Mid-cap property stocks may not always get as much investor attention as their heavyweight counterparts or the small start-ups. But Accelerate Property Fund, a key player in the burgeoning Fourways node on the northern outskirts of Johannesburg, deserves a second glance.
The counter, with a market cap of R5bn, is trading at an attractive dividend yield exceeding 10%, substantially ahead of the listed property sector’s average 7.2%.
Accelerate’s share price has underperformed the SA listed property index (Sapy) over the past 18 months, despite the company delivering dividend growth of a solid 9%-10%/year since listing in December 2013.
Lack of liquidity is partly to blame as the shares are tightly held by management and a few large institutional investors.
Analysts say a relatively high loan-to-value (LTV) of around 40% may also have caused a drag on the share price as would-be investors could have put buying decisions on hold in the hope that the company would come to market to raise fresh equity at a discount. However, by the March year-end the LTV had reduced to 35.6%.
But the company’s retail bias — more than 70% of its income comes from shopping centres — has no doubt also dampened investor sentiment, given weak consumer spending and concern that many areas have an oversupply of shopping space.
The fact that Accelerate’s largest asset by far, Fourways Mall with a value of around R2.3bn, is undergoing an extensive redevelopment may also be perceived as a risky move given the recent opening of the 131,000m² Mall of Africa near Midrand.
The latter is about a 20-minute drive away.
Fourways Mall will nearly double in size when the expansion project is completed in mid-2018.
The centre, which was originally built 23 years ago, will swell from the current 90,000m² (including the stand-alone Game and neighbouring Fourways View) to a whopping 170,000m², making it one of SA’s three largest shopping centres alongside Gateway in Umhlanga and Canal Walk at Century City in Cape Town.
There is also the issue of rental earnings potentially being negatively affected during Fourways Mall’s three-year redevelopment period.
However, Accelerate chief operating officer Andrew Costa says the developer has provided a rental guarantee to top up any potential loss of income during the entire construction period.
He concedes that there has been a natural drop in footfall since construction started in August last year but dismisses market talk that the Mall of Africa may take away some of Fourways Mall’s customers.
“We have a loyal and diverse target market within a very concentrated catchment area in close proximity to the mall along the major arterial routes of William Nicol Drive, and Cedar and Witkoppen roads. Ultimately, it’s all about drive time and once the novelty of a new mall has worn off, shoppers tend to return to their closest regional centre.”
Besides, Costa says the introduction of a number of international retailers and more upmarket tenants to the centre will cater to the needs of a growing community of affluent residents from nearby gated estates such as Steyn City, Blair Atholl and Dainfern.
In fact, he believes the mall is likely to gain shoppers as many of the area’s well-heeled residents currently tend to shop at Sandton City.
Says Costa: “The extension of Fourways Mall was long overdue and has been tenant-driven, with about 80% of the additional space already pre-let.’’ Accelerate’s other Fourways retail properties include Leaping Frog, the Buzz and Cedar Square.
The latter is undergoing a R100m upgrade.
Analysts are equally bullish about the prospects for the Fourways area.
Coronation Fund Managers property analyst Anton de Goede says Accelerate’s Fourways holdings gives the company exposure to a node with strong growth potential.
“At present major investment projects in the area, from expanded residential estates to improved road infrastructure, support the expansion of Fourways Mall and the upgrade of Cedar Square.”
Stanlib listed-property analyst Chloe Wing-See Ma says they like Accelerate’s focused strategy to build a strong concentration within specific growth nodes such as Fourways, Charles Crescent in Sandton and Cape Town’s Foreshore. Accelerate recently acquired Old Mutual’s 50% stake in Portside Tower on the Foreshore for R755m.
Ma believes that Accelerate will be able to easily find tenants for the remaining 20% of the new, unlet space given the interest displayed by international retailers to trade from dominant, super-regional shopping centres.
Accelerate will acquire 50% of the extended Fourways Mall at an 8% yield, which Ma believes represents “excellent value” for a centre with its track record.
The first phase of Fourways Mall’s upgrade is on track to open mid-November when a new parkade on the Fourways Boulevard entrance will be completed as well as a new food court and family entertainment wing. The latter includes the trampoline concept Bounce, which will take up 4,500m².
Other new tenants include fashion brands Mango, H&M, all the Cotton On brands, toy shop Hamleys and food outlets such as Simply Asia, Adega Express and Marcel’s Frozen Yoghurt. Negotiations are apparently under way with a number of undisclosed international retailers.