Pivotal Property Fund strikes deals in its first year on the JSE

Posted On Tuesday, 08 December 2015 18:47 Published by
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The Pivotal Fund, a real estate investment firm valued at more than R6bn in market cap, marks its first anniversary as a JSE-listed entity today.

Jackie van Niekerk

It previously traded in the over-the-counter market for five years. Being a relative unknown (by way of being a newcomer), Pivotal doesn’t command much attention from investors. That’s partly why its stock is stagnant – hovering south of R20 per share – but markedly trailing the Alsi and the SA Listed Property Index year-to-date.

But, a quick look at the net asset value growth suggests that Pivotal, founded in 2008 by Abland and competing with Attacq, Sirius and others, is going up. For one, Pivotal has recorded a 24% four-and-a-half-year CGAR in net asset value to August 2015. Pre-tax profit almost doubled for the year to end-February, to hit R621 million thanks to a series of transactions that have also bolstered the fund’s portfolio, and going to Nigeria where quality stock is in short supply. Capex is decidedly solid. Despite this, and amid a no-dividend policy, Pivotal’s market cap is too low.

Against the background of bumper results, coupled with an ever-growing portfolio (that includes Alice Lane office space in Sandton and Welkom’s Gold Fields Mall), the lowly 6% rise in the share price, year-to-date, seems odd.  Back to the solid maiden full-year results, Pivotal ascribes these to “the culmination of several key developments”. A point of concern is that it earns 90%-plus from South Africa (where its developments are concentrated in Gauteng). That isn’t inspiring more so as, to quote Pivotal CFO Aaron Suckerman, there are “fewer opportunities” here. Fortunately for investors, overreliance at home could soon be a thing of the past as the fund seeks to increase exposure in Africa and enter Australia in a bid to diversify.

According to Pivotal CEO Jackie van Niekerk, Mara Delta, a new platform that will “create a property powerhouse” in Africa will be a total return fund with a good income-producing portfolio valued at US$458 million (more than R6 billion) and “a solid” development component. “Our objective is to leverage the experience and knowledge of the executive management team and complement these skills by introducing further depth and competencies to the board.” The venture with the Bronwyn Corbett-led Delta Africa is in the wake of another one with Abland.

The 10-year-old property investment fund marked another milestone when it debuted on the bourse on December 8 last year – during which it raised R1 billion by way of an offer of scrip at an issue price of R17/share.  On this count alone, investors can’t be chuffed with a stagnant stock. Still, the past 12 months have been hectic for Van Niekerk, her team and the Tom Wixley-chaired board as the fund floated and went hunting. The board, overwhelmingly male, includes industry grandees Thys Neser, Dave Savage (both Abland cofounders) and Marc Weiner. Now 33 and one of the youngest CEOs of a listed firm, BCom Accounting-armed Van Niekerk arrived at Pivotal in 2009 as asset manager.

Not to be sidetracked by speed humps, and amid the many value-unlocking opportunities, Pivotal’s top brass has every reason to remain sanguine. “Notwithstanding the challenging economic environment in which we operate, we strive to maintain an above-average growth in net asset value per share as a development fund. We are pleased with the returns the portfolio has delivered over the last year.” The likes of Momentum Investments, Standard Bank and Sasol Pension Fund, among other investors, are probably focused on just that: above-average growth in NAV per share.

A look at the pipeline is encouraging. Construction at Sandton’s Alice Lane Building 3 is set for completion early 2017. It will have a total floor-area of 35000m² almost two-thirds of which has been let to Bowman Gilfillan law firm on a 12-year lease, according to the fund. For context, the Pivotal-held Alice Lane 2, completed last November and now fully let to Sanlam/Santam on lease for as many years, has a total floor area of 16000m² and the building was valued at more than R500 million on completion.

Further, the A-grade asset-rich firm announced, construction has commenced on the first building at Hill on Empire Office Park in Parktown of 6880m², due for completion in February. The entire development, overlooking the M1, a highway traversing the northern and other parts of Johannesburg, will straddle 35000m² (the size of Alice Lane 3). In addition to 80% in the 28000m² Kyalami Corner retail development, Pivotal has bought strategic land adjacent to Wonderboom Junction, to be used to expand this mall – adding a third of floor-area which would lift the total gross rentable area of 62000m². The expansion is set for completion in November 2016.  On the eve of its first anniversary on the JSE, Pivotal announced that it would spend R16.4million for almost 6% in Monte Circle Office Park. That’s yet another feather in its cap.

Van Niekerk and her team have no plans of slowing down. So, while Pivotal spent its first year, as a listed entity, pretty much in the woods, from an investment community’s angle, the period ahead promises to be as busy. With so much work ahead, the upshot of which is a more enhanced portfolio, 2016 could be the year that punters take note and that the stock kicks up a gear if not two or three.

Last modified on Wednesday, 09 December 2015 12:32

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