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A Darker Reason Why SA’n Business is Moving into Africa?

Reports abound of more and more South African companies doing business in Africa, but why are they not investing that money locally, are there challenges to making development work locally? Looking back over the last few quarters some disturbing stories have emerged.

It can’t be a good sign when you hear the news that a company like Resilient is looking elsewhere to do business.

Des De Beer (courtesy FM)

Des De Beer (courtesy FM)

Johannesburg-based real-estate investment company Resilient, which has a local market capitalization of 11 billion Rand is looking to Nigeria to expand its business. This on its own is not a worry since many SA firms are expanding into Africa. However it’s the stated reasons and comments from its executive that raise some eyebrows.

According to The Citizen’s Micel Schnehage, Resilient’s Director Des de Beer explained that it’s the firm’s struggle with local government. “(Resilient) is hampered by extensive bureaucracy and red tape, resulting in expensive delays.” He went on to state that the era for Resilient to develop non-metro malls was over.

What seems to have been the last straw was the loss of documents pertaining to the Mafikeng Mall by local authorities 17 times. “They’re not accountable to anyone so they don’t really care,’’ said de Beer.

Unlike South Africa, is the implication, Resilient believes there is a sincere intention in Nigeria to see the country raised up and that officials are largely positive facilitators of the investment process.

Another big player in the industry, Redefine, the second largest listed SA property loan stock company by market cap on the JSE, with assets exceeding R37bn, claims to be hampered by red tape.

The value of the group’s properties declined by 1.7% in the review period while the South African portfolio valuation increased by R260million. Red tape involving local authorities and other government departments are holding back developments in rural areas.

Redefine’s CEO Marc Wainer

Redefine’s CEO Marc Wainer

Redefine’s CEO Marc Wainer announced last year that Redefine intended to launch a shopping centre of between 20 000m² and 30 000m² in a rural area which could create between 4 000 and 5 000 jobs. This includes cleaners, security guards and other workers needed by retailers.

However, Wainer said instead of the authorities welcoming these developments, processes are being frustrated by officials wanting their palms greased before setting the ball rolling.

The Redefine head said retailers are keen to enter into rural areas with a growing segment of the market’s buying power increasing in terms of social grants, but are now rather opting for Africa. Wainer cited a recent announcement by Liberty Properties to opt for its new growth in Zambia. “It’s easier to do business in Africa than South Africa,”  Wainer told reporters. He added that money being spent offshore should be spent locally, but conditions frustrate this.

In an interview with CitiBusiness  Wainer lashed out at government, criticising the administrative practices of local authorities. At the time he added Redefine was not going to invest in areas where bribes were expected, citing the former Hammanskraal as an example.

But this doesn’t mean everything’s rosy in Africa either, doing business where local authorities are concerned can be a red tape head ache for developers in general. By way of example consider Steven Singleton’s  story.

Steven Singleton wrote to the Daily Maverick about his struggle in setting up a Private hospital in Zambia where he was frustrated at every turn by Zambia’s top banker and business mogul Rajan Mahtani: “Business in Zambia is very much like this and magnates such as Mahtani make sure it stays that way and he retains control.

In my case I offered him what I considered to be “a project on a plate” and, instead of rewarding the provider, he not only took the project, but the plate as well. Why? Because he could, and there was no recourse to be had.

This is all too often the nature of doing solo business in Africa. Powerful and politically connected parties are able to move with relative impunity as long as their alliances are intact or until a change of regime shifts the balance of their power base.”

Although not the same situation, the dynamics are similarly reported when trying to do business involving local authorities in South Africa it seems.  Whether this is an African challenge or a South African challenge, developers have their work cut out for them as they try to invest and develop under

Redefine Restructures its VBG Portfolio

Redefine International

Redefine International

Redefine is sticking with its strategic business objectives to realign and enhance the overall quality of its core property assets by restructuring all four of its VBG assets.

In line with its strategic business objectives, Redefine has started disposing of non-core properties and replacing them by acquiring large, well-located high-grade investment properties that are intended to expand and enhance the earning capacity of the prime properties in its portfolio.

In an interim Management Statement, Redefine Chairman Greg Clarke highlighted the successful raising of capital and how it had addressed many of the company’s legacy debt issues as well as positioning the firm into an acquisition phase. It is reported that 94 million pounds have been invested to date. The restructuring of all four of Redefine’s VBG assets is now complete.

Menora Mivtachim and Redefine are 50/50 partners. Menora Mivtachim, one of Israel’s largest finance and insurance groups, acquired the VBG portfolio as part of a joint venture. The portfolio comprises four office properties located in Ludwigsburg , Berlin, Dresden and Bergisch-Gladbach with approx. 44,000 sqm of space let under long term leases to the main tenant Verwaltungs-Berufsgenossenschaft (VBG), a public accident insurance institution.

The transaction was performed with the support of Cushman & Wakefield (C&W) who advised Redefine International on the restructuring and identified the joint venture partner as part of a structured bidding process. The portfolio was burdened with liabilities which were securitised in 2007 in the form of commercial mortgage-backed securities (CMBS).

As part of the restructuring, Redefine International sold a nominal amount of 49% of shares of the holding company to Menora Mivtachim and a further 2% to a private investor and increased its equity base. The investor consortium acquired DG Hyp as a new equity provider. At the same time, Redefine International and the newly formed consortium negotiated with the credit administrator and creditor special servicers regarding details of the credit restructuring and the disposal of the portfolio.

Greg Clarke

Greg Clarke Chairman of Redefine International

After completing a purchase agreement, the properties were sold to anew property company subsidiaries for a net amount of 80 million Euros. The proceeds from the sale enabled the restructured CMBS financing to be repaid.

Redefine also announced the acquisition of a recently developed retail property in Hückelhoven, Germany. The property was acquired through the Group’s jointly controlled entity RI Menora German Holdings representing the fourth acquisition in the joint venture with the Menora Mivtachim Group. The property has a value of €11.6 million and has a non-recourse senior debt facility of €7.9 million secured against it from Bayerische Landesbank.

Greg Clarke, Chairman of Redefine International, commented: “The period under review has been transformative for the Company… into a more proactive acquisition phase which will lay the foundations for the future delivery of shareholder value.”

South African Shopping Centres Continue to Flourish

Shop ’til you drop – Google Image

“I always say shopping is cheaper than a psychiatrist.” Tammy Faye Bakker

It could be that shoppers are gradually showing an inclination and increasing ability to manage their debt.  Benefiting from the declining interest rates may also be a driving force. Regardless, shopping malls continue to demonstrate a suppleness in the face of pressures like increased fuel prices, electricity hikes and municipal rates increases.

Despite discretionary spending being under pressure, the retail categories of household goods, textiles, pharmaceutical and clothing remain well supported, said Johan Engelbrecht, director retail management for JHI Properties to Denise Mhlanga of Property24.com recently.

It seems that retail nodes where there is a sustainable flow of consumers, sales are performing well. Retail sales turnover for centres run by JHI for example report increases on average of seven per cent over the past year.

South African Shopping Centres Continue to Flourish.

JHI has renewed capital investment with the extension of Greenstone Shopping Centre near Edenvale. The shopping centre opened its new extension in December 2011 with fully let space of nearly 6 400 square metres. A new Edgars has dominated the launch and has been a great success with shoppers.

Rather than hold back or wait and see, JHI Properties intends to advance its retail business unit over the next few years and increase its portfolio of managed retail centres, including elsewhere in Africa. A revamp of the Kolonnade Mall in Montana, Pretoria North is on the cards for example.

Engelbrecht revealed that JHI has opened an office in East London since they intend to invest in an area of great expansion which stretches from Mthatha to Port Elizabeth.

The Cavaleros Group, that brought us Sheffield Business Park has made some significant investments into shopping malls of late. The property investment company spent R20 million making over Bedfordview’s  Village View shopping centre. The intention has been to keep the centre fresh and relevant, vital in the world of competing shopping centres. Apart from the overall refurbishment, three new restaurants plus a Steers and Nandos will enhance the dining appeal of the centre.

Village View in Bedford View – Cavaleros Group

Across the way in Norwood, Cavaleros Group owns the Norwood Mall. The mall sees some major reconfiguration taking place this year. An 1 800sqm Food Lover’s Market has been added to the upmarket retail mix. In the interest of improved flows and greater variety Mr Price Home, Rage, Crazy Store, Bata and Step Ahead are trading from new stores. Food Lover’s Market will open in August joining Norwood Mall’s collection of anchor tenants: Woolworths, Dis-Chem and Pick n Pay.

160 retail centres were developed nationally and are flourishing in townships and rural areas of South Africa between 1962 and 2009, covering about 2 million square metres of retail floor space and generating about R34 billion worth of business sales with an added 54 300 permanent jobs to the national economy since the 1980s.

In rural areas there are other dynamics involved. Rural shopping centres these days are benefiting from the Government social grants. South African Property Owners Association (Sapoa) report revealed that consumer spending is up 30 per cent in the last four years.  Naturally new shopping malls need to be strategically placed in order to avoid overtraded areas.

Marc Wainer of Redefine Properties says “I believe this is an ideal time to develop since interest rates and building prices are at very competitive levels.” He warns that this will not last indefinitely as contractor order books will start to fill up.

Elim Mall – Twin City Developments

With this in mind no doubt, Twin City Developments is developing a new community shopping centre, Elim Mall in Limpopo at a cost of R202 million. Twin City Development owns retail developments like Blue Haze Mall in Hazyview, Twin City Mall in Burgersfort and Twin City Mall Bushbuckridge. Phase one of Elim is to launch by April 2013 with nearly 50 shops.

More than 80% of shoppers within the centre’s catchment area currently shop in other towns. They will now have the convenience of a shopping centre within reach of their own community.

Nedbank is financing the development to the tune of R175 million. The gross lettable area (GLA) is 18 627 square meters with Shoprite as main anchor with a 3500 square meter store accompanied by a 2300 square meter Boxer store. Other features include a KFC drivethrough, an Engin garage and a 72 bay taxi rank.

Clearly Twin City has looked well into the future having purchased the adjacent land enabling it to extend up to 4500 square meters of GLA.

Also eyeing non metropolitan areas for investment is the Dipula Income Fund who already own the Blouberg and Nquthu Plazas which continue to flourish. The JSE listed company is investing R330 million into three shopping centres as it intends to advance its portfolio exposure to low-income households and spread its geographic base. The three malls are: the 6 000 square metre Randfontein Station Shopping Centre in Gauteng, the 14.700 square metre Bushbuckridge Shopping Centre in Mpumalanga and the Plaza Shopping Centre in Phuthaditjhaba in the Free State.

The purchases will raise Dipula’s portfolio to 181 properties with a total GLA of over half a million square meters. Retail property makes up 57% of the portfolio.

Endaweni in Diepsloot Extension

Investec Property plans to develop the 25 000 square metre new regional shopping centre to be known as Endaweni in Diepsloot Extension 10 at a cost of approximately R275 million. Endaweni Shopping Centre will be one of two centres, which will serve Diepsloot and its surrounding communities. Endaweni will link retailers directly to a community of about 150 000 people. The plan of the centre is such that it not only contains a range of national tenants but also accommodates a large quantity of restaurants, which are expected to be a major draw-card for the local communities. The mall is due to open in September 2013.

In November this year Limpopo’s Lephalale Mall’s first phase is due to open. Lephalale Mall is located at the corners of the main arterial Nelson Mandela Road, Apiesdoorn Avenue and Onverwacht Road, on the western edge of Onverwacht’s new CBD in a major residential growth node. It will serve residents of the established Ellisras town, Maropong and the surrounding areas.

Medupi Power Station Lephalale

The Lephalale Mall is a joint venture between Moolman Group and Uniqon (Pty) Ltd. The mall and surrounding node will ultimately consist of 70 000 square metres of retail and other commercial space once fully developed. The growing coal mining and power generating activities in the area are the driving forces behind Lephalale’s growing economy. The Waterberg Coal Field in Lephalale is one of the largest coal fields in South Africa. Lephalale Mall itself will be a catalyst in the area’s economic development, as it grows with its market, and attracts local spending.

The Moolman group was also party to a venture with Resilient Property and Flanagan & Gerard Property Development & Investment in Polokwane, Limpopo.  Another South African shopping centre destined to flourish,  The Mall of the North opened in April 2011. It recorded exceptional performance during its first year and continues to receive attention from retailers seeking to open stores at the mall. Driving its performance is its exciting retail mix of 180 shops with anchor retailers including Pick n Pay, Checkers, Edgars, Woolworths and Game, as well as a Ster-Kinekor cinema complex. Its tenant mix is constantly monitored against shopper trends.

Mall of the North won the South African Property Owners Association Innovative Excellence Award in Retail Property Development. It also won the prestigious Spectrum Retail Design Development Award from the South African Council of Shopping Centres.

Which brings us back to the city. Cape Town and surrounds in particular. Few new malls have been built of late but there is much upgrading and refurbishment.  N1 City, Tyger Valley Centre, The Blue Route Mall, Cavendish Square,  Somerset Mall, Canal Walk and the Promenade in Mitchells Plain have expanded or been given multimillion-rand upgrades.

Tokai’s Blue Route Mall

Work on Tokai’s Blue Route Mall will be completed in October at a cost of R83m. The upgrade expands the centre by 8 000m2 to 56 500m2. Upgrade construction on the northern suburbs’ 25-year-old Tyger Valley Centre started last March. The centre is being extended by 8 000m2 to 90 000m2 at a cost of R450 million.

Some analysts are suggesting that the market is marking time, that there is a consolidation in the retail property sector. However refurbishments and expansions continue and nothing seems to be stopping shopping malls opening and flourishing in rural areas. So either there’s still lot of people out there with money to spend or, in the words of Tori Spelling: “Bad shopping habits die hard.”