Exemplar REITail records solid double-digit dividend growth of 11.9%, with a full year dividend of 92,27 cents.
Exemplar is widely regarded as a market-leading retail REIT within the specialised “township & rural” niche that it operates. With a sole focus on the underserviced rural and township areas, Exemplar’s 22 retail assets (349,759sqm GLA) service between 10 and 15 million shoppers a month, offering investors access to a unique portfolio valued at R5,789b.
The company has achieved a distribution of 92,27 cents per share for the year ended 29 February 2020 against a forecast of 91,27 cents. In a market dominated by unfavourable macro-economic conditions, these results speak volumes about both the defensive nature of the Exemplar portfolio and the strength of the team managing it.
“As we brace ourselves for the uncertainty that lies ahead in the post COVID-19 environment, we are confident in our ability to read the landscape and rapidly adapt to any change in order to continue evolving for the needs of our customers and our country,” explains CEO of Exemplar, Jason McCormick.
“Our primary focus in the first half of FY2021 will be ensuring the sustainability of our existing portfolio and the tenants within it. We will continue to identify and implement effective strategies for the safety of our communities and the regeneration of both consumer confidence and the retail industry.”
The company follows a hands-on approach to asset management and believes that this approach has resulted in lower vacancy levels, higher tenant retention rates and a lower risk of negative rental reversions upon lease renewals.
Despite the uncertainty that COVID-19 presents, Exemplar continues to see significant upside potential and forecasts for further investment within its specific niche markets. The company is confident that it will continue to deliver long term growth for its shareholders, its communities and the nation, well into the future.
20 000 #MasksforGood delivered to the Alex community
The Youth Employment Service (YES) and Exemplar REITail are joining forces in a shared vision to protect vulnerable township communities from the spread of Covid-19 by creating and donating ‘home-sewn’ face masks.
The partnership will see a multitude of Alex-based seamstresses earning an income through the making of these masks. “We are proud of this partnership and the contribution to the protection of these communities while supporting and stimulating township economies during this very difficult time,” says Dr Tashmia Ismail-Saville, YES Chief Executive.
CEO of Exemplar, Jason McCormick states, “As a community-centric organisation, we want to ensure as many people as possible have access to masks to help reduce the viral load being shared in public spaces in order to help slow the spread of the virus.”
#MasksforGood is an awareness campaign being rolled out nationally to encourage as many South Africans as possible to “#maskup”. Masks are viewed as one of the effective tools to protect some of the most economically vulnerable citizens across the globe.
“As we navigate this pandemic, we are doing everything in our power to protect our communities. #MasksforGood is just another of the many steps we have already taken to protect those that don’t necessarily have the means to protect themselves,” says Jason.
Alex Mall in Alexandra, Gauteng will be the pilot project for the distribution of masks to the community. The initial roll out of masks is being funded exclusively by personal donations from Exemplar staff, including the CEO, COO and various others in senior management.
The first 20 000 masks are anticipated to be distributed by mid-April and thereafter a campaign will be driven via crowdfunding, giving South Africans who want to play a meaningful role in the fight against COVID-19, an opportunity to do so, as the initiative is rolled out across numerous other townships and rural areas.
Each participating seamstress is being supplied with 50m of medical grade cotton fabric, a pattern and instructions on how to sew the masks. Armed with only a pair of scissors and a sewing machine, they will be able to sew in excess of 1000 masks each. Exemplar will then buy the completed masks back directly from these township entrepreneurs, helping stimulate the local economies within which they operate. The re-usable, washable masks (with care instructions) will then be distributed to the vulnerable communities surrounding the various #MasksforGood initiatives countrywide.
Marketing Manager for Alex Mall, Lily Bophela, says the #MasksforGood initiative is a way to provide the community with protective face masks that will help limit the spread of the disease in Alexandra. “We are appealing to our community to #maskup and protect each other while protecting themselves. Each step we take to fight the spread of this virus will have an impact and we need to work together to keep our families, friends and colleagues safe and healthy,” concludes Lily.
YES is a pioneering, business-driven initiative which has partnered with government and labour to tackle South Africa’s youth unemployment crisis and drive youth employability. YES has already generated over R1.4bn in youth salaries across 35 000 jobs in its first year of operation. It is a not-for-profit company which has no government funding and has been supported by over 650 businesses since inception. Over 150 of these businesses have gained levels up on their B-BBEE scorecards.
Exemplar is a market leading retail REIT, managing 27 assets within township and rural areas, servicing between 10 and 15 million shoppers a month.
From the desk of Jason McCormick, CEO of Exemplar REITail.
Just under a week since our President Cyril Ramaphosa announced a state of disaster and called on us as South Africans to protect our beloved country and its people, we are reflecting on what has been successful at our shopping centres, and how we can further evolve to protect our customers, staff and communities.
At the outset it is imperative to give credit to our phenomenal Operations, Marketing and Centre Management teams on site at the 27 malls within the Exemplar and MPD portfolio.
We are only as strong as the weakest link and never before has this rung as true as it does in this time of crisis.
We have been inspired beyond belief by the courage, dedication and cohesion with which our teams have set about protecting the 10 to 15 million shoppers that visit our portfolio of township and rural shopping centres monthly – most of whom remain the most vulnerable of our society.
Within the first week of March we installed a visible social distancing campaign at all our sites – this included vinyl floor stickers demarcating the correct distance to keep, awareness posters and promoters on site to educate our customers of the importance of keeping their distance from each other.
As the National Lockdown loomed closer, we noticed a massive increase in numbers to our stores and the need for further measures to keep our customers adequately separated. To that end, we implemented ‘trolley spacing’ using shopping trolleys to space the queues – perhaps one of the most successful initiatives taken to date.
All trolleys were stationed at the pedestrian entrances of the properties (stringent hygiene processes are in place to clean these after each use) and customers take one before joining a queue, thus ensuring everyone stands a minimum of a ‘trolley space’ apart. For any stores looking for a quick and efficient way to ensure social distancing, this is a great place to start.
Since the unprecedented number of customers continued to rise, we took a decision to shut our malls to all vehicular traffic. This was to ensure improved access control and to control the population density within the properties themselves, where we have control, rather than outside on the streets, where we do not.
We have also begun implementing “S-Queues” (a switchback queuing system) across our parking lots. This sees each customer being allocated a spot on the markings of each parking bay, proving effective in staggering our customers and further increasing social distancing in the queues.
Additional successful actions that may be useful to our peers in the industry include minimising the number of ‘touch points’ for those in the queues. We have removed all mall furniture to reduce dwell time and escalators and lifts have all been closed off, as have non-trading areas of the malls in an attempt to minimise the potential of any exposure to Covid-19.
Already stringent hygiene measures such as hand sanitising at all entrances with additional daily deep cleaning of all high traffic areas have further increased as we attempt to help #flattenthecurve.
In the face of social grant pay-outs this week, our most vulnerable customers remain our highest concern. On pension payout day, Monday 30 March, we are restricting access to all shoppers under the age of 65 from 7am until 10am. We have made additional security budget available to assist the elderly and disabled during this time and have initiatives in place to separate the elderly from the youth post 10am.
We want to keep the elderly in our community as protected as possible and call on all tenants, stakeholders and leadership to implement this initiative at as many sites as possible.
As we brace ourselves for the uncertainty that lies ahead, we are confident in our ability to read the landscape and rapidly adapt to any change in order to evolve for the needs of our customers and our country. We call on all retail industry leaders to do the same.
These are extraordinary times that call for extraordinary measures. Think on your feet, keep your communication channels open and adapt wherever you need to … and share your learnings. We are all in this together and we should be working as such.
Now is not the time to question or wonder, but rather the time to take decisive and deliberate action – it is the time for innovation, intervention and inspiration.
Undoubtedly, it is also the time for collaboration,for never before in our democracy has the need been stronger for our nation to stand together (a safe distance apart).
Exemplar REITail is providing exclusive access to its Malls for its elderly customers on Monday 30 March 2020, pension pay-out day.
This is to allow them to access their social grants while minimizing their exposure to the threat of the Covid-19 virus.
“In partnership with Pick ‘n Pay, we will be ensuring only customers over the age of 65 gain access to our Malls prior to 10am,” explains CEO of Exemplar, Jason McCormick.
“Whilst much of what lies ahead is speculative, the one inalienable truth is that the virus attacks the elderly with greater severity and mortality than the youth. With the elderly playing a critical role in bringing up the next generation within the townships and rural areas that we operate, protecting their health and safety is of such importance that failure to do so could have knock-on social effects for generations to come.”
Security staff will be on site to handle entry and exit points and we are engaging in an extensive media campaign to educate and inform all customers about the specific trading hours. Customers younger than 65 will gain access after 10am to fulfill their grocery and medical shopping needs.
The above campaign will run in conjunction with Exemplar’s existing social distancing and hygiene campaigns on site to ensure the risk of exposure is limited at all levels.
“While the initial plan was to roll out the campaign at only our sites that have Pick ‘n Pay as a tenant, we have since decided to take the campaign to all Malls in the portfolio,” says Jason.
“We are proud to work together with Pick ‘n Pay in protecting our elderly and would like to commend them for their phenomenal response to the pandemic on all levels. We welcome all tenants and industry leaders to follow suit.”
Real estate investment trust, Exemplar REITail, has acquired Katale Square shopping centre.
At 8 734sqm, Katale Square (Marapyane, Mpumalanga) is the first full centre acquisition for the group following the purchase of the refurbished and expanded portions of both Modi Mall in Modimolle, Limpopo (5 054sqm) and Kwagga Mall in KwaMhlanga, Mpumalanga (5 274sqm) in the last quarter of 2018.
The purchase price for Katale Square was R116,000,000 and it is the first of 3 centres that were purchased Exemplar as detailed in the prospectus that was released in May 2018. Mabopane Square (Mabopane, Gauteng) is set for completion and purchase in or about October 2019 while construction on Riba Cross Mall (Burgersfort, Limpopo) will begin by the end of 2019.
Anchor tenants at Katale Square include Shoprite, Shoprite Liquor, Roots and Cashbuild. The full gambit of banking, fashion and food is also accounted for with Absa (ATM), Nedbank (ATM), Standard Bank (ATM), SAPO, Rage, Ackermans, Pep and KFC all represented.
Exemplar listed in June 2018 with a property portfolio value of just over R5 billion and a market capitalisation of just over R3 billion. The group was created from the core of McCormick Property Development – a company with over 35 years of experience in the development and management of retail centres in primarily under-serviced areas.
CEO of Exemplar, Jason McCormick, says the acquisition of Katale Square marks the start of what promises to be an incredible journey. “Acquisitions will play a dual role for us – not only will it accelerate value growth for our shareholders but it gives us the opportunity to broaden our shareholder base and increase liquidity of stock.”
Exemplar, the rural retail real estate company that listed in June, has declared a maiden dividend of 19.10c per share for the three months to August, rewarding its initial investors.
The McCormick Group, a well-known rural real estate developer, listed Exemplar with assets of about R5.1bn.
Exemplar is run by CEO Jason McCormick, whose family’s company has been a developer in SA for about 35 years, creating and managing rural and semi-urban retail centres.
The fund’s properties were all developed by its biggest shareholder, McCormick Property Development (MPD).
McCormick said MPD continued to develop a significant pipeline of greenfields projects which, if disposed of by MPD, would be offered to Exemplar on a right-of-first-refusal basis.
“This access to a pipeline of value- and yield-enhancing properties is a key differentiator for Exemplar and will contribute to the company’s objective of growing its base of quality assets, earnings and distributions, thereby improving shareholder value,” he said.
Exemplar’s portfolio includes 20 income-generating malls located in peri-urban townships and rural areas of SA. The properties are all internally managed.
Flagship properties include Chris Hani Crossing in Vosloorus, Alex Mall in Sandton’s Alexandra township, Emoyeni Mall in Nelspruit, Blouberg Mall in Bochum and Lusiki Plaza in Lusikisiki.
During the reporting period, Exemplar agreed to acquire Modi Mall and Kwagga after they had been redeveloped.
MPD has a R10bn development pipeline of 26 shopping centres that will be rolled out over the next five years.
In accordance with the agreement, 6,314,284 Exemplar shares would be issued to the vendors on or about November 26. The Kwagga redevelopment was expected to be completed and handed over on or about December 1.
The average vacancy rate across the portfolio was 2.93% of gross lettable area at the end of August.
Exemplar REITail Limited spent its #67minutes with the children and elders of Dimphonyana Tsa Lapeng, an NGO that holds a place close to the heart of one of the Shopping Centres in our portfolio, Olievenhout Plaza.
Twenty team members from Head Office visited the care centre for orphans and underprivileged teenagers to help repaint and repair the living areas and classrooms. Geyser repairs, cracks and water proofing issues were also addressed by the Exemplar team. In addition, a number of elders in the community each received a warm meal and blanket.
Between the 20 centres in the Exemplar portfolio, over R370 000 was donated to local communities in honour of Mandela Day.
Diepkloof Square recognised the importance of reading and education by hosting a book drive. Customers and tenants alike were invited to donate in addition to the packs of books that were donated by the Mall.
Kwagga Mall, worked with the Public Protector and donated R50 000 worth of cupboards and shelving to Mkhephuli Secondary School in Kwaggafontein C, Mpumalanga.
Initiatives by other Malls included the donation of 200 ‘Dignity Packs’ (made up of toiletry necessities), the hosting of soup kitchens, blanket donations and assisting with improvements to local schools/old age homes.
Recently listed on the JSE, Exemplar REITail is the only real estate investment trust to focus purely on emerging market retail and offers investors a new and fresh investment option in a particularly defensive sector of the real estate market.
It takes passion, dedication and integrity to make it in property. Possessing all these qualities, along with a keen eye for opportunity, Jason McCormick is a refreshing voice in the real estate industry.
We sat down with the CEO of newly-listed Exemplar REITail and managing director of McCormick Property Development (MPD) to find out what makes him tick.
McCormick was born in Centurion in 1987, attending Waterkloof House Prep School and Michaelhouse High School. His childhood was, at once, ordinary and unique. Growing up in a family of property developers, he explains that he’s been exposed to business his entire life.
“Growing up we were always somehow involved in the goings-on of the family business which is located on the same
property as the family home and has been since its inception in 1983,” he explains.
The family business, MPD, has been at the frontier of rural retail developments, introducing the first BB-BBEE
scheme in Giyani in 1987. McCormick is acutely aware of his father’s continuous influence in his own business dealings and philosophy: “My father always saw property development as a means to help right the wrongs of the political system, that he abhorred, which existed in South Africa upon his return to the country following his MBA at Stanford University in the USA. As an intensely liberal person, he became socially, politically and commercially marginalized on the basis of his English-speaking background and then-politically discordant views on equality. It is from this background that he built a property company to take “the town to the townships”, saving people travel time and taxi fares to get the most basic goods and services.”
He explains that, playing witness to this from a young age left an impression: “It is little wonder that I remain completely committed to my father’s founding principles of creating economically inclusive developments that fundamentally shift the livelihood of their communities for the better.”
The decision to create Exemplar REITail was a natural one. Rather than being a capital raising initiative, McCormick explains that it was the outcome of a process of restructuring of MPD. The move allows the established development company to take care of its growing pipeline of projects without having to dispose of assets in order to make capital available for further developments.
Since its inception, MPD has raised finance for each retail development on a ring-fenced basis. McCormick explains the decision: “We have been looking to restructure our activities for some time now, although to begin with we were not necessarily looking to list. However, with the cheaper cost of capital and the interest-only profile that is really only available to a listed entity because of the high levels of compliance and transparency that funders are assured of, it became clear that this was the best way for us to effectively grow our portfolio and roll out our substantial
pipeline of new developments, recycling capital into the business. It made the most sense to list.”
A true advantage for Exemplar is the fact that the assets in the portfolio will continue to be managed by the experienced team at MPD. Given that the management team has a combined tenure of 238 years at MPD, this is good news indeed. “I have always been a committed team player in sport and in life (I still captain my own cricket side, who incidentally won the Tshwane Premier League in 2017) and am an ardent believer in allowing my team members the space to shine, giving them the direction they need but without inhibiting their space to perform and grow. For us to have achieved what we have – currently developing between two to seven new malls a year in the development company, as well as listing the only REIT of our size on the JSE in the past 18 months, given the
current market, is a testament to the vision, drive and energy of management as well as to the team that we have built over the years,” McCormick says.
He continues to explain that the team is more a family than employees, insisting that he doesn’t have people working for him, but rather with him. “Life is all about partnerships. I know that sounds cheesy, but without partnerships and like-minded people, we are nothing.”
These partnerships extend beyond the company. Speaking about his personal highlights throughout his career,
McCormick zooms in on the launch of Atteridge Plaza in 2011. The first development he had taken on from its
negotiating phase to eventual project management, it holds a special spot.
Despite the obvious satisfaction gained from a successful development, McCormick explains that what made this deal special to him was the way in which it allowed them to help the surrounding neighbourhood. MPD took a 49% equity position, with the majority 51% going to a consortium of 41 local Atteridgeville business-owning families. These families are now fellow shareholders in Exemplar.
The development was not only a commercial success, but also showed the value of building good relationships
with communities. “It’s funny – my early days were filled by an unyielding desire to roll out what my commercial
education had taught me…but this was quickly surpassed by the reality that one needs to search for more than profit and that reputation and doing good yields far more in the long run. As property is a long term game, I value relationships and reputation far more than I will ever value short term profit. In fact, I have a complete disdain for anyone who only values short term gains at the expense of longer-term and wider-reaching socio-economic benefits,” McCormick says.
Learning the business
While he grew up in a family of businessmen, McCormick explains that his most important business lessons came before he joined the working world. “At university, I worked two jobs – as a waiter and later sommelier at Tokara, and as a barman at the local student pub “The Terrace”. As part of the “A-Team” that ran the front of house at Tokara, I learned so much about scheduling (read: juggling) tasks, biting my tongue in the face of some pretty adverse situations and learning to restrain my otherwise spontaneous nature to protect the goals of the institution.”
Upon completing his B-Comm (Hons) in Economics and Management at the University of Stellenbosch in 2001, McCormick decided to take a gap year. This, he explains, is where he had possibly his biggest learning experience. Deciding to put his qualification as coastal skipper to good use, he went to work in the yachting industry in Antibes, the south of France. “It was there, as an unemployed South African without any local currency or connections that I learned some of my most important life lessons on the networking, dedication and hard work needed to break into an industry from the outside,” he explains.
McCormick’s timing wasn’t great. Arriving in the Mediterranean shortly after the 9/11 tragedy, he found himself to be one of many people in the same position. The majority of US yacht owners chose not to send their boats due to the Med’s proximity to the Middle East, leaving McCormick with little choice but to improvise. “Having walked the docks of the various ports daily for 6 weeks, until I wore through the soles of the only pair of flip flops that I owned, I was down to the last €100 of my savings when I got my first break – sanding toxic antifoul off the hull of
a boat in Cannes.”
This opportunity, along with his willingness to work hard, earned him referrals that set him up for the rest of his time there. Reflecting on the experience, McCormick says it was a key learning moment: “Having come from a protected youth at the incredible institutions of Michaelhouse and Stellenbosch University, I can say without a doubt that this time of living hand to mouth in an alienated state of desperate survival realigned me to a world that I never knew before and one that I believe was one of the major factors that ignited a fire within me that has burned relentlessly ever since.”
Getting to the point REIM: What has been your worst experience in investing?
JM: Without a doubt, the worst experience was the development of one of our malls in a coal-mining town in Mozambique.
It was a “perfect storm” in which we could not have planned our timing to have been more ill-placed. We had bought the land at the peak of the “coal rush”. Soon thereafter, China’s previously insatiable commodity hunger and the oil price crashed.
The coal mines that had been planned were placed on hold (including the 65 000 expat worker applications that had been registered). Renamo then started their low-level banditry attacking the supply chains from Maputo (scaring off many of our potential tenants), and as if this was not enough, the “Hidden Debt Scandal” followed, where the government of Mozambique bought “tuna boats” (and frigates and munitions to counter Renamo’s
insurgency) with commercial loans backed by government guarantees, without informing the IMF as was required.
The IMF subsequently pulled its funding, the USD went from Mt35 to over Mt80 overnight…all whilst we were building and trying to lease the development.
Whilst the situation has stabilized since then, I have never spent so much energy trying not to lose money, rather than making a difference and a profit to boot!
The experience aged me a decade in two years, but taught me more than most would take two lifetimes to learn!
Fortunately as a company we had been incredibly financially stable due to the somewhat conservative structuring that my father had historically implemented, ring-fencing each development from the rest and we were easily able to come through it all with nothing more than wrinkles and grey hairs from the experience.
REIM: What were some of the most important lessons you learnt from the experience?
JM: So many, that I can hardly mention all of them here now. Simply, though:
Don’t invest in a foreign country with a thinly traded currency whose anticipated growth rates are based mainly on a single primary commodity (hydrocarbons in this example) unless there is sufficient support and economic diversification to weather a fall in demand for such commodity
Never invest on the basis of projected growth rates. “Follow the roofs” and “follow the money that actually EXISTS” rather than the promise of profit.
Invest where there are sufficient quality tenants already in-country, rather than trying to act as a marketing ambassador for the country to convince tenants to navigate the oft-murky regulations to enter the country to support your development
REIM: And tell us a bit about your first investment in property
JM: My first investment in property was buying a semi-detached unit in a new housing development in Stellenbosch off plan in my first year. From an initial purchase price of R183 000, we sold it for R1,050m 5 years later when my brother had completed his studies at Stellenbosch.
It was a fantastic return on the initial investment, however more a function of good timing than as a result of astute investment analysis!
REIM: What are your top business and investment tips?
JM: As I have never been a passive investor in anything, I am sorry to disappoint by saying that I have no tips on how to “get rich quick”, how to pick stocks or otherwise. However, what I can say without fear is that relentless dedication and belief in one’s end goals is what has driven me on over the course of my business career.
I have always felt driven to play a part in equalizing the inequality in our beautiful country. I have, over the past
decade and a half, willingly worked 80-100 hour weeks, networking, deal making and listening to the needs of our people and doing all in my power to deliver on their needs and desires.
REIM: And what makes a great property investment in today’s market?
JM: In our game of retail, it is all about the property’s accessibility to the market it is meant to serve and its ability to dominate that market into the future. Thus available bulk, additional land and the ability to leverage the skills of our asset management team to create additional value uplift are all factors that I consider when looking into a property investment.
The big picture
Asked about insights he’s gained during his career so far, McCormick emphasises four points:
That the road is long and people don’t forget – “Treat people with respect and dignity, for you never know when you may need the return of a favour.
Second, real estate is a long term play and one requires incredible attention to detail if one is to make a true success of it. The third thing would be to never break a promise of go back on your word. Nothing is more important than your reputation and a lifetime of hard work and dedication can be evaporated in a single wrongful act.
Finally, the three most important things in property we all learned in university still ring true today – location, location, location!
The rest is an alchemy of art and science to ensure one is able to extract the greatest value from that location.”
These lessons will come in handy over the next few years, with McCormick planning to continue growing the portfolio with world-class shopping centres. “I want our portfolio of malls to play a part in the social regeneration of our communities, providing more than just the normal goods and services but education and skills development that uplifts the entire community leaving it in a better space than we found it,” he says.
Speaking about Exemplar, McCormick keeps it simple:
“We’re looking at a number of exciting acquisitions which we believe will add significant value for our shareholders. We’re not far along enough on these to provide any details, so all I can say is…watch this space! It’s going to be exciting.”
Over on the development side, he’s enthusiastic about MPD’s upcoming projects. The company is currently expanding Kwagga Mall to 35,000 sqm, ModiMall to 24,000 sqm, finishing off Mahlakung Plaza, and are
about to commence construction on Mall of Tembisa, Mabopane Square, Riba Cross, and Katale Square.
“Things have never been more exciting with a significant pipeline of exciting projects coming together,” McCormick explains.
The company is also in the first phase of developing Capital Mall in Pretoria West, and the project will be MPD’s largest development to date. Leratong City Mall, a 30,000 GLA development on the West Rand is also finally coming back online. In partnership with CalgroM3, MPD will be adding approximately 15,000 housing units to the land surrounding the mall development.
“The total retail development opportunities that we have secured in our pipeline exceeds 500,000sqm GLA and so yes, all in all, there is a fair amount for us to get excited about and it’s great having the team that we do to ensure that it is rolled out to the same exacting standards that has become a hallmark of our company over the decades.”
As a specialist in the retail property market, McCormick is excited for the future. He highlights the opportunities to be had in logistics, the utilities space, and in the possibility of smarter malls and retail solutions. “With the threat of online retail upon us, how we embrace and integrate with our built environment with the “internet of things” will define who wins and who loses out in the malls of the future,” he explains.
What drives this property mogul? At the end of the day, he hopes to be able to halt humanity’s fixation on wealth and money over love of humanity: “Whilst the primary focus of all our developments remains their financial sustainability and economic success (with us having local BB-BEE shareholders in almost all our developments, profitability is non-negotiable) the secondary aims of socio-economic upliftment is really what drives us and keeps
me inspired to work at the somewhat insane rates that I do to create the positive change in our glorious nation that I believe in!”
For investors looking for a promising new opportunity in listed property, Exemplar REITail Limited presents a compelling proposition. The fund, which lists on the Johannesburg Stock Exchange on Tuesday 12 June, has been created by the management of McCormick Property Development, and is South Africa’s only purely emerging market focused retail property fund.
Exemplar has been listed with a value of just over R5.5 billion and a market capitalisation of just over R3 billion. Its assets on listing will include 20 retail properties which have all been sourced, secured, developed and managed from greenfields by MPD. Three further new shopping centres, currently under construction, will be added to the Exemplar portfolio during the coming two years, as they reach completion.
Jason McCormick, managing director of MPD and chief executive of Exemplar, tells Asset that the listing is not a capital raising initiative, but rather the outcome of a process of restructuring at MPD. This will now allow the development company to handle its large and growing pipeline of development projects without having to dispose of assets to third party buyers in order to have capital available for further development. MPD has always raised finance for each individual retail development, ring-fencing that funding for the asset in question and operating an individual set of finances for each centre. “We have been looking to restructure our activities for some time now, although to begin with we were not necessarily looking to list. However, with the cheaper cost of capital and the interest-only profile that is really only available to a listed entity because of the high levels of compliance and transparency that funders are assured of, it became clear that this was the best way for us to effectively grow our portfolio and roll out our substantial pipeline of new developments, recycling capital into the business. It made the most sense to list,” he explains.
He adds that whilst many companies might find the requirements for transparency daunting at first, MPD has always operated with the philosophy that its reputation is paramount, with every aspect of the operation adhering to the strong culture of morals and values upon which MPD was founded and continues to operate on – hence the name Exemplar. “We have no trepidation about going into the public space, other than to make sure that we deliver on our forecasts, because we now appeal to a broader range of shareholders,” he comments.
The township and rural retail assets that the portfolio comprises are all still managed by MPD’s management team which has been internalised within Exemplar, and constitute a very settled portfolio, which should be reassuring to investors. “What is exciting is that we will now have the opportunity to acquire assets which we believe to be congruent with our portfolio and leverage our management team’s extensive experience to maximise value creation for our shareholders.” Jason notes. This presents a new dimension which will allow for the portfolio to grow by acquisitions as well as organically, although any new acquisitions will be very carefully considered by the Investment Committee.
It is well known in property circles that emerging market retail assets are particularly defensive, and specialist developers in the space such as MPD are confident that there are still good development opportunities to be had. “Townships in particular are growing massively. Our trade market for our upcoming 42 000sqm Mall of Tembisa, for example, is currently growing at over 6% as a result of both natural population growth and rural-urban migration,” he comments. In addition, as a specialist company that understands the market, MPD has developed, tenanted and managed its centres very carefully, and that effort has been rewarded with strong trading densities over time with vacancy levels below the industry average.
Exemplar will not develop any assets itself, which Jason says de-risks it for future investors as they will not have to be concerned about development risk. All development activity will be done by sister company MPD, which will also be on hand to assist with the redevelopment of any acquired assets in future. Exemplar will have first right of refusal to purchase any assets developed by MPD, subject to Investment Committee board approval.
Exemplar’s board is made up of professionals with strong property pedigrees as well as long histories of association with MPD. Jason has taken on the role of chief executive, with his father John and MPD’s CFO, Duncan Church, being executive directors. Frank Berkeley, formerly the managing executive of Nedbank Corporate Property Finance, is the non-executive chairman, whilst other non-executive directors include Greg Azzopardi (ex Mr Price, Property Executive), Peter Katzenellenbogen and Phatudi Maponya.
With Exemplar’s internalised management team having a combined tenure of 238 years of employment at MPD at the time of being moved into the REIT, their experience in their niche of the industry is unparalleled and should ensure a seamless transition of the portfolios assets into the listed space.
“This is a really exciting time for us – it gives us a whole new trajectory,” enthuses Jason. “It gives additional momentum to MPD, which now has the necessary headroom to keep developing, and the more we can develop and feed into the REIT, the more that portfolio can grow and deliver rewards to investors,” he says. Many of the shareholders in the individual MPD assets are BEE shareholders who, because of the previous structure which required that MPD repay bank debt first and foremost, often had to wait several years to see dividends. “They now have the opportunity to swop into the REIT and benefit from dividends which will be declared twice a year,” he notes.
The listing of Exemplar has been an exciting event for all at MPD. “Although this would not be an ideal time to list if we were raising capital, I believe that it is actually an advantage to list now because we offer something fresh, new and completely different,” Jason comments. With the projected growth rates that the REIT has forecast for the foreseeable future, a settled and defensive portfolio, and a management team committed to absolute transparency, he believes that Exemplar offers potential shareholders a chance to renew their confidence in the listed property sector and to see that there are still worthwhile opportunities to be found.
While exciting opportunities exist for acquisitions and redevelopments alongside the MPD assets that may be brought into the fund, he maintains that Exemplar’s key focus for the next two years is to operate in a stable manner, deliver on its forecasts and gain the trust of the market. But the foundations are in place for the McCormick team to build on its 35-year long history with renewed vigour, and for the new and unique REIT to offer a promising investment opportunity to investors.