Monthly Archives: September 2016

gavin_lucas_stor_age_property_reitStor-Age Property Reit (real estate investment trust), the only specialised owner of storage assets on the JSE, has acquired a smaller competitor as it looks to increase its scale, having grown organically in the past.

The Reit said on Thursday that it had “entered into a memorandum of understanding” with the shareholders of the third-largest self-storage operator in SA, Storage RSA Investments, in terms of which Stor-Age would acquire 100% of the shares in Storage RSA for an undisclosed amount.

“Shareholders will be advised of the detailed terms and conditions of the proposed acquisition as and when formal agreement has been reached between the parties in this regard,” Stor-Age said.

Storage RSA, an unlisted company, was established in 1997 when it opened its first store in Somerset West in the Western Cape.

The Storage RSA group has a portfolio of seven properties, four of which are located in the Western Cape, with the remaining three in Gauteng.

Stor-Age intends to become a R5bn property fund by 2020. Its current market capitalisation is about R1.4bn.

The company is focused on SA’s six major cities of Johannesburg, Cape Town, Pretoria, Durban, Port Elizabeth and Bloemfontein.

“The board is of the view that the proposed acquisition is in line with Stor-Age’s stated strategy of pursuing value-added acquisitions in a fragmented industry, thereby consolidating its position as a dynamic brand in the South African market,” the company said.

“From a sector perspective, concluding the deal would solidify and significantly contribute to Stor-Age’s position as a significant self-storage operator and property fund in the South African market.

“While there is some room for immediate value enhancement of the portfolio through Stor-Age’s sophisticated operations platform, the majority of this value enhancement will occur over time through key initiatives such as digital marketing, revenue management and scale in key markets,” it said.

Grindrod Asset Management’s chief investment officer, Ian Anderson, said the acquisition signified that Stor-Age was consolidating its position in the self-storage industry.

“While it won’t change StorAge’s numbers in the short-term, it is an important transaction in terms of the evolution of the selfstorage industry in SA. Stor-Age are consolidating their position in a highly fragmented industry.

“Having fewer, larger players with recognised brands and solid operating platforms will bring better economics to the sector in the long term,” he said.

Credit:

eprop

“Given improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks, the MPC has unanimously decided to keep the repurchase rate unchanged at 7% per annum,” Governor Lesetja Kganyago said on Thursday.

At its second last meeting of the year, the MPC expressed concern about the overall inflation trajectory, which remains in the upper end of the inflation target range.

“The MPC assesses the risks to the inflation forecast to be more or less balanced at this stage. The current level of the rand is stronger than that implicit in the forecast, and, in conjunction with continued low levels of pass-through from the rand to inflation, the risks are assessed to have moderated somewhat,” said the Governor.

However, some of the positive factors impacting on the rand may be temporary, and the rand remains vulnerable to both domestic and external shocks.

Since the previous meeting of the MPC in July, the rand traded in the range of R14.73 and R13.28 against the US dollar and has appreciated by 6.3% against the US dollar.

The MPC said other major risks to the country’s inflation outlook relate to food prices, with the bank’s forecast still expecting them to peak in the final quarter of this year.

The bank still expects food price inflation to reach a peak in the fourth quarter of this year at around 12.3%.

“The future trajectory of these prices will be highly dependent on the normalisation of rainfall in the coming months. Favourable weather patterns could see food price inflation falling faster than that implicit in the forecast,” said Kganyago.

Despite a positive growth surprise of 3.3% in the second quarter of 2016, the domestic economy remains weak, said the central bank.

The Reserve Bank announced that it has revised upward the forecast for economic growth for 2016 to 0.4%.The forecasts for the next two years have been increased marginally by 0.1 %   to 1.2 % and 1.6 % respectively.

The bank noted that while growth was more favourable in the second quarter, data suggests that the improvement is unlikely to be sustained in the third quarter.

Data released by Statistics South Africa on Wednesday showed that the annual Consumer Price Index (CPI) eased to 5.9% in August 2016.

On Thursday, the bank said its latest inflation forecast has improved with inflation now expected to peak at 6.7% in the fourth quarter of 2016, compared with 7.1 % previously. Inflation is expected to average 6.4 % in 2016 and 5.8 % in 2017.

The forecast for 2018 is unchanged at an average of 5.5%.

When coming to the petrol price, the bank expects it to rise in October following two consecutive months of price declines totalling R1.17 per litre.

“The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle. The committee is aware that a number of the favourable factors that have contributed to the improved outlook can change very quickly resulting in a reassessment of this view,” said Kganyago.

 

Source Eprop

There are opportunities for listed property companies in the industrial sector, especially in developing specialised warehousing and distribution centres, say experts. This is despite weak economic growth and a lack of demand for new manufacturing facilities in SA.

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We are working in a very low growth environment in SA with a challenging labour market and there is not much demand for new factories and the like. Nevertheless, there is demand for logistics and warehousing, where owners and operators specialise. This is where we have expertise,” said Fortress Income Fund CEO Mark Stevens.

Last year, Fortress took over Capital Property Fund in the largest merger in the history of the South African listed property sector.

Through the deal, Fortress, which had a focus on retail shopping centres that served transport nodes, was able to enhance its industrial offering.

The takeover of Capital by Fortress created a megafund and has generated strong returns for Fortress’ investors already. Fortress’ assets more than doubled to R55bn after the merger.

The company has a directly held R24.28bn property portfolio, which has a 48.4% weighting towards logistics and industrial buildings.

Dividend payouts to Fortress B shareholders for the 12 months to June increased 95.28% to 137.50c per share. This was the highest growth declared by the company since listing in October 2009. Fortress has separately traded A and B shares, and the A shares receive 5% distribution growth each period.

Stevens said Fortress was large enough and had enough expertise to service large retail, construction and engineering tenants who had more complicated requirements than many smaller tenants.

“There are opportunities in industrial property but it helps if you are large enough and have enough expertise to serve tenants whose desires are often shaped by global trends.

“These include the use of more efficient materials, building buildings higher rather than longer and green aspects,” said Stevens.

But some experts argue offshore industrial opportunities could be more attractive than domestic ones.

“We are very positive on international industrial property,” said Garreth Elston, portfolio manager at Alternative Real Estate Capital Management.

“The sector has benefited markedly from the shift of consumers to online shopping and has seen robust demand,” Elston said.

“Locally, the market has struggled along with the economy, and our view is that without a return to growth the local industrial sector will lag somewhat. As long as economic growth remains constrained in SA, industrial developments will struggle to replace lost tenants, and tenants have the upper hand versus landlords at the moment,” Elston said.

“Globally, the industrial sector and more specifically big-box distribution centres have been doing incredibly well on the back of increased demand and little or no new supply,” said Grindrod Asset Management chief investment officer Ian Anderson.

A major driver of demand had been increased online retailing, with retailers now needing more warehousing.

“This is different in SA, where we have seen an increase in development activity and significantly less demand from online retailing,” Anderson said.

Another specialised industrial property owner that is performing relatively strongly is Equites Property Fund.

Since listing in June 2014, Equites’s share price has risen about 46% to close at R15 on Monday.

source: Business Day

articles-cape_town_south_africa_504099543PRETORIA – South Africa recession fears fade as manufacturing and mining sectors output rebounded, with the gross domestic product (GDP) data for the second quarter of 2016 showing growth of 3.3%.

This follows a dismal first quarter, where the economy declined by 1.2%. This marks the fastest pace of growth for South Africa since 2014, Statistics South Africa (Stats SA) said in a report released on Tuesday.

The largest positive contributor to growth in GDP in the second quarter was manufacturing, which increased by 8.1% and contributed 1.0 percentage point to GDP growth.

“We hope that these signs of growth are an early indication that the manufacturing sector, which is essentially still fragile, can move towards stabilising and strengthening. We, however, always need to be cognisant of external factors which impact on local and global demand and, therefore, manufacturing output,” industry body Manufacturing Circle executive director Philippa Rodseth said.

Mining and Quarrying recovered in the second quarter, increasing by 11.8% and contributing 0.8 of a percentage point to GDP growth.

Finance, Real Estate and Business Services increased by 2.9% and contributed 0,6 of a percentage point to GDP growth.

Statistics South Africa (Stats SA) Deputy Director-General Joe de Beer said in nominal terms, the GDP growth is estimated at R1 068 billion for the second quarter of 2016, which is R25 billion more than the first quarter of 2016.

Finance Minister Pravin Gordhan told a South African Chamber of Commerce and Industry meeting on Tuesday that he was “a little optimistic” about economic growth in the second quarter following a 1.2% decline in the first quarter.

Economists, however, warn that while the improvement is welcome, headwinds remain for the sector because commodity prices and demand have yet to fully recover.

Conditions for manufacturers remained tough, particularly given the prospect of a strike in the sector, First National Bank senior industry analyst Jason Muscat said.

He expected manufacturing data for the rest of 2016 to “be choppy, even in the absence of strikes”.

Nedbank economist Busisiwe Radebe agreed, saying that although the better-than-expected production data in May were encouraging, conditions were expected to remain subdued in 2016.

Manufacturing production, like mining, was likely to continue being adversely affected by low commodity prices that were unlikely to “reverse convincingly” in the next few months, Radebe said. Considerable global excess capacity and rising domestic production costs would also affect production negatively.

Although manufacturing output is expected to remain under pressure in coming months, a key leading indicator of activity in the sector suggests that production increased again in June. The Barclays purchasing managers’ index rose to 53.7 index points in June from 51.9 in May. An above-50 reading signifies improvement in manufacturing activity.

The manufacturing and mining sectors have been in decline for the past few years and have been the sectors to lose the most jobs.

“The manufacturing sector remains fragile, and in this environment, we hope to see as many jobs retained in the short term as possible,” Rodseth said.

The rand strengthened against the major currencies – firming 1.15% against the dollar to R14.21. It was also 1.0% firmer against both the euro and British pound, at R15.86 and R18.91 respectively.

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