Vunani Property makes new JSE listing

Posted On Friday, 19 August 2011 02:00 Published by eProp Commercial Property News
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With yet another bricks-and-mortar portfolio Vunani Property Investment Fund made its debut on the JSE, the fourth new property listing since November.

Rob KaneIncome chasers are being spoilt for choice, with yet another bricks-and-mortar portfolio making its debut on the JSE. Vunani Property Investment Fund was, last week, the fourth new property listing since November.

What differentiates Vunani from existing real estate counters is that it’s the only fund that has an almost exclusive exposure (92% by value) to the office sector. Most offer a mix of retail, industrial and offices.

Vunani was originally assembled in 2006 as a BEE initiative together with shopping centre owner Hyprop Investments The latter still holds an 11,5% stake in the company. Vunani Properties’ Pieter Mackenzie and Rob Kane have over the past five years grown the portfolio to 21 buildings worth around R948m.

Though it’s still a relatively small player — the average listed portfolio is sized around R5bn — Vunani’s private placement was well supported by investors. Some R622m was raised at a prelisting issue price of 705c/share.

The timing of the company’s listing may have been somewhat unfortunate, given that the sector had slumped 4% over the preceding two weeks. But Vunani still came to the market at a fairly attractive forward yield of 9,7%. That means investors can buy the stock at a 100 basis point discount to the sector, which is trading at a forward yield of 8,7%.

Kane, who is the CE, says the prelisting take-up exceeded expectations and enabled management to list the fund with almost zero debt. That allows management to immediately start looking for value-enhancing acquisition opportunities. “Our focus will be to continue growing the portfolio, while maintaining the quality of the properties and delivering superior shareholder returns,” he says.

Investors may wonder why Vunani has decided to bring an office-focused fund to the market while demand for commercial space remains in the doldrums. Kane concedes that the office market is currently more depressed than the retail and industrial sectors. “But that means the office sector offers the best rental recovery upside once demand turns.”

He says the fact that few new office buildings have been developed since 2008 will create a shortage of supply over the next few years, which will further support rental growth. However, he stresses that Vunani will play only in the middle of the office market mainly A and B+ grade buildings in prime locations.

“We don’t want to be at the top end, which is fully priced with limited growth opportunity. The bottom end of the market is also risky as these properties tend to be in poor locations, are functionally obsolete and don’t hold their value.”

At present 80% of Vunani’s portfolio is spread between Johannesburg and Pretoria and the balance of buildings are mainly in Cape Town’s CBD. Flagship properties include Athol Ridge in Sandton (Vunani’s head office), Standard Private Bank’s head office in Hyde Park, Vodacom Park and Linger Longer in Sandton and Wale Street Chambers in Cape Town’s CBD.

Vacancies are low at 4,8%, with nearly half of the vacancies the result of current refurbishments. Vunani has strong empowerment credentials, so the fund is well-placed to negotiate leases with government — nearly 24% of the portfolio is already let to government tenants. Others include Standard Bank, Vodacom, Aegis BPO and Telesure Group. The fact that Ethan Dube, CEO of Vunani Ltd — a BEE financial services company — sits on the board will no doubt lend further weight to the fund’s BEE status.

Property analysts have welcomed the latest addition to the JSE’s R133bn listed property sector. “Vunani brings diversity to the sector and provides investors with a much-needed specialist opportunity through its focus on the office market,” says Keillen Ndlovu, head of property funds at Stanlib

He says Vunani’s portfolio has lower vacancies than the office market in general, and current rental levels are low relative to similar buildings. Ndlovu also likes the fact that the portfolio has for the past five years been run by the same team. “Management intimately understands the portfolio, which is evident from the above-market returns that the portfolio has achieved in recent years despite tough market conditions.”

For the year to end-December 2010, Vunani recorded a total return of 34,3% while income growth was a hefty 18,6%.

However, some analysts are sceptical about the timing and potential strength of an office market recovery. Jay Padayatchi, a director of property asset managers Meago, says the office sector’s performance usually displays a strong correlation to the general economic environment. “And the current recovery in the economy is looking very frail, given recent global events. Hence the recovery in the office sector is probably even further away than originally anticipated.”

Padayatchi says while Vunani offers investors a niche investment opportunity, it may be a stock to pick up further down the line “when there is greater clarity on the timing of the global recovery”.

Last modified on Saturday, 16 November 2013 09:02

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