REAL ESTATE

OVERVIEW

Summit Real Estate Fund (“RE Fund”) is raising R2.5 billion in commitments from investors, for quality, high-growth specialist/alternate real estate non-speculative development and investment opportunities in the Target Region that will contribute to overall economic growth.

The RE Fund will be managed on a full-time basis by Summit REIM (Pty) Ltd appointed on an exclusive basis by the Ultimate General Partner, which will provide careful deal selection, followed by focused and active management of direct property developments or acquisitions to generate superior long-term capital appreciation and consistent income returns for investors.

Target total return – 15%

TRANSFORMATION AGENDA

  • Being a majority black-owned and controlled entity with significant black women ownership, Summit is fully committed to the transformation and empowerment objectives of South Africa and the Black Industrialists Policy of the South African Government’s Department of Trade and Industry.
  • In addition, per the Property Sector Charter State of Transformation Report, South African Property is still lagging its targets in the areas of Ownership, Management Control, Employment Equity, Skills Development, Preferential Procurement and Economic Development.
  • The RE Fund will also service the real estate needs of the PE Fund’s investee companies, introducing specialists into a key aspect of business success thereby allowing the investee companies’ management to stay focused on their core business.

INVESTMENT CRITERIA

  • Favourable demand and supply dynamics and high barriers to entry.
  • Contributes to overall economic growth in the primary, secondary or tertiary economy.
  • Sustainable cash flows underpinned by strong tenant covenants to support geared returns and superior capital appreciation and consistent income returns for investors.
  • Good trading history with proven growth and sustainability in rental streams. Dominant trading position or sufficiently strategic in nature and location to mitigate re-let risk or non-renewal risk at the end of the lease period.
  • Potential upside for improving rental streams and/or reducing vacancies through active tenant and tenant mix management. For new developments, ability to pre-let or pre-sell against a strong tenant covenant or where significant demand has been demonstrated.
  • Ability to deploy or utilise Green / Environmentally friendly practices in design, construction or property management.
  • Ability to introduce third party gearing in an efficient manner.

CORE FOCUS

Summit’s core real estate focus will be on high-growth specialist/alternate real estate investment and non-speculative developments contributing to economic growth, differentiated offering to competing unlisted real estate investment offerings.

Where compelling rationale exists, Summit will also seek to invest in traditional commercial properties within a proven commercial node.

SECTOR FUND AREAS – BENEFITS

  • High barriers to entry.
  • Operates in a regulated industry.
  • Well positioned to create stable long term income for investors – long leases underpinned by largely blue-chip investment grade tenants.
  • An inflation linked or above inflation income stream coupled with the potential for capital appreciation due to the significant scarcity of properties in this asset class.
  • Attractive yields with low inherent risk profile.
  • Low re-let risk due to the strategic and non-homogenous nature of the property to the underlying tenant.
  • Drives overall economic growth.
  • Relatively immune
  • Drives overall economic growth and social upliftment.
  • Positioned to create stable long term income for investors due to the significant scarcity of such asset classes. In addition long leases underpinned by largely blue-chip tenants to support geared returns and superior capital appreciation.
  • High barriers to entry for Healthcare and Education – Low availability of appropriately zoned land and Healthcare and Education operate in a regulated industry.
  • Attractive yields with low inherent risk profile and low re-let risk due to the strategic and non-homogenous nature of the property to the underlying tenant.
  • Relatively immune to economic cycles – less volatile than other commercial property sectors and has outperformed all property on a consistent basis.
  • For Housing developments, ability to pre-let or pre-sell. Achievable exit strategy.
  • Risk mitigation through partnerships with local developers, use of experienced professionals for developments and ability to introduce ring-fenced third party gearing in an efficient manner
  • Steady income and solid rental growth: Non-discretionary spend by students, parents or their bursary providers. Typically, the sector delivers stable and secure income which grows ahead of inflation.
  • Resilient, less cyclical performance: Student housing is relatively decoupled from the macro economy. The sector tends to perform well in downturns, as evidenced by the recent global downturn, when student enrolments rose as students sought to remain competitive in the job market by up-skilling themselves.
  • High occupancy: Strong demand for well-managed, purpose-built student accommodation is reflected in high occupancy rates.
  • Low-risk profile: The multi-tenant nature of student housing minimises default risk, or minimises the magnitude of potential default.
  • High barriers to entry.
  • Generally long leases underpinned by largely blue-chip investment grade tenants.
  • An inflation linked or above inflation income stream coupled with the potential for capital appreciation.
  • Attractive yields with low inherent risk profile.
  • Low re-let risk due to the strategic and non-homogenous nature of the property to the underlying tenant.
  • Drives overall economic growth.

CASE STUDIES

SUMMIT SA TEAM MEMBER’S ROLE

  • Led the identification, restructure, acquisition and financing of a portfolio of 52 properties and property developments (retail, offices and industrial) for R5.2 billion.
  • The property portfolio went on to list on the JSE as the Accelerate Property Fund (“Accelerate”), raising R2.1 billion of equity from third party investors, the largest property equity raise on the JSE in that year.
  • Subsequently concluded approximately R2 billion of acquisitions for Accelerate.
  • Accelerate has since been one of the best performing property stocks on the JSE.

OTHER RESPONSIBILITIES INCLUDED:

  • Sourcing
  • Structuring
  • Debt and Equity Capital Raising
  • Management Alignment
  • Legal Agreements
  • Regulatory approvals

Investment Quantum: ZAR 5.2 billion

SUMMIT AFRICA TEAM MEMBER’S ROLE

  • Identified a section of land in a key growth area for Calgro.
  • Acquired the land through an investment company (a SPV) and on a back to back basis, Calgro and the SPV entered into a Land Availability Agreement, detailing that Calgro would develop the land.
  • The SPV secured investment from third party investor/s as capital and the land was purchased outright from the existing owner and transferred into the name of the SPV, thus providing the investor with security.
  • The land was used as security when securing bank finance, which formed part of the capital raise.
  • This process enabled Calgro to further expand its operations and to increase its market share and in turn revenue.
  • As and when the land was developed and onward sold, investor received back, both their capital and interest.
  • Investors who invested in the above structures had both their capital returned at the completion of the development, as well as realised a return of 30% per annum.

OTHER RESPONSIBILITIES INCLUDED:

  • Securing the land
  • Structuring the above transactions
  • Modeling
  • Raising of the required capital for investment
  • Realization and exit of the investment

Investment Quantum: ZAR 60 million (Land Acquisition)

THE ALTERNATIVE INVESTMENT CLASS OPPORTUNITY

Research performed by Riscura/ SAVCA in 2016 shows that South African Retirement Funds have the lowest asset allocation to alternative investments outside of Botswana.

An alternative investment is an asset that is not one of the conventional investment types, such as listed shares, listed bonds and cash. Alternative investments include private equity, real estate, commodities and derivatives contracts.1

The omission of “other” asset classes by many pension fund managers is a significant missed opportunity. For example:

  • over the past decade returns to investors in private equity in South Africa was 20.7%, compared with a return of 14.9% on the Johannesburg Stock Exchange (“JSE”) All-share Index.2
  • Real Estate is a common factor across all businesses, sectors and industries, and it follows that about 70% of world wealth comes from Real Estate. 3

Source: 1. www.investopedia.com, 2. Southern African Venture Capital and Private Equity Association (SAVCA) Survey 2016, 3. Royal Institute of Chartered Surveyors (RICS)