Safari Investments: Property jewel hidden in the small cap graveyard – with a plan to make it shine

LONDON — After reading through the latest financial results, it’s hard to understand how the share price of Safari Investments has been in a steady decline for the past three years, dropping from over 850c to the current level just above 600c. But in this interview with CEO Francois Marais, we got to look past Mr Market’s irrationality into a shrewdly-managed business that deserves to be far better rated. And hear that Marais and his board have a plan to make that happen. – Alec Hogg

In this special podcast, we speak with Francois Marais who’s the Chief Executive of Safari Investments.

Well, good morning to you Francois. It’s financial results time again and when I have a look at Safari Investments’ numbers (we’re going to talk about those in just a moment) and I look at your share price I can’t understand what’s going on, but I’m sure you’ll be able to unpack that for us in a while. These are really good figures for the year to the end of March, operating profit of 27%, headline earnings per share up 9%, a good year for you. You must be feeling enthusiastic.

Yes, thank you Alec, thanks for the opportunity to talk to you. In the course of the year we ended a share issue which resulted in us collecting R900m from the market and this resulted in us having only 3% growth unfortunately in the dividend distribution, but the actual distribution increased from R118m the year before to R180m this year because of the share issue. We generally had very good results, we didn’t grow the portfolio size, but we did have capital growth of 8% and income growth of 18%. The good news is that in the year coming we will be extending the portfolio in size from the current size, which will grow to 224,000 square metres, which is an increase of 20%.

The nice figures are that our average trading density in the small regional centres that we have is 32,600 per square metre and the national average for the same type of centre is only 26,500, so there we had very good results. The other positive thing is that our trading density year-on-year increased by 9% in the present market conditions, which is excellent, where the average again for the market was only 3%. We had very good results as far as that is concerned and very good growth, but we did have a strategy session earlier in the year and we decided to grow it aggressively. It is our intention over the next few years, to grow from what we are now currently, a small-cap. That is why our share price is trading where it is trading. We want to grow into a mid-cap and it is our intention to do that fairly aggressively.

We’ll also be looking for potential investments in Eastern Europe in the old East bloc countries and we are focusing, in particular on Bulgaria, which seems to have some very good possibilities.

Our average rental increased from R135 the year before to R142 this year. It’s interesting the foot count for the centres on the three major centres is a foot count at Mamelodi of 1.2 million to 1.5 million and that is very high, percentages around 40 per square metre. In the other centres, the traded foot count was from a million to 1.1m, which is also very good. Generally speaking, we had very good results from the various centres that we have. How we are extending the portfolio, is we’re adding another retail centre in Atteridgeville.

It’s called “Nkomo Village” and the nicety of that one is that it’s not big, it’s around 24,000 square metre gross with around 20,000 lettable and we’re starting with eight ten-year leases in that development. Then we have also decided on the acquisition of a smaller convenience centre in Polokwane. Just for interest sake, the centre in Heidelberg, which is a convenience centre has a trading density of 47,300 per square metre compared to a market average of 38,500. We’d like to if we can also acquire good centres in the convenience market generally speaking to outperform other people.

Francois, just to unpack a little bit of this, you’ve mentioned the Atteridgeville and Mamelodi operations. How much of the portfolio now is based in the under-served former townships in South Africa?

We currently have seven different properties in the portfolio and the three that you are talking of are around 60%, maybe 65% in that area and we are looking at extending Mamelodi by almost 50% in size to 70,000 square metres.

My question being, is that the reason why you’re achieving these far better trading densities than we’re seeing in the market average? As you’ve explained, both of those, both in the smaller centres and in the urban areas, your trading density achievements are far higher than the national average. Is it because of the way the portfolio is focused?

Most definitely, the previously disadvantaged areas or the township areas, whatever you want to call them, they are certainly performing unbelievably well and we’ve always focused on them, but similarly that’s why we like to look at also acquiring other convenience centres. These centres are also performing very well and see some nice changes that’ll make another Heidelberg possible. It’s so interesting, just by the way, the Heidelberg anchor tenant is a Pick ‘n Pay and that little Pick ‘n Pay is turning over a million a day. Compared to Mamelodi Shoprite, which is also turning over a million a day, it’s quite incredible to think that in a town like Heidelberg you can actually have a turnover like that in a shop, but it’s a very good performance.

What is a convenience centre?

It’s up to 15,000 square meters, that is considered in the market here as “convenience” and convenience is between 7-8,000 and up to 15 000. Then you must jump to above 35,000 to 40,000. All the other centres are now above 40,000, they are around 45,000 square metres. We also made some very nice changes to the centre in Sebokeng, which is called “Thabong” and we are busy with that now. You’ve probably heard about the Edcon group that decided to reduce their overall area of 1.4 million back to a million. This has affected us only in two places and in both cases we’ll be able to make some very nice changes that’ll improve our income substantially and thereby also obviously the capital value of the portfolio will increase by about 25 million because of that, so it’s for us very positive.

How important are the big retail chains like Edcon in your portfolio?

They’re not big. The current areas that we let to Edcon are just a few thousand square metres in our total portfolio. It won’t affect us in any great matter, but they’ve maintained most of their shops and they’ve maintained it because they’re very good performers. It’s only in the two cases that we’ve lost them and there it was very beneficial for us to do so.

How important are national brands generally in your overall mix?

Our actual content of national brands are around 88%, so the portfolio is filled with 88% and in fact, with the changes that we’re making now it’ll probably go to above 90% again. Therefore, we focus as far as we can on national brands, but also the smaller local traders, you know because we’re in townships we like them to be there and they’re also performing exceptionally well. They’re very happy, so the rest of the portfolio is also very good performers and we get very good rentals from them.

It also helps no doubt with the vacancy levels.

Our vacancy level is currently 2%. The reason for that is maybe because of the start-up in Swakopmund in Namibia with the waterfront that we built there, it’s called Platz am Meer, but also there it’s now beginning to fill up. I guess by the next two or three months we’ll be around 98% let and that is largely the reason why we have a 2% vacancy. The national average of vacancies in our type of market is 4%, so we are well below that.

Again, getting back to what we started off with, when I have a look at the numbers that you put on the table, the way that you focused your entrepreneurial approach towards things, you have to shake your head at the share price. Do you do that as well?

We have made a decision to focus on improving the share price by virtue of focusing very actively on investor relations and we will be doing that this year. In fact, we’re focusing on meeting all the various analysts to talk to them about our portfolio so that they get to know it well. We were very focused in the last two years on the share issue. That took up much of our time because of the Zuma palaver, but that is now past and we can now see the investors. The nice deal that we’ll also be doing is that the new acquisitions will in all likelihood be done against our balance sheet. We don’t have to issue shares again, so we will have a very healthy balance sheet to work with and by doing that you obviously improve the share price and so it will benefit your shareholders.

What kind of cash do you have available given that you’ve just done this big issue of R900mn?

We’re currently geared at around 16% or 17%, so we have a billion rand available in cash, which is for us a very rare situation, very nice.

Well, if you’re looking at a R2bn market cap it certainly does scream out at you. However, you say that you’re starting to make little acquisitions now, so the cash that’s raised is not necessarily all going into your existing projects or into expanding them.

No, we’ll probably apply at least 50% of that to new acquisitions and we’ll be doing it against the balance sheet, which will be very beneficial to the shareholders.

Francois, the project pipeline, you did mention Bulgaria.

Yes, we were advised by one of our good friends, I could probably mention his name. It’s Ian Anderson from Bridge Fund. He advised that if we have to look at offices and that is exactly what we are focusing on. We’ll start with a small purchase of around €23-24m with the view to settle and then we can see how we can expand. It’s high quality, it’s an entirely new building, and it’s basically only four tenants, which are entirely international tenants.

By our standards, these are all national, so it’s a very good investment to start with and a very safe one. There are some new advantages. In South Africa there’s now what they call a headquarter company, which allows you to have a local company which must own about 30% of its investment overseas, which takes away having to have an offshore company. This is something that SARS just came out with, which is very beneficial.

Yes, it sounds sensible. The other issue that you did raise in your presentation and in your results is succession. Take us through that.

Yes, thank you, I wanted to mention that. We will be doing a SENS announcement in the latter half of this year as to exactly what will be the succession planning for the company, which will tell us how the CEO will be followed up and the COO and so on. That announcement will come by virtue of a SENS announcement.

Does that mean that you are stepping aside?

Not immediately, but probably over the next three years, but that will be explained, the how and the when. Dirk will be following myself amongst others. He is with us for a few years already and he’s going to do a particular MBA study, which is very rare in preparation for that. Once he’s completed that he’ll be ready to follow me up, which will probably be early 2021.

So it’s all rational, one step in front of the other long-term just like your property business. You can’t make quick decisions because I guess you pay for them.

That is the one thing we will always focus on, careful decision making, and quality. What we have currently in the portfolio we regard as very good quality and we will not deviate from doing anything other than quality investments in this term that is assured of long-term growth in your income and a long-term vision of how the company can grow.

Francois, how long has your management team been involved in the property market?

We come from probably around 21-22 years since the core started so we’ve come a long way together. We started four years ago with a €1.3bn capital value, which has now grown to €2.8bn, so we’ve more than doubled in the last four years, but in the next four years we’ll probably hopefully not double, but maybe triple that. That’s our intention.


So, you didn’t come to the market to list on the JSE just to tread water, you are still aggressive despite the issues that the country has gone through. You’ve managed in those four years to double the portfolio and now with Ramaphoria or our new president, you see the opportunities growing.

We see that for sure and it’s a good time to be in the market and to be able to look at acquisitions and to look at maybe doing acquisitions by virtue of share issues where it comes to a big portfolio that you take in. However, we are looking at that very carefully and very aggressively. There are wonderful opportunities that suddenly come onto your table that never did so before and there’s also a sentiment change again in the market to property. You know property has suffered. We’re not the only ones that have suffered; it applies to most JSE Companies. They all dropped their share price very radically, but we’re not scared of that, we’ll fix that. We know how to do it.

That’s Francois Marais, who is the Chief Executive of Safari Investments and it’s a company that if you have a look at the way it’s positioned, you can be surprised that it isn’t trading at a significant premium to the other companies in its sector. Go look through those results, one of those hidden gems that happen to be exposed on the JSE for those who are prepared to do their homework.

This special podcast was brought to you by Safari Investments, until the next time, cheerio.

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