Pivotal Property Fund confident of spike in share price soon

Posted On Monday, 30 May 2016 22:02 Published by
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Jackie van Niekerk‚ CEO of Pivotal Property Fund discusses full-year results from the property investment fund.

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BDTV: Pivotal Property Fund confident of spike in share price soon

Jackie van Niekerk‚ CEO of Pivotal Property Fund‚ in an interview with Business Day TV conducted on Wednesday‚ discusses full-year results from the property investment fund.

Business Day TV: It’s been a pretty good year for the Pivotal Fund which has grown net rental income by close to 57%‚ resulting in headline earnings per share of 126% higher. Its NAV also rose by 24% to the year ending February yet its share price has done little since the company listed about 18 months ago. Let’s ask CEO Jackie van Niekerk why.

Jackie everything looks great on paper and we did see that share price spike to R25 last April‚ why is it lagging back at the listing price again?

Jackie van Niekerk: It’s probably a combination of things. We were hit quite severely last year with Nenegate in December and if we look at the development funds versus the REITs which have more liquidity‚ more volume and then also paying out a dividend‚ they’ve recovered much faster than the development funds which is very much a function of NAV growth year on year. We’ve got shareholders holding shares so the liquidity in the market also constrains the price movement because there are no sellers in the market.

We firmly believe we’re well placed‚ everything on paper and real on building sites and the values are there and the share price will follow in due course. Volatility in the markets is also putting a damper on the share prices‚ shareholders pricing in the discounts in the rising interest rates and asking will you deliver the margins from a development fund point of view.

BDTV: And will you deliver those margins?

JVN: To be honest times are tougher so getting bang for your buck is much more difficult hence the strategy of diversifying cross border in Africa and then also in Poland to be able to extract those margins that we have forecast.

BDTV: We can chat about the offshore activities in a moment but you have been quite conservative particularly with tying in interest rates...84% of your borrowings are tied in with interest rates and your average cost of funding is just marginally higher than it was a year ago and still below 10%.

JVN: Yes‚ it’s a great team effort that our finance team has been very active in engaging with the banks‚ restructuring finance at the right time. You don’t always get that right but I firmly believe we have done so. And I’ve always had a very conservative policy in terms of hedging.

It’s always been 80% plus hedging policy. Being a development fund you want that certainty prior to starting a development‚ that you’ll be able to hit those interest cover ratios from a bank point of view and then also the LTV (loan to value)‚ so very much a function from a policy driven...from a development fund point of view to be able to mitigate that risk.

BDTV: Let’s talk about some of the projects then. Alice Lane is of course one of your icon projects there on Alice Lane in Sandton...you’re on the third phase of that at the moment‚ aren’t you?

JVN: Yes we’re finishing up the third phase in April next year and we will be housing Bowman Gilfillan‚ it’s a 35‚000m² development but what is very exciting about this development is the open air piazza which we will be opening up to the rest of Sandton for the people to visit. That will be the first open piazza pedestrianised in Sandton which is a very exciting space for us to open up the piazza‚ not only to the tenants but to the rest of the public in Sandton and in Joburg.

BDTV: That’s seems to be a move in Sandton at the moment where they are trying to get more people onto pavements which don’t really exist at the moment‚ but they are trying to make it more pedestrian friendly aren’t they?

JVN: Yes they are. We have the Gautrain bus stopping at our site so it’s very much encouraging the walk between Sandton City and ourselves. We’ve opened up the site to the adjacent buildings to encourage the people to transit from a walk between us‚ the Gautrain and Sandton City. So a new trend for South Africans not driving everywhere but starting to walk.

BDTV: And some of the other developments that are coming up. You’re busy with the Kyalami shopping centre at the moment and that’s caused a bit of a stir with some of the residents in the area. But also Galleria‚ where we sit at the moment. This is going to be developed into an 80‚000m2 retail‚ office‚ hotel development isn’t it?

JVN: Yes‚ and residential as well. We are in the planning phases with the site. We’re very excited as we believe this is the last of the very good sites in Rosebank. We’ve seen out of the past the rental levels achieved and the demand for good office space in Rosebank‚ theres quite a high demand.

So we believe this is one of the last and best sites available for redevelopment and also again bringing that whole mixed-use precinct to life...residential‚ hotel‚ offices and interacting and being part of the vibe that’s been created in Rosebank which we feel is unique to Sandton and so an offering which is very much diversifying our portfolio from a development point of view‚ being in Sandton‚ Rosebank and key nodes in Pretoria.

BDTV: Let’s talk about the offshore diversification then because you have got into the Oando Wings Office development in Nigeria and then a month or two ago you also announced that you were taking a stake in a Redefine project in Poland‚ and that’s the Echo Prime Properties. So a bit of emerging market focus.

JVN: Very much so. Our diversification strategy is saying 70% in SA ideally‚ 15% emerging markets and then 15% matured markets. We see Poland fitting into the emerging market category as an advanced emerging market.

And Africa post its transaction will be just over 13% exposed into emerging markets which we felt very comfortable with achieving the certain returns to bring back home to the South African investor.

BDTV: Do you think theres too much focus from local property companies on Eastern Europe‚ Poland in particular?

JVN: In my understanding we are the first South African consortium with Redefine going into Poland. We’ve also seen that the focus internationally has been very much in Eastern Europe‚ not so much just from SA‚ but from the rest of Europe and globally there’s been quite a shift into the Eastern European countries. We just felt that Poland has all the right credentials from a risk profile point of view and we wanted to get into the upside in terms of the property game.

BDTV: When we look at net rental up 57% for the period‚ is that as more properties come on stream so you’re actually just getting more of the developments completed?

JVN: Correct. It’s a combination of acquisitions and developments finishing up that drove our revenue. So sustainable‚ no but over the period we will see it plateau into more of the organic growth of the in-force rental escalation.

BDTV: And the current year‚ what’s it looking like‚ what else is going to come on stream?

JVN: We’ve started off with Loftus Park‚ a mixed-use precinct in Pretoria which we’re very excited about. That will be finishing up in November 2017‚ Kyalami precinct with the first phase finishing up in April. So a big focus on our precinct developments and then maybe some more offshore investments if the price is right and the returns are good.

BDTV: And hopefully then a rerating of your share price?

JVN: Absolutely yes.

source" BDpro

Last modified on Tuesday, 31 May 2016 22:18

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