Accelerate Property Fund (APF) is a small-ish REIT focused on retail properties in South Africa. Keith McLachlan, in his excellent blog smallcaps.co.za, perfectly describes the rather worrying prospects for retail REIT’s in South Africa. Whilst, I agree with his findings, I believe that APF offers a unique opportunity in this market segment, due to their focus on grade A retail destinations in up-market growth nodes.
APF has been busy with a few new acquisitions and the holdings of the company have changed significantly. By my estimates an investment in APF will be weighted into the following properties:
35% – Fourways Mall Development
20% – Further investments in the Fourways area such as Cedar Square, Cedar BMW and another smaller mall in Fourways.
More than half of APF’s market cap is in the Fourways area, which is where I live. This area is a bustling hub, mostly populated by young affluent professionals, who are tired of traffic and happy to shop and spend in proximity to home. Fourways is also forecast to grow and is certainly on the shortlist of destinations for the next phase of the Gautrain development. I am convinced that retail in this area will continue to outperform the South African average.
20% – OBI retail warehouses in Europe
APF recently acquired nine warehouses in Austria and Slovakia. OBI is essentially like Builders Warehouse in Western Europe. I am generally not a fan of South African companies moving into developed markets, as I feel their strength and area for growth is in developing markets with the right demographic trend. The acquisition is acceptable, with a yield of 7% (above the cost of debt) and a discount to independent valuations, but I am investing in the company despite this deal, not because of it.
10% – A share in the Portside Tower in Cape Town
5% – The Eden Lifestyle Center in George
Both these destinations are grade A prime destinations in growing towns, with limited room for expansion and therefore fit well into the APF strategy.
The remaining 10% is made up of small locations in Sandton (excellent) and other provinces.
APF currently yields 8.6%, which is higher than the average yield in the sector, and is growing distributions despite the investment costs the company is incurring at the Fourways Mall development. At R6.50/share, the company is also trading at discount to NAV of R7.10/share.
One of the exciting aspects of the company is that management have participated heavily in the recent private placement, which was held to fund the European acquisition. Andrew Costa the COO has put in R105m of his own money, while CEO Michael Georgiou, who already own just over 33% of the company, has put in a further R125m. This is a sign of a management team very confident in its own strategy, direction and investment fundamentals. The company’s chairman is Tito Mboweni, another indication of the strength of management.