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.