Presenter: Lindsay Williams  Guest(s): Estienne de Klerk 

The industrial sector has lagged behind the retail and commercial sectors of the listed property portfolio of the JSE - but this is no longer the case according to Estienne de Klerk, executive director of Metboard Properties Limited

LINDSAY WILLIAMS: Last week when we spoke on Summit TV I got the distinct impression that having been a laggard before, the industrial sector is now coming to the fore - is that correct?

ESTIENNE DE KLERK: Yes, we believe that the market has definitely improved - we can see across the total geographic spectrum in South Africa that there is definitely a firming in rentals as a result of a shortage in the market of good industrial space.

LINDSAY WILLIAMS: Talking about industrial space - how do you define it? I would think of it as manufacturing facilities - warehousing, that sort of thing - is it as simple as that?

ESTIENNE DE KLERK: Yes, it’s actually a little bit more than that - it includes industrial parks, mini units, warehousing and logistics facilities, light industrial properties, heavy manufacturing, and a new category of retail warehousing that includes your Tile Africa type of warehouse that really is a retail facility. We also have the motor trade, and motor showrooms included in this.

LINDSAY WILLIAMS: So you would go out for example to an area like Midrand - between Johannesburg and Pretoria - and go to a warehouse that’s a storage facility and at the same time a retail outlet. Is that what you’re talking about?

ESTIENNE DE KLERK: Absolutely. I think the good examples are your value propositions that are being offered out of warehouse facilities - this has been a very popular way for high volume goods to move in South Africa. We believe we’re going to see more and more things like tiles and hardware - even furniture possibly - being supplied from facilities that have a lower cost structure, and as a result of that it makes sense for the people selling those commodities to do it from those kinds of facilities.

LINDSAY WILLIAMS: So retail meets industrial - it becomes a hybrid! How do you classify it then if you were going into investments? If you were to spin off a portfolio from a traditional mixed listed entity - how would you describe it? It seems to be more retail than industrial...

ESTIENNE DE KLERK: Absolutely. I think from our point of view - how we look at it - should that tenant leave we would be able to let it as a logistics or warehouse facility, and that’s really how we see it. We look very much at the structure - so it isn’t a specific facility for that entity, it’s in fact a standard warehouse, and it is being used for retail purposes at the time, but should that tenant decide to leave we would be able to let it, say, to a logistics company. So that’s really how we’ve looked at it - and it’s a hybrid there’s no doubt - but it is definitely a very attractive new option in the Metboard stable.

LINDSAY WILLIAMS: Is this in response to a shortage of affordable retail space?

ESTIENNE DE KLERK: I think it definitely has had an impact - it probably would be better to speak to the retailers on why they feel that those facilities are more attractive. You probably find that the specific items that are being sold from these sorts of properties really are destination items - so if you’re building a house you would then go to a specific facility to go buy your hardware, etcetera - and these suppliers obviously are moving very high volumes of their product, and they’re trying to keep their overheads as low as possible. As a result of the fact that they are destination facilities the location is important, and if you can get the necessary visibility and functionality of that facility it makes sense for those guys to do it from those kind of facilities.

LINDSAY WILLIAMS: From an investment point of view which JSE-listed entities have a greater exposure to industrial than the other two vehicles?

ESTIENNE DE KLERK: Obviously Metboard Properties Limited is by a substantial portion the largest - it has roughly it has about R2-billion worth of industrial property at the moment, about 170 properties. After that I would say that Martprop currently has about R1.2-billion to R1.3-billion - they would be about the second largest. Pangbourne and Capital are two other funds that do have larger components of industrial exposure. Quite a few of the funds have got a bit of industrial - but it’s bits and pieces, quite small...

LINDSAY WILLIAMS: Metboard’s share price over the last year - how has it performed?

ESTIENNE DE KLERK: It’s in fact been quite incredible to see the performance of quite a few of the counters in the real estate sector - Metboard specifically, from June to June - we had a real return of about 67% which is not bad!

LINDSAY WILLIAMS: Not bad at all. Looking at my graph now - a low of R3 on 20 September 2004 - so a year ago it was R3, closing today at R4.45. What’s that? A 50% increase!