Property listings have been few and far between in the past five years, and the odd new portfolio that did come to market tended to offer more of the same — a mix of retail, industrial and office buildings.
However, in early December Gaia Fibonacci Fibre — a first-of-its-kind specialist infrastructure real estate investment trust (Reit) that invests in fibre-optic cable networks — was listed on the Cape Town Stock Exchange, originally known as 4AX.
The listing, with an initial investment of R34m, was brought to the market by Gaia Fund Managers, Fibonacci Managers and Kruger International Asset & Wealth Management.
More intriguing perhaps is last week’s listing of Afine Investments on the JSE, which brings an entirely new offering to the sector’s 50-odd property counters. Afine, albeit still a small counter with a market cap of less than R250m, is the first SA-focused Reit to offer local investors access to the rental income streams generated by petrol service stations.
Afine is the brainchild of veteran property players Mike Watters and Peter Todd, both former South Africans who have teamed up with SA developer Petroland Group, which was founded by Anton Loubser in 1993. Loubser has since developed more than 60 petrol stations across SA and will run the new company.
Watters is the former CEO of UK-based RDI Reit (formerly Redefine International), where he was at the helm for 16 years before the company was bought out by Starwood Capital Group earlier this year and delisted from the London Stock Exchange and JSE. Todd is chair of London-listed Grit Real Estate Income Group.
Though the petrol service station sector is an established real estate investment class in the US, Europe and Australia, high entry barriers have made it difficult for ordinary investors to share in the ownership of the SA petroleum sector’s bricks-and-mortar assets. Barriers include onerous licence requirements, complex legal structures and environmental legislation.
Watters tells the FM that SA has about 4,000 petrol stations, most of them controlled by the major oil companies and a small group of private developers and property owners. "The industry is quite fragmented, so there’s a big opportunity for consolidation," he says. "People still need income and petrol stations are a more defensive option at a time when traditional sectors are under pressure."
He refers to the retail and office sectors in particular, which he believes are vulnerable on the back of pandemic-related rental losses and lease cancellations.
"Though the listed property sector as a whole has gone through a tough 18 months it’s the big diversified Reits that have been on the back foot. The only stocks that have performed are specialist ones such as logistics-focused Equites, self-storage owner Stor-Age and multilet industrial plays Stenprop and Sirius."
Watters says a key attraction of owning service stations is the long leases — 15 to 20 years on average compared with three to five years for shopping centres and offices. "Also, your only tenants are the large oil companies like Sasol, Engen, Shell and BP. So your income streams are secure."
Afine owns just seven service stations scattered across four provinces, worth R307m. But Watters is confident that the portfolio can be bulked up to R1bn within the next 18 months as the company has first right of refusal to Petroland’s developments. He also expects strong appetite among existing service station owners to list their properties in exchange for Afine shares, given how "efficient" the Reit structure is. "It provides liquidity and tax benefits for property owners," he says.
Watters, Todd and a few other shareholders have self-funded the business with a loan to value of just below 30%. But they will go to the market to raise capital at a later stage and, Watters says, "hopefully bring some institutional investors on board".
Though Afine did not market itself via the usual prelisting roadshows to potential investors, it is likely to attract smaller retail investors looking to diversify away from the sector’s typical mixed-bag offerings. Howard Penny, equity research analyst at Anchor Stockbrokers, says that at last week’s listing price of R3.67 a share and interim dividend guidance of 25c a share, Afine offers a dividend yield of more than 10%. There’s further upside on the back of potential accretive acquisitions.
Penny notes that a longer-term risk is the global shift to electric and other fuel-efficient vehicles. But he doubts whether petrol stations in their current guise will suddenly disappear, because petrol and diesel cars bought today will probably still be on the roads for at least the next 10 to 15 years.
He adds: "However, there will most likely be an evolution of stations over the long term to offer a blend of food, retail and convenience alongside different fuel and energy options."
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