SIMON BROWN: I’m chatting now with Myles Kritzinger, CEO of Transcend Residential Property Fund on the JSE. Myles, I appreciate your time this morning. Transcend is a classic real estate investment trust (Reit), but in this case different in that your assets are residential. You are not into the commercial or the office …. You are literally just [into] residential apartments that you rent out to end users.
MYLES KRITZINGER: Morning, Simon. Thanks so much for having me on the call and giving me the opportunity to chat to you guys. I think spot-on in terms of what it is that we do – [we’re] very much a specialist residential Reit. I think that where the market is at the moment it definitely appreciates that kind of specialist expertise. So, [we have] very much a focused strategy on the subsets of residential property. We see that filter into our results as well – having a very focused strategic view on how we own the affordable properties, how we look after that space, and we are tenant-based. So [we’re] very different from the diversified funds at the moment. But I do think you see that filter through in our results as well.
SIMON BROWN: Obviously properties have had a tough time. Office in particular has been under massive pressure. Retail – we’ve got so many malls … around. Logistics has done well. I imagine that residential is I don’t want to say immune, but at the end of the day we do need to live somewhere. I suppose it depends on which part of that market you’re operating in. Who is your target market?
MYLES KRITZINGER: What’s been interesting over the last 18 months is that we’ve definitely had the catchphrase ‘Covid-protected property’ thrown our way. That’s been really, really interesting, and in a weird kind of way it’s given us an opportunity to demonstrate what we’ve been bashing about to the market over the last four or five years – that we are a defensive asset class, that we are resilient in difficult times. But exactly to your point is that people need somewhere to live.
In terms of our offering, and maybe what makes us slightly different from the other resi (residential) players is that, firstly, we are an out-and-out rental fund, with only rental housing accommodation. We’ve got just over 4 000 units and we do target the low- to middle-income markets as well. So very much in that affordable rental band of about R4 000 to R8 000 rental per month.
But what differentiates us from the other resi competitors is our product, and where that product is actually located. We attach what we call high-demand property to our asset class or to our portfolio because the properties are very much located in suburban areas.
They are secure complexes, they’re near places of work, but they’re not the typical inner-city CBD type of properties that other resi portfolio owners have. [It’s] looking after what’s a big pool of tenants, where there’s huge demand in the South African market at the moment in that affordable housing space – where I think demand for quality affordable housing always outstrips supply. That’s pretty much the target market that we look after on a national footprint as well.
So we own properties down in the Western Cape, we own predominantly up in Gauteng, but very much centred around the kind of main hubs and municipalities where people go to work.
SIMON BROWN: Do you develop the estates or is there a third-party developer? And do you then go in and take an entire estate, or is there going to be an estate where you might own perhaps the majority, 70%, but there’ll be other privately-owned properties as well?
MYLES KRITZINGER: Currently our fund is about R2.5 billion in terms of asset value. We’ve 22 properties which sit in the fund, and they’re predominantly 100% owned by us. So we are in effect the landlord and the operator of that estate. We’ve got about three or four where we’ve got a bit of co-ownership that sits behind it. But ideally we would like to own the buildings outright.
In terms of development, we are different from the likes of a Balwin, where they develop residential and sell it off into the market. We don’t necessarily take that risk. However, we do have a strategic relationship and alignment with a private equity fund manager called International Housing Solutions, IHS, and a lot of the stock that’s held in our fund at the moment is born out of those private equity funds.
SIMON BROWN: Ah, okay.
MYLES KRITZINGER: Back in 2016 when we listed, out of their first private equity fund, we took just over 2 000 units and listed on the AltX. Subsequent to that we did a significant transaction back in December of 2018, which was about R1.3 billion. It was just north of 2 000-odd units, and that helped us double up the business size. That came out of the IHS stable as well.
But we do have a network broader than just IHS, which extends to other residential property owners (from) whom we tap into and… buy stock as well.
SIMON BROWN: I’ve always liked residential as a different type of Reit. Certainly I think Covid has shown us that. Myles, you snuck in the value of around R2.5 billion market cap at a point – markedly below that.
Myles Kritzinger, CEO Transcend REIT, I appreciate the time this morning.