After a five-year restructuring process, 2023 will mark the beginning of a new — and likely more profitable — chapter for shareholders of Christo Wiese-backed Tradehold.
The company, which was formed more than 20 years ago to house the retail tycoon’s UK property interests, will be converted to a South Africa-focused real estate investment trust (Reit) shortly after the February financial year-end.
Tradehold’s name will change to Collins Reit. That follows the effective sale in November of all the company’s UK assets and operations held via the Moorgarth Property group.
The latter represented about 30% of Tradehold’s assets. Its majority stake in South Africa-based Collins Group now comprises more than 80% of the company’s remaining R11.6bn portfolio.
Collins, based in KwaZulu-Natal, owns one of the largest portfolios of industrial and logistics properties in South Africa.
Tradehold’s conversion to a Reit is likely to place the counter on more investor radars given its simplified structure and bias to warehouses and distribution centres
Increased demand from fund managers will naturally support the share price, which should help to close the NAV gap over time
Tradehold’s conversion to a Reit is likely to place the counter on more investor radars given its simplified structure and bias to warehouses and distribution centres, known as logistics properties.
This asset class has in recent years been one of the best-performing globally amid a surge in online shopping and shifting supply-chain patterns.
Though Tradehold’s portfolio initially comprised mostly UK retail centres, a hodgepodge of assets in other European and African countries were added to the mix over time.
In 2016/2017 Tradehold embarked on a restructuring process under the leadership of CEO Friedrich Esterhuyse. Financial services division Mettle, among others, was unbundled and Tradehold entered the local property market for the first time by buying a large chunk of the Collins Group.
However, despite the quality and size of the Collins portfolio, Tradehold has to date struggled to lure institutional fund managers.
The general view was that the company’s structure was still too convoluted. Results have traditionally been reported in sterling, which further complicated matters.
The fallout from Brexit and the exposure to the struggling UK retail sector didn’t help. Liquidity was another issue given fairly tightly held shares by the Wiese and Collins families, who together own just more than 80% of the stock. So, for most of the past five years Tradehold traded at a sizeable discount to NAV north of 50%.
Esterhuyse hopes the new streamlined South Africa-focused logistics portfolio and the adoption of a Reit structure should place the stock on the radars of a broader universe of investors.
Though management will for now focus on bedding down the local portfolio, Esterhuyse also plans to expand the company’s West European exposure.
Tradehold’s only remaining offshore interest is a cluster of buildings in Austria let primarily to DIY retailer OBI, which account for about 7% of total assets. Tradehold also owns a few retail centres, offices and land holdings in Namibia, Mozambique and Zambia.
Esterhuyse would like to have 15% of the portfolio outside Southern Africa within the next three years. Management is already in talks to buy a portfolio of logistics properties in the Netherlands in a joint venture with a local partner.
“But we’re not transaction driven and will only do deals if they make financial sense,’’ he says.
Fund managers are likely to adopt a wait-and-see approach. Nesi Chetty, head of listed property at Stanlib, believes Tradehold’s transition to a focused logistics portfolio will be an attractive addition to the South African Reit sector. But the company’s investment case will ultimately depend on how all the numbers stack up, he says.
Increased demand from fund managers will naturally support the share price, which should help to close the NAV gap over time, he says.
Esterhuyse tells the FM the company will start reporting its results in rand in its new financial year to February 2024, which will make its business easier to understand.
He says shareholders can expect a significant uplift in dividends given that distributions will in future be paid out pretax in line with Reit regulations.
The move to a Reit will also place the stock on a more stable and predictable dividend growth path, which should make for a more compelling investment case, particularly among pension funds.
However, challenges that still need to be addressed include lowering the Collins Group’s relatively high loan-to-value ratio of more than 55% and improving liquidity. “This won’t happen overnight,’’ says Esterhuyse.
The Collins Group, whose logistics-focused portfolio includes a number of convenience retail centres, has recently begun spreading its local footprint.
Esterhuyse says whereas in the past its portfolio was predominantly based in KwaZulu-Natal and Gauteng, it’s starting to buy and develop more properties in the Western Cape.
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