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Attacq goes the Reit way

A wider investor base beckons for the Waterfall City developer.

Attacq plans to convert into a real estate investment trust (Reit) after operating for three-and-a-half years as a capital growth company and not declaring dividends to shareholders.

Attacq, which is responsible for the Waterfall City development located between Midrand and Pretoria, announced on Tuesday that it would convert into a Reit by July 2018.

The conversion paves the way for the company to start distributing regular dividends to shareholders. Reits are compelled to distribute more than 65% of their rental income as dividends to shareholders. 

South Africa adopted the Reit structure six years ago –  replacing property unit trusts and property loan stocks – to bring local companies in line with global tax and regulatory standards.

Attacq assumed a capital growth structure when it listed on the JSE in October 2013, enabling it to invest capital in the business and fund the Waterfall development.

Approximately 600 000 square metres of office, retail and industrial properties have been delivered at the 340-hectare Waterfall since Attacq and Atterbury purchased rights from the Mia family in 2008 to develop prime land into a business and lifestyle node. About 1.2 million square metres of development bulk remains.

A number of office and industrial properties will be delivered by Attacq including:

  • A new, 45 223 square metre head office for auditing and consulting firm PwC in 2018;
  • A 42 500 square metre Gauteng office for accounting firm Deloitte by 2020, and
  • Eight industrial and logistics buildings in a joint venture with JSE-listed Equites Property Fund. 

Attacq recently signed the BMW Group as a tenant in a 32 000m2 regional distribution centre that is set to open in 2018.

Attacq’s CEO Morné Wilken said it was always part of the company’s plan to convert into a Reit.

“We have shown substantial growth since listing. Our property assets were R15.1 billion upon listing, which has increased by 80% to R27.1 billion. We have completed 32 developments of which 26 are at Waterfall,” he told Moneyweb.

Attacq will pay its maiden dividend of 73 cents per share in June 2018, which is expected to grow by 20% per year in the next three years.

Wilken added that its future dividend payouts would be accretive as the remaining Waterfall pipeline is delivered.

Dividend payouts will be paid from rental income generated by its existing properties, among them, Mall of Africa in Waterfall, Garden Route Mall in George, MooiRivier Mall in Potchefstroom and proceeds from its 30.8% strategic investment in Central and Eastern Europe-focused MAS Real Estate.

Liliane Barnard, the CEO and portfolio manager at Metope Investment Managers, said Attacq can now attract pension funds with a mandate of investing in companies that generate income through the Reit conversion.

“Attacq has a portfolio of outstanding assets, with strong income generation and superior growth prospects. The development pipeline and future infrastructure spend will result in equity raises going forward as opposed to using internal cash resources which instead will now be distributed.”

Future equity raises and a Reit status means that Attacq can keep its gearing ratio between 40% and 45%, Barnard added. As at December 31 2016, Attacq’s gearing was 41.4%.

Although Attacq has a promising pipeline of assets, it has not lived up to investor expectations. Attacq’s share price has only grown by 16.27% since investors subscribed for shares at R15 each in a private placement before its JSE debut.

 

Attacq share graph

 

It achieved a total return of 3.9% from its listing day (October 14, 2013 to June 9, 2017), compared with the SA listed property sector’s 23.39% in the same period.

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