The Western Cape property sector – despite the prevailing dour economic mood – is still looking vibrant with key properties still generating attractive returns, inspirational corporate action and adventurous developments.
Arguably Cape Town’s most inspired large property acquisition remains Hyprop’s tilt at the Canal Walk shopping centre back in 2003.
Hyprop – along with the Ellerine Brothers - paid Nedbank R1,16 billion for Century City-based Canal Walk, an investment that must now be worth more than five times that initial investment.
Hyprop seems a little bashful, these days, of disclosing too much information around Canal Walk. But in the 2016 annual report the property company indicated that Canal Walk generated R628 million in revenue and R443 million in distributable earnings. This confirms Canal Walk has long since paid for itself in earnings.
Although not on the same grand scale or located in such a upmarket locale, CBN noted that local property specialists Fairvest is making a nifty turn in its investment in Gugulethu-based Nyanga Junction.
Readers may remember CBN reporting Fairvest’s acquisition of Nyanga Junction from Momentum Property Investments in 2013 for R58 million.
At the time Fairvest argued that the acquisition fitted the growth strategy of focussing on acquiring retail assets with a weighting in favour of “non-metropolitan areas and lower LSM (living standards measure) sectors”.
The retail centre is situated at the Nyanga train station and is regarded as a prime example of commuter retail.
At the time of the deal Fairvest believed an upgrade of Nyanga Junction would attract a greater percentage of national tenants - resulting in an improvement in the tenant profile.
The sprucing up of Nyanga Junction has certainly paid off for Fairvest. The property is now valued at R132 million, and now ranks as the third largest property in Fairvest’s portfolio (just behind the R139 million Tokai Junction) or 6% of the total portfolio.
Fairvest’s notable success at Nyanga Junction probably means the company’s endeavours at the recently acquired Macassar Shoprite centre are worth monitoring closely. The company paid R41,5 million for this centre in September last year.
Fairvest’s recently released year to end June results confirm the overall strategy of tilting at non-metropolitan property assets is starting to pay off handsomely.
Fairvest’s property income rose 17.5% to R234 million with distributable income up a hefty 31% to R144m.
Of the R2.4 billion portfolio around 95% was retail property with vacancies at just 4,7%. Arrears was only 2,4% of property income – slightly up on the 1,9% seen in 2016 but still much better than the 5% reported in 2013 and 3,5% in 2014.
Fairvest management – headed by CEO Darren Wilder – also runs a tight ship. The gross cost to income ratio improved to 37,6% (last year: 38,6%) and the net cost ratio was pushed down to a commendable 15,5% (last year: 17,3%).
Wilder said Fairvest hoped to increase distributions to shareholders by between 9% and 10% - but also committed to pursuing yield accretive acquisitions.
He also aimed to contain arrears below 2% of revenue.
In other property developments in Cape Town, the recently listed Spear REIT, which is focussed exclusively on Western Cape real estate, has acquired MWProp Rental Enterprise which comprises a 2.2322 hectare property situated at Fairway Close in Parow for R145 million.
Spear CEO Mike Flax said the deal was in line with Spear’s strategy to invest into high quality assets within the Western Cape as well as increase its commercial assets in Cape Town.
The Fairway Close property is expected to generate R25,5 million in revenue and distributable profits of R3,5 million for the year to end February 2019.
The Fairway Close deal follows hard on the heels of Spear acquiring the Tyger Manor Retail Centre in Bellville for almost R60 million.
It seems Spear is determined to ride hard on the acquisition after raising fresh capital of R528 million in June and then another R182 million in July.
At the time of going to press rumours were swirling around a possible transaction between Spear and property aligned investment company Trematon Capital.
Both companies issued cautionary notices to shareholders last month, and a possible deal might see Trematon sell part of its Western Cape-based property portfolio to Spearhead.
Then in a most surprising development the Stellenbosch-based PSS Group – best known for its investments in Capitec Bank and private education specialist Curro Holdings – has pitched for a big deal in the specialist property sector.
News last month was that PSG’s investment arm PSG Alpha would invest R675 million in retirement villages developer and operator Evergreen Lifestyle in exchange for a commanding 50% share of the business.
Evergreen is part of the Amdec group – best known in the Western Cape for the The Yacht Club development in Cape Town as well as the Val de Vie and Pearl Valley estates in Paarl.
Evergreen already has four existing retirement villages in operation in Cape Town - Muizenberg (218 units), Bergvliet (65 units), Diep River (57 units) and Lake Michelle (31 units).
New locations have already been found at Noordhoek (Cape Town) and Val die Vie.
Evergreen has set a three year target of nine operating villages with an asset value of around R7bn. The five year target pencils in more than 20 villages with a gross asset value in excess of R20bn.
PSG Alpha CEO Nico de Waal stressed the company’s investment mandate was to invest in and work with businesses that showed high growth potential for the future.
He said with this approach, PSG Alpha focussed on identifying suitable businesses for a long-term commitment - ones that we are confident will deliver satisfactory returns for shareholders”.
“With its competitive advantage, intellectual capital and deep-rooted expertise in the retirement property development sector, Evergreen Lifestyle meets these criteria and is ideally positioned to entrench and grow its position as a leading provider in the retirement landscape in South Africa.”
Evergreen Retirement Holdings CEO Arthur Casee pointed out that the company’s offering stretched far beyond the stereotypical old-age home with its hospital-like atmosphere. “Ours is a hospitality-based approach, with resort-style facilities and amenities in all our villages, where you’ll find vibrant communities of residents enjoying an active, independent retirement lifestyle. And when the need arises we are able to match lifestyle to life stage with a range of care offerings to respond to the challenges of ageing.”
Wilson said the participation of PSG Alpha was of great importance for Evergreen Lifestyle - accelerating the growth of the brand and allowing for the rapid development of the many other retirement villages currently in the planning stages. “The injection of capital means we can rapidly expand our offering from the current 500 homes, to approximately 3 000 homes over the next three years. We want to scale quickly because the numbers of middle- to upper-income retirees in South Africa are growing quickly, so not only does the demand for quality accommodation exist, but it is swiftly outstripping supply.”
The property arm of empowerment group Hosken Consolidated Investments (HCI) is also building up a head of steam. The group’s recent annual report showed that the property arm – which was only started in 2013 – kicked in revenue of R470m.
And there’s more to come…
HCI chairman Johnny Copelyn said the property division - together with the Berman Brothers Group (BBG) -acquired the 23 000 square metre retail andoffice complex at the Palms
Lifestyle Centre in Woodstock, Cape Town in November last year.
“This strategic development opportunity acquired is positioned in a strong upcoming growth node in Cape Town and bodes well for the HCI/BBG partnership.”
There’s also been encouraging progress at Shell house, HCI’s second inner city housing initiative. The property is now fully operational with 100% of the retail let and 40% of the 528
rental units let in the first 3 months following completion.
Copelyn said the Whale Coast Village Mall (WCVM) in Hermanus - in conjunction with Checkers Limited - is under construction with the mall set to open in December. “The letting is satisfactory for the stage of the development. In time, the WCVM should follow similar trends to the Kalahari Village Mall in Kuruman - being the dominant mall in the region for many years to come.”
Copelyn added that phase three of Westlake Extension development had broken ground. “This 13 000 metre square joint venture development with Abland will be ready for beneficial occupation in May 2018.”
Copelyn also indicated that ongoing town planning and pre-development processes were in progress for two further, well positioned, mixed-use sites in Sea Point.