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It feels like all the property executives got together and said, "let's make property this week's theme". It's not just Ingenuity Property's directors who are piling in. AK Stein bought R122k of Premium Properties at R16.85. The shares were bought in the open market via Aksin Investments (Pty) Ltd, which is owned by AK Stein.
AK (aka Anthony K.) Stein is the financial director of Premium Properties, so clearly a man right in the heart of the business, as well as being financially savvy. He bought another R130k in December 2013 mostly at R17.05 a share in 2013, and in December 2012 R115k at R17.40. So, he has got it wrong a bit in the short term, but seems to believe there is value in the company even at the R17 a share level.
Premium invests in the retail, industrial & office property sectors & holds a large residential portfolio (28% of the total property portfolio) . The company has great confidence in the future of the Johannesburg & Pretoria CBDs. This contrasts with Ingenuity Property, who specialise in the Western Cape.
In the 6 months ended 31 August 2013, 66.2c per linked unit were distributed; which represents all rental income less operating costs & interest on debt . Bad debt & provisions decreased from 1.4% of total tenant income to 0.4%.
With property the value hidden from the distributions lies in the projects under construction, undeveloped land and possible future reductions in vacancies. The company would already be paying interest on costs incurred in developing the property, whilst not yet reaping the rewards. During the 6 months there were 3 major projects under construction whose total cost is R87m, of which R58m had been spent by 31 Aug 2013:
Est cost R71m, The Fields Residential block in Hatfield which will create 87 units, was scheduled for completion in Nov 2013, & is expected to yield a return of 8.3% once fully let.
Est. cost R8m. Upgrade of Demar Building in Pretoria CBD. Residential units were completed in Aug 2013, and retail upgrade was expected to be completed in Sep 2013.
Est. cost R8m. Upgrade of Prinsman Place in Pretoria. Completed in Sep 2013.
The investment in IPS yielded profit (excl. fair value gains) of R15m:
IPS is constructing Jeff's Place in Pretoria, a greenfields residential development, for R139m, which was expected to be completed in Nov 2013 at an initial return of 9.2%.
Vacancies were at 19% on 31 Aug 2013, or 13% excluding properties held for redevelopment.
At the Fields, a lease for 6 296 m2 of office space was let at a rental of R135 per m2, commencing on 18 May 2013.
Premium has a loan to value ratio of 34%, with 42% of borrowings having been fixed with expiry dates from May 2017 to Aug 2018. At 31 Aug 2013 the weighted average cost of debt was 7.8%
Premium plans to change to a REIT on 1 March 2014.
I find it difficult to assess the extent to which the new developments will result in increased rentals, and the extent to which the vacancy rate can be reduced. I am seeing value in Premium Property, and more than I saw in Ingenuity. I'm itching to buy, but the level of value is marginally below the margin of safety I require. I wouldn't be surprised if there's a nice increase in the share price over the next 6 months which I miss out on! I am going to watch for a slight dip in the price, in which case I may buy.
A structural issue with real estate is that it is worth far more to 0% taxpayers (like retirement funds than to those who have a higher marginal rate of taxation).
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