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A N N U I T Y p r o p e r ti e s

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South Africa Magazine profiles Annuity Properties, a property loan stock company that plans to grow its portfolio to R5 billion within five years.

By Ian Armitage

anico Theocharides is the joint chief executive of Annuity Properties, a property loan stock company with what he describes as a “quality portfolio of A-grade properties”. The newly established firm is in its infancy but is backed by experience and listed on the JSE Main Board in the Real Estate sector in May, with a portfolio of four properties in prime locations throughout South Africa. It was a watershed moment. And Annuity hasn’t looked back. “We started with four properties in our portfolio - the Sasfin head office in Waverley, the Woolworths Call Centre in Cape Town, the Oakfields shopping centre in Benoni, and the Cell C head office in Rivonia. The intention behind the listing was to put together a good-quality portfolio to bring to the market to be used as a platform for growth” says Mr Theocharides. “We feel that the quality of the portfolio together with the fundamentals of the underlying leases is strong, and we have an excellent tenant mix which resulted in us getting good support in the market at the time of our listing.” More than 40 percent of Annuity’s leases expire beyond year 2022 with built-in escalations of around eight percent over the period, he says. “That’s great for investors because it provides a fair amount of certainty in terms of that underlying income stream. We have quality tenants backing up a long lease expiry profile.” Annuity is doing something right and investors were clearly keen on it. Mr Theocharides and his team managed to raise over R400 million during the listing – without too much www.southafricamag.com

Annuity Properties focus property

Sasfin Sasfin chose Annuity Properties as its preferred partner into the listed retail, commercial and industrial property sectors, due to the compelling credentials of the founders and executive management team of Annuity. In forming and growing this partnership Sasfin is seeking to facilitate its direct property equity investment deal flow to Annuity, so as to best service Sasfin’s significant property investor client base. Sasfin Capital also prides itself on advising Annuity on financing and capital raising for acquisitions.

difficulty. What was the secret? The company already has a great track record - that of its promoters and management team, he says. “They include the co-founders of Primegro Properties, which they transformed from a R600 million into a R2.5 billion business in just over three years,” Theocharides explains. “They were also instrumental in bringing CBS Properties to market, which they again grew into almost a R2.5 billion portfolio before selling to the Public Investment Corporation (PIC).” Annuity’s “veterans” - Derek Greenberg, Martin Ettin and Lionel Levinsohn - have collectively more than 100 years of experience in the property sector and many years of expertise in the listed property space. Prior to Annuity, Theocharides had built a career in investment banking and corporate finance, which included negotiating and implementing many deals in the listed property sector. “We believe we have a wealth of deal making experience and a good 4

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balance of skills within the team. We are entrepreneurial and do have very well established networks. I think that the fact that we were able to secure some of the highly sought after assets in the new acquisition portfolio is testament to that. The entrepreneurial ethos within the team and the ability to move quickly as a young company without the corporate beaurocracy do differentiate us.” According to Theocharides, Annuity has benefited from the “strong networks and relationships” that come with that experience and expertise. “That’s absolutely right. The group of promoters have come to the market twice before very successfully and that, in combination with Sasfin, one of our shareholders which has contributed two of its properties into the fund, speaks to the networks and the relationships that have been built up over many, many years.” The plan is to grow its portfolio to R5 billion within five years.

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“Since our listing we have announced a further six acquisitions which are in various stages of the transfer process but all six are unconditional as to the approvals required and all the funding has been raised so once each of these acquisitions has been implemented our portfolio value will be around R1.5 billion,” Theocharides says. “The acquisitions comprise a R817 million package, which includes retail, commercial and a small proportion of industrial properties. We bought the highly sought after Langeberg Mall in Mossel Bay for R410 million; the Atrium office building in Milpark, Johannesburg for R134 million; the Virgin Active building currently being developed in Bryanston for R118 million; the Riverhorse property in Durban, known as Thynk Retail Park, for R117 million; and the BCX office building in Midrand for R38.2 million. We also completed another smaller acquisition of just under R50 million - the Ethos Building, on a five-year lease, a great property in a fantastic location with excellent tenants. “So we have more than doubled our initial portfolio. Our focus has been on the larger metropolitan areas. One of our distinguishing characteristics has been our long lease expiry profile combined with the strength of the underlying lease covenants.” The company’s primary focus is on investment in commercial and retail properties, together with a smaller percentage of quality industrial properties. “At the time of coming to market we made an effort to attract a good spread of retail and institutional investors. We think that for a company our size it’s really important 6

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to get good liquidity in the tradability of the units, and we are happy with our existing shareholder mix. We recently raised a further R500 million in equity to partly fund our new acquisitions and were pleased to have received very strong institutional support for our units” The ambitious growth target was one of the main reasons for the JSE listing. “We needed to access the equity markets primarily to raise capital,” Theocharides explains. “As a listed company, we generally also benefit from improved debt terms and preferential pricing relative to privately held companies of our size.” Theocharides calls this “an unprecedented time” in the listed property space.

Annuity Properties focus property

“The JSE has seen eight or nine new property listings in the past 18-24 months. That is phenomenal. As it is, there are only around 25 listed property companies on the JSE so it’s a very large proportion that has listed recently. In the context of the global economy uncertainty and volatility in the general equities markets, there has been capital available supporting the listed property sector. We decided the way for us to go was to bring in a high quality, A-grade, portfolio to the market – there aren’t any government leases and I think that a number of the listings that have come to the market have been characterised by a government element. We have an incredible lease expiry profile. That is a major plus, as I said. It offers great visibility and relatively lower risk. “Going forward it is important to us that we deliver on our promises to the market and what we told the market at the time of listing was essentially threefold: the first

We have more than doubled our initial portfolio. Our focus has been on the larger metropolitan areas. One of our distinguishing characteristics has been our long lease expiry profile

message was that we had a fairly aggressive growth strategy. Our second message was that we intend to maintain and build a good quality portfolio. The third message was that we wanted to bring new properties to the market, properties that the listed sector had not previously seen, and increase the size of the sector. “I think the package we announced and are taking ownership of now is a continuation of that story,” he adds. “It is in line with our stated strategy and we believe we’re achieving what we told the market. It is important for us as a young company to earn the trust of the market over time and we would like to think we are starting to do that. We are pleased with our performance to date. We recently published our maiden set of results and we were slightly ahead of initial guidance to the market. “The aim now is to pursue the right deals for the right reasons. We’re not prepared to grow merely for the sake of bulking up our portfolio. Strategically if I was to look at our portfolio in a couple of years time, it would probably be 40-45 percent retail, 40-45 percent commercial and 10-20 percent light industrial. But of course this may change over time as the market changes. At the moment, for example, we’re slightly overweight on good quality retail, which is a position we’re very happy to be in. How do we get there? It is about working on those networks we have established and continue to establish with property owners and developers. We’ve got an entrepreneurial ethos in the company, we are young and we have the benefit of being able to move quickly. Our business is all about relationships, creating the opportunity and being able to close the right deals quickly. It’s a very competitive environment but we’re very excited about the future.” END To learn more visit www.annuityproperties.co.za. www.southafricamag.com

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Boundary Place 18 Rivonia Road Illovo Sandton, 2196 Tel: +27 (0)11 215 6442 Fax: +27 (0)11 268 0414 Email: info@annuityproperties.co.za