Disappointing Accelerate fails to rev engines
Execs splash out on shares but analysts warn few will follow
Accelerate Property Fund has disappointed investors. While development groups have been under pressure in South Africa owing to a very weak economy and extremely low business and consumer confidence, Accelerate, which is a real-estate investment trust and therefore pays regular dividends, has stood out as a dud.
The company, whose flagship asset is Fourways Mall, has not yet delivered on its promises. Some eyebrows have also been raised about Accelerate CEO Michael Georgiou's choice to keep a low profile as the head of a listed company.
Georgiou usually does not interact with investors. Instead, chief operating officer Andrew Costa meets the media and investors. He is also the son of controversial real-estate mogul Nic Georgiou, the Bloemfontein-based property developer. Nic Georgiou and the property management company he founded, Orthotouch, could face a class action suit for failing to pay back money to some investors of failed property syndication schemes worth about R4.6-billion, which fell under the Pickvest group.
These schemes were placed into business rescue in 2011. Some investors have chosen not to invest in Accelerate because of the Georgiou family connection.
Ultimately, Accelerate is creating minimal value for investors apart from dividend payouts. The company listed on the JSE in late December 2013, opening at R5 a share before closing at R4.94 on the first day of trade. In the four-and-a-half years since, its share price has grown 15.4% to R5.70. This means the price has grown about 3.26% a year, well short of inflation, which averaged 5.4% over that period.
But since the beginning of the year Accelerate's share price is down 20.51% year to date, placing it among the worst returners of property companies on the JSE. Many investors have sold their shares in the group in favour of offshore-based property groups such as NepiRockcastle, the largest property company on the JSE by market capitalisation, which invests in eastern Europe. With a market capitalisation of about R5.5-billion, Accelerate is a relatively small stock in the sector and perhaps carries too much risk.
Accelerate is expected to deliver flat growth in its dividend payouts for the next two years, which has been badly accepted by the market. It is the worst-performing stock on the JSE in terms of share price returns.
Jay Padayatchi, executive director at Meago Asset Management, said: "I think they have disappointed investors with their recent results and many have lost faith.
"They require some significant structural changes to get shareholders back on board."
CEO Michael Georgiou said on Friday he felt the market had reacted "too harshly" to the group's most recent financial results.
Georgiou admitted his team had not sufficiently updated investors about the Fourways Mall's redevelopment and its effects on Accelerate as a whole.
"From an investor relation point of view I think we should have spoken to the market more and our executive should have been more approachable," he said.
The group was working on selling a tail of 20 properties which it believed it could no longer add value to, he said.
After the Fourways Mall redevelopment was completed, there were various other new developments which would be of benefit to Accelerate's shareholders.
Break a few eggs
The upgrade to and expansion of Fourways Mall is taking longer and costing more than expected. The mall is being expanded to 170,000m². With a gross lettable area of 61,480m², it was worth R2.417-billion.
Georgiou said he was confident that Fourways Mall would be "a strong income spinner" when it was fully redeveloped and operating by September next year.
"Everybody knew the development of Fourways was happening and that it was a large undertaking. You have to break a few eggs to make an omelette. We've had to smooth interest rates. Some of the rental on the mall was affected during the building and revamping. We also started four months later than we anticipated."
He added: "We did say we'd have a year or so of standing still in terms of earnings but we believe this mall really stands apart from many other large centres in Gauteng."
One differentiator was the inclusion of KidZania - a branded indoor play city - for the first time in South Africa.
It will be one of the largest shopping centres in Africa. Accelerate is trying to turn Fourways into a live, work, play node that can compete with the older and more established Sandton district and the growing Rosebank, Steyn City and Waterfall nodes.
Costa said Accelerate's Fourways assets, including the shopping mall and other buildings, would extend to 200,000m² by the end of 2018.
Accelerate warned investors earlier this year, when it released financial results for the year to March, that its dividend payouts were set to come under pressure, which knocked the group's share price.
The company said it was forecasting flat distribution growth for the financial year to March 2018, which spooked investors. But what was worse is that it said 2019 would also see flat dividend or distribution growth.
This, coupled with the watering-down effect of the costs at completion of the Fourways Mall redevelopment, would result in flat to marginal growth, Costa said.
For the financial year to March 2020, distribution growth would normalise to historical levels, he said. The company grew its dividend 7.3% in the year to March, which was comparable with peer funds but not exciting.
Lawrence Koikoi, a listed property analyst at Stanlib, said Accelerate had given the market strongly disappointing news but it may still turn around its fortunes when Fourways is completed and trading properly.
"The market can be forgiving for a weak one-year guidance but two years' guidance of no growth is unprecedented and not welcomed."
The company's executives are backing themselves to turn the group around. Costa recently spent R9.98-million on 1,865,306 shares at R5.3488 a share. Director of treasury John Paterson matched his purchase.