebokeng and Mamelodi. Marais has also tied up with old pal Cal Grillenberger’s Advanced Health to build Safari’s first day clinic in Soweto. Add in the unique waterfront project in Swakopmund and it’s no surprise to hear money managers are keen to invest hundreds of millions in fresh capital through a private share placement now being conducted by the company. – Alec Hogg
This special podcast is brought to you by Safari Investments who’s Chief Executive Francois Marais, is with me in the studio. Interim results out for the six months to the end of September are, as expected, on the financial point but what is exciting about these numbers is that you’re going into new projects. It seems like you’re expanding all the time.
Alec, it’s very interesting. Yes, we are busy with some very nice expansion in the portfolio. We anticipate enlarging the portfolio in the next two years from 150,000m2 to 200,000m2. We’re busy with 50,000m2 of expansion. In the last year in particular, we’ve concentrated on strengthening the centres we have. The one in Atteridgeville has increased from 40,000m2 to just over 50,000m2 alone. With the one in Mamelodi, we’re now busy with the acquisition of a new property, which will allow us to expand it to probably around 65 or 70,000m2. The other investment that we’re busy with in Namibia (the Swakopmund Waterfront) is coming on very nicely. The leasing is where we want it. Ultimately, we have the tenants we wanted. It’s a nice small craft harbor, which is part of the investment there and it’s a big investment – in total, almost R600m – of which, we’ll sell the flats off for the partners.
These are all very beautiful, luxury apartments and we’ve gotten unbelievable enquiries for that, even from people here on the Stock Exchange who want to purchase there from us.
The company you run is very interesting because you have targeted your investments very carefully. Let’s start off with Atteridgeville. I see, from the announcement this morning that you’re going to be building yet another shopping centre. It will be your third in that area – former township. What do you call them? Do you still call them townships today?
Yes. We refer to them as townships.
You have Atteridgeville, Sebokeng, and Mamelodi as your bulk investments. We’ll talk about Namibia and the very exciting Swakopmund in a moment, but just take us through your strategy and your thinking. Why did you focus on those areas?
This almost happened by chance insofar that we started in Mamelodi with a small investment of around 15,000m2, which is 45,000m2 today. That was followed by Atteridgeville, which started at around 22,000m2. That literally doubled in the last couple of years. It’s also the fact that the tenants (the nationals) became interested in the areas. We had to do a lot of marketing to get them there but today, they’re all there and they’re all very happy. In fact, we have wonderful trading densities, which is a reflection of the success of a centre. The Mamelodi trading density is unbelievable, a R37.00/m2 and that is 50 percent above the market average but we are well above the market average. The other nicety is that we are still around R113.00/m2 letting compared to the national averages, which is R170.00. It’s attractive for the tenants to be there.
It’s easy for them to afford the rentals and what is positive about that is that we also see this reflected in the prices they charge the public. That is positive because the benefit [for the public] is not only that it saves them travelling there, but it also enables them to buy cheaper.
It’s a lovely story if you consider that previously, in order to get any decent shopping experience, people in those areas had to pay a lot of money for transport. Are others following you into the townships?
Yes. There’s a lot of interest. It’s not always to our advantage, but we’re keeping our eyes open to what’s happening. Yes, there’s a lot of interest. The issue that you mentioned in Atteridgeville: yes, we are busy with a third centre. The total will take the Atteridgeville exposure to around 70/75,000m2 for us. There is a demand for a little over 100, so we are still within the market demand. We did our market studies, as we normally do but we have the right interest and this also proves to us that the tenants want to be there (and these are all new tenants), which is also positive.
Are you linking your rentals to the turnovers in the centres?
Yes. Obviously. With all our majors, we start with a low rental and we have turnover rentals. It’s interesting. By other people’s standards, these are not big figures but for us it was nice. Last year, we earned a little over R4m in turnover rentals, which shows you that it’s successful. This applies to each and every centre that we have so turnover rental is a vital part of our leases, which we negotiate with our tenants.
It’s a great model and I think, very easy for investors to understand. You’re going into the townships that were poorly serviced in the past and you can give a good deal to everybody. However, you’re also moving out of that core area into e.g. Swakopmund, which is very different to Atteridgeville (or certainly, the project you’re doing over there).
Sure, it is and it’s very exciting. I was there last week and it’s really nice to go there. Swakopmund is a unique little town of around 50,000m2 but it doubles in the season time. If you look at the demographic/market studies, it has a very strong spending power and we have all the majors. It’s very interesting. We have Checkers as an anchor. We have Edgars with a big store (bigger than they have, currently) and we also just secured Woolies with a proper food section, which was wonderful for us to experience. Otherwise, we have all the other nationals.
That’s a big part of your armory in being able to negotiate national retail chains to come into your stores. Was it hard to break in?
It is always hard if you’re a new name. We’re relatively new in the market but today, we are established. People know us and they know that they can believe what we promise them, which is very important. It’s nice to have a nice relationship with our national tenants. We have very good relationships with all of them. It takes a while. Certainly, in the townships, it took a while to persuade all of them to be there. It took us several years of marketing in some cases. Swakopmund is funny. It started in 2010 so it gives you an idea of how long these things take to establish, and we’ll only be opening there next year. Once it’s there, it will be a landmark development for Namibia, which is wonderful. We have a little old one, which is in Heidelberg – south of Johannesburg – and we’ve just done a nice revamp there. The nicety of the revamp is that it also paid off in terms of the turnovers of the tenants.
We have another friend who developed a so-called major just outside town and I think we’ve given them a good go for their money, which is nice.
It is interesting. You have this focus in the township areas, as I mentioned earlier. Mamelodi, Atteridgeville, and Sebokeng and that seems to be doing extremely well. Now you’re expanding into Namibia with Swakopmund and you’ve mentioned the Victorian in Heidelberg but also, into the future you’re building a Day Clinic in Soweto and even an office block. Are you becoming more opportunistic now rather than very focused?
Obviously, we look at ‘what is a good investment’ and a Day Hospital is a lovely investment. For us, it’s a single-tenanted building. It’s going to be operated by Advanced Health. They listed last year and the CEO of Advanced Health Carl Grillenberger, (whom I happened to know since the early nineties), and I did a private hospital together in Rustenburg, which was very successful for years. It’s still there today. It’s very successful. It belongs to Life. Carl knows what he does and he did a very clever thing in going into Day Hospitals. We believe that Day Hospitals are the future of medical care. It’s cheap, affordable for everybody, and the medical funds like it. It’s a good success recipe. For us, it’s a single cheque every month with no effort (nice) and the office is actually a little head office. It’s a nice office. It’s in the Lynnwood area. The property we purchased is in the Lynnwood area of Pretoria.
It’s close to the N1. A very nice address, a very easy address, and we see it as a corporate office building of around 10/11,000m2. It’s a fantastic address and everybody is very jealous of the fact that we actually managed to get the 1.3ha together there, which everybody thought was impossible. We did it.
Forty-million for the land though, sounds like quite a big investment in the context of the Group. How much are you going to be spending on building the property?
No. It will probably end up as investment of around R200m, but that is fairly normal. We paid around R2 600,00m2/R2 700,00m2, which is normal for the area. It’s not above the market.
That will then be your head office but there will clearly be other tenants.
Yes. For us, it’s a perfect corporate park where we’ll have corporate tenants and that’s our aim.
You’re not moving in to more office buildings, though.
No. This is special.
It’s interesting, the relationship/partnership with Advanced Health and Carl Grillenberger. He is clearly proving that model. Are you likely to be partnering with him in new Day Clinics?
Yes. We want to. In fact, we want to try to establish a Day Hospital at each of our centres. We believe it’s a vital component in the future for a centre. It’s so easy. If people go to hospital and the family who visits them stay even for a day, they can shop, sit at restaurants, and relax. For them, it’s very nice. It’s a nice combination. It’s also a nice facility to have at a shopping centre.
Francois, it’s an exciting story. We’ve seen your company grow. You are expecting to continue in this vein. It’s about a R2bn business at the moment. Where do you think it’s going to end up in say, five years’ time?
I’m intending to go to R5bn or R6bn by that time. By the way, we are working on acquisitions or semi-mergers (whatever you want to call it). In other words, we also want to see if we can expand the portfolio by other manner/means and not just by organic growth. At the moment, it’s staying at organic growth so we will do any good acquisition that suits our portfolio. We were fairly well advanced with one deal, but we ultimately came to the conclusion that it doesn’t really fit the quality of our portfolio. We are very conscious of that. We got the same message from our big investors. We have some very nice investors that came on board as we listed and they’re also reinvesting. In that way they say, “Stick to the model. Don’t be hasty and do it carefully”.
You mentioned reinvesting. It’s quite an innovative program that you have where the shareholders can decide to just put their money straight back into shares in the company. It used to be popular in years gone by, but now it seems Cash Dividends have become more fashionable. What got you into resuscitating these Cap issues?
It’s called a ‘script dividend’. In other words, not just all distribution. You have the option where you can take other shares or take the cash. It’s interesting. We have around 28 to 30 percent of shareholders who prefer the shares instead of the dividend and you allow for it. Whether you get it or not, it’s not important but it’s nice to see. It’s a form of trust that shareholders put in the company, and so it’s very positive for us to experience that. It’s normally the bigger investors, by the way. At the moment, they’re not keen on cash income. They want to see growth in the numbers that they’ve invested with us.
Just to close off with, the big investment that you’re going to be making is that third shopping centre now, in Atteridgeville. From that perspective, will you have to go to shareholders to raise more money?
We are in the process of doing it. We’ve partially done a rights Issue and we’re currently busy with Private Placement. The reaction we got is surprising so we’ll be able to make an announcement on that fairly soon.
Surprising as in ‘good’.
Yes. Yes, it’s positive – very positive.
Pricing it at around NAV of R8.70.
Yes. R8.75. We’ll be pricing it at that figure. That’s right. We thought of a lesser figure at first but it looks as though we’ll probably (similar to the first time around) raise another R300m/R400m. We like to have a low debt ratio. Currently, it’s a little over 30 percent. That would bring us back to around 20 percent, which will be very nice. Maybe even below 20 percent…
Your own cap though, is about 30 percent. You don’t want it higher than that.
We don’t really like it higher than that.
Francois Marais is the Chief Executive of Safari Investments and this special podcast was brought to you by Safari Investments.
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