It’s still early days, but there’s hope for long-suffering shareholders of Accelerate Property Fund.
Accelerate is co-owner of the R7.8bn Fourways Mall, north of Sandton, which at 180,000m² is South Africa’s largest shopping centre. In recent years, the real estate investment trust (Reit) has battled high debt levels, rising vacancies and falling rentals, all of which led to valuation writedowns and a sharp drop in earnings.
Dividends were suspended two years ago, which placed further pressure on an already weak share price.
The unfortunate timing of an extensive redevelopment of Fourways Mall, which nearly tripled the centre in size, is a key reason for Accelerate's financial woes.
The project was completed in September 2019, shortly before Covid hit. In addition, the extension was believed to be poorly designed and executed.
Trade at the mall, already affected during the four-year construction period, has taken longer to bounce back after the pandemic than at other regional and super-regional shopping centres.
However, management has made impressive headway over the past 12 months to streamline Accelerate’s property portfolio, pay down debt and increase the interest cover ratio — a key metric that measures a company’s (cash flow) ability to meet monthly debt repayments.
Ten properties worth more than R1.4bn have already been sold, with most of the proceeds used to reduce debt. These include the Leaping Frog Shopping Centre and Ford showroom, both in Fourways, the Eden Meander Lifestyle Centre in George and, in Sandton, office buildings at 1, 9 and 10 Charles Crescent.
In April, the biggest deal to date was clinched when Accelerate sold its share of the Portside Tower on Cape Town’s foreshore for R580m.
The disposals should see Accelerate’s loan-to-value drop to below 40%, from 49.7% in March last year. Management hopes to sell at least another 10 properties in the year to end-March 2026.
Meanwhile, efforts to revive Fourways Mall are starting to bear fruit. Accelerate owns 50% of the centre, making it the Reit’s single largest asset, representing more than half of its R6.48bn portfolio value (excluding recent sales and properties held for sale).
Last week Accelerate issued a R100m rights offer to help fund further upgrades and improvements at Fourways Mall. That follows a R200m capital raise in June last year.
Early last year, Accelerate earmarked a R400m capital expenditure programme to reposition the struggling centre.
At the time, highly regarded retail developers Flanagan & Gerard, together with the Moolman Group, were appointed as Fourways Mall’s new asset and property managers.
Much progress has since been made to refresh the look, feel and flow of the centre — and improve the tenant mix. Upgrades include improved signage, brighter lighting, a revamped parking and steel roofing system, added security and the general prettifying of the mall’s façade. In addition, leaking roofs have been fixed.
During a media site visit at the mall last week, Flanagan & Gerard MD Paul Gerard said vacancies had already dropped by 11 percentage points since December — from 24% to 13%.
He believed that by year-end the vacancy could be down to 5%-6%. Gerard told the FM that the mall achieved record turnover in April, with anchor tenants’ sales up about 30% year on year.
Nearly 21,000m² of empty retail space, including 17 stores in the old wing on the lower level between Woolworths and Checkers, have been let in the past 12 months.
And 150 existing tenants have renewed leases totalling 50,000m², many of which Gerard says were “ready to walk’’ a year ago.
New tenants include restaurant franchise Spur, which has returned almost a decade after its original departure from Fourways Mall, fast food chain Mochachos, global ICT group Huawei, men’s fashion brand Levisons, Petshop Science and proudly South African brand Zuluzenith.
Some tenants, including African Bank and Travelex, have been relocated to other positions in the mall. The entertainment and fitness offering has also been expanded via recently opened Match Padel with eight rooftop courts and Hyrox-affiliated fitness studio High Performance Training.
Makeup, skincare and health-care brands Beauty on TApp, The Fitz and Wellness Warehouse are other new tenants while a state-of-the art Planet Fitness gym, Total Ninja, Urban Playground, Bloc 11, Shift Coffee and Yummie Cafe will soon join the fray.
Gerard said next on the to do-list is a facelift of the western wing, known as The View. It will house a selection of upscale restaurants, specialist bakeries, butchers and delicatessens for top-end shoppers.
The traction in the mall’s turnaround is welcome news for shareholders who have been patiently waiting for Accelerate to return to profit and resume dividends.
It seems value chasers have already started nibbling on shares in recent months. The stock is the third best performing South Africa-based property counter year to date (January to April) after Growthpoint Properties and Resilient Reit, with a total return of 6.3%, according to the SA Reit Association’s monthly chart book.
Still, Accelerate remains the JSE’s worst-performing domestic Reit over 12 months, with a negative total return of -9%.
Analysts agree that while Accelerate offers a colossal 80% discount to NAV at this week’s 48c-50c, a share price recovery to pre-pandemic levels (about R2) is unlikely to happen overnight.
Golden Section Capital MD Garreth Elston says Accelerate’s investment case hinges on the successful turnaround of Fourways Mall and the execution of a more focused, premium retail strategy.
He says though recent operational improvements at the centre are encouraging, the Reit’s financials remain under pressure with no clear timeline for the resumption of dividends.
“Accelerate remains a high-risk, high-reward proposition,” he says. “The share price reflects deep market scepticism and until there’s sustained evidence of improved cash flows, lower vacancies and asset value stabilisation, the stock is better suited to contrarian investors willing to tolerate volatility and illiquidity in the hope of a long-term recovery.’’
Independent analyst Keillen Ndlovu has a similar view. While there has been a concerted effort to restructure the company by banks and existing shareholders through disposals, rights offers and debt extension facilities, it may take another year or two before Accelerate returns to profit, he says.
Still, Ndlovu believes the appointment of Flanagan & Gerard and the Moolman Group to oversee the repositioning of Fourways Mall was a smart move.
“They have great retail experience and an impeccable track record of successful developments and partnerships, and have done a tremendous job so far in reducing vacancies, bringing in new tenants, repositioning some tenants and transforming the centre.’’
Though the share is cheap, Ndlovu expects institutional investors to look at Accelerate again only “once cash flows, debt levels, liquidity and earnings improve and dividend payments resume”.
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