Afine Investments, which owns a portfolio of income-generating petrol service station properties in four of South Africa’s nine provinces, is to list as a real estate investment trust (Reit) on the Alternative Exchange (AltX) of the JSE on Thursday (December 9).
Afine was founded by Peter Todd, with strategic input from former Redefine International (now RDI Reit) CEO Mike Watters, both of whom are notable investors and operators in the listed property space.
The purpose of Afine’s establishment was to create a holding company for a Reit focusing on the petroleum sector in South Africa.
Watters will act as the chair of the board of Afine.
The JSE has granted Afine approval for a primary listing of all of the company’s 64 million shares in the ‘Other Speciality Reits’ sector.
The shares are being listed at a listing price of R3.67 per share, giving the company an initial market capitalisation of about R235 million.
Afine’s property assets were valued at R307 million by the independent property valuer.
Afine was created with the key management of Petroland Group, which was established in 1993 by Anton Loubser, who has been appointed CEO of Afine.
Since its establishment, Petroland has developed more than 60 new petrol service stations.
Watters confirmed to Moneyweb they had obviously “thought long and hard” about the accelerating changes that are taking place in the automotive industry.
The transition to new energy vehicles, including electric vehicles, is likely to lead to changes to the income generation model of petrol service stations to ensure their sustainability.
But Watters believes South Africa has 15 to 20 years before these changes happen.
“South Africa can’t even keep the lights on, let alone be able to charge a fleet of 20 million or 30 million vehicles.
“We don’t see it as a short term issue but certainly in the longer term your service station network will still be very useful for convenience shopping, servicing cars, tyres, batteries, recharging,” he said.
“So we see a transformation over time, which is going to happen much quicker in the first world whereas in the third world and South Africa there is going to be petrol and diesel for a long long time. It’s not going to happen [change] overnight,” added Watters.
SA Petroleum Retailers Association (Sapra) national director Vishal Premlall is not aware of Afine and its imminent listing but stressed the industry is changing and there are new entrants to the industry all the time.
He said Sapra has done a lot of work over the last couple of years to drive the discussion around the changing environment.
“The change is real and they [fuel retailers] need to start accepting that that change is going to happen in the near future,” he added.
Premlall said the alternative fuel environment with electric vehicles and the like will mean the petrol service station model will have to change entirely and become more customer centric.
“That is very different to what it is at the moment where ‘you fill your tank and leave’,” he said.
Premlall said fuel retailers will without a doubt have to look for alternative income streams on their sites and may want to add things like restaurant facilities that accommodate small meeting rooms and boardrooms.
He declined to comment on the possible impact on the affordability of fuel retail site rentals because of the transition away from petrol retailing.
Watters believes the fundamental reason for the existence of Reits – to produce income – is there and will be there forever.
“People need income and that is why Reits are so highly rated. If you have an investment that gives you solid, stable and growing income, that will be what people want to invest in,” added Watters.
“Reits, I believe, will just get stronger, no matter all these fundamental issues around the world. There is a convergence of Reits around the world coming to resemble each other to meet the boxes that need to be ticked for global investors.
“You need scale, liquidity, good corporate governance and the right debt levels. If you meet those requirements, people will invest in you,” he said.
Watters added that the recent trend in Reit investment demand from investors has been for specialised Reits rather than generalised portfolios.
He said this has gathered momentum with specialisations in logistics, such as Equites Property Fund, self-storage (Stor-Age Property Reit), and multi-let industrials (Stenprop Limited and Sirius Real Estate).
Watters said ownership of petrol service stations in South Africa was until recently not concentrated.
“Afine’s objective is to consolidate ownership through a Reit structure, with an acquisition strategy to grow the business substantially over the next five to 10 years,” he said.
Llewelyn Gerber, a corporate finance principal at Bravura, an independent investment bank that acted as corporate advisor on the listing of Afine, said the trend for specialised Reits is not unique to South Africa and is well known in the Australian and international listed markets.
“Specialised investments in the property sector, including investments in petrol service stations, are tapping into the interest from both investors and lenders,” Gerber noted.
“This is not surprising considering the returns offered by this specialised sub-sector of property investment. Even in a lockdown, petrol service stations offered solid opportunity – in the right locations of course,” he said.
Michelle Krastanov from AcaciaCap, which acted as the designated advisor on the listing, said Afine has secured long term leases with oil majors, which provides reliable and sustainable revenue, and has also entered into an agreement with Petroland, one of South Africa’s major petrol station developers, in terms of which Petroland will provide strategic management services.
Krastonov said Afine has also negotiated a right of first refusal on all new Petroland development projects.