Affordable housing heads for the JSE

Yet another property listing is heading to the JSE, with well established private equity firm International Housing Solutions (IHS) planning to bring part of its portfolio of residential properties to the local bourse.

A successful listing of the business, called Transcend, on December 1 will see it join Indluplace Properties and Balwin Properties as the only pure residential-focused property companies on the JSE.

The listings boom in SA’s more-than-R350 billion listed property sector continues unabated – with the tally of property listings over the past two years being more than twelve.

Shopping mall owner Liberty Two Degrees is also heading to the JSE before year-end.

Transcend will bring an initial R942 million-worth property portfolio of 13 properties to the market, which comprises 2 472 rental residential units located in Gauteng, the Western Cape and Mpumalanga.

The company’s focus will be to acquire yield-accretive rental properties, with a specific focus on the affordable housing market and middle-income households. The properties will fetch rentals of between R3 000 to R7 000.

IHS’ managing director Rob Wesselo, who will be CEO of Transcend, says the plan is to acquire properties over time to grow the portfolio.

Underscoring this is that Transcend has a R2.5 billion pipeline of 3 700 residential units that can be acquired from IHS and, in the long-term, it sees expansion opportunities throughout the African continent.

Transcend will embark on a private placement to raise about R51.8 million through the issue of roughly seven million shares and at R7.40/share.

The initial listing will be on the AltX as a residential real estate investment trust; over time Transcend plans to migrate to the main board.

Transcend will have an expected market capitalisation of below R500 million at listing and offer an initial forward dividend yield of 8.5% – which seems attractive compared with the sector’s average of 7.8%.

Investors were initially cautious about residential investments (especially rental housing) given the perceived low yields on properties, prospects of dealing with delinquent tenants and onerous eviction legislation, which typically favours tenants over landlords. Because of these factors, residential properties, as an asset class, were viewed to be management intensive. Also, fund managers struggled to find and support funds with a residential portfolio of scale and quality.

However, the demand for housing on the back of growing shortages has made investors warm up to the asset class.

Evan Robins, the listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, says investors win if there are more listings as they bring “greater diversification of property asset class available.”

IHS already has a track record in the residential market as it owns over 8 000 units in the affordable housing market and has a mandate of investing in housing developments that are valued from R400 000 to R700 000.

It launched its first housing fund in 2008 in SA.

Wesselo tells Moneyweb there is an appetite for asset classes that are beyond traditional retail, office and industrial properties, as residential exposure in SA’s listed property sector is still low.

Supporting Wesselo’s views are industry figures which show that the sectors’ exposure to residential properties is less than 4%.

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