Investors are generally experiencing a yield famine, but for those aiming to wring out that little extra, ApexHi, the income property loan-stock company, is yielding about double bank deposit rates. ApexHi's yield advantage comes from an exclusive exposure to properties in central business districts (CBDs) that are generally shunned by other listed property groups. But, as ApexHi has shown, this does not mean assuming undue risk.
Says CEO Gerald Leissner: "When ApexHi started out in 2001 we were after yields of up to 19%, which meant we had to buy in CBDs." Viewed sceptically at that time by many property experts, ApexHi proved capable of delivering consistent earnings growth and is now positioned to enjoy the revival in demand for CBD office space.
Though Leissner does not expect to see CBDs returning to their former glory, he says they have an important role to play in meeting growing demand from government, municipalities and parastatals. Here ApexHi is the best-positioned property group to meet requirements for large office space (10 000 m²-15 000 m²).
Leissner says: "Growing demand could result in up to 40% of our 250 000 m² of vacant office space absorbed, which, at about R20/m² rental, would be great for the bottom line."
Government and semi government tenants, with national retailers and large listed companies, already make up two-thirds of ApexHi's tenants. Most leases are long, "with a high likelihood of renewals", says executive director Deon Feinblum.
But while this helps provide solid income, ApexHi is also braced by its unique capital structure, which has earned it an A- investment grade rating from CA Ratings.
To counter higher risk associated with CBD property, ApexHi adopted a capital structure similar to debt securitisation issues. ApexHi's share capital is divided equally into separately listed senior "A" and subordinated "B" units. "A" units have first claim to 45% of distributable income, with a minimum annual distribution of 102c/unit. This reduces risk to a low level and for this reason "A" units, yielding 12,1%, are afforded a higher rating by the market.
"B" units receive the balance of the income after "A" unit distributions have been satisfied. Since listing, "B" unit distributions have risen from 103c/unit in financial 2002 to an annualised 109c in the six months to December 2004, while "A" unit distributions have remained at 102c .
ApexHi's risk reduction strategies go beyond "A" and "B" units. Another important focus is on growing the portfolio to diversify risk over a larger number of properties. Since 2001, property purchases have increased ApexHi's portfolio from R260-billion to R2,8-billion, and targeted expenditure is likely to lift it above the R3-billion mark in 2004.
About a quarter of the properties are located in the Johannesburg CBD and about 10% each in the Pretoria and Durban CBDs. The balance lies scattered across SA from Polokwane in the north to Cape Town in the south, and most bigger towns in between.
ApexHi is also moving strongly into the retail market. Its R413-million purchase of Shops For Africa in 2003, and Century Retail for R122-million in May, increased retail exposure from 25% to 40%. Valued at R10-million -R20-million each, no single retail property dominates the portfolio, says Leissner.
"Rentals are good and space easy to let, and that assures regular income flows," he says.
