This “first of a kind” new listing on the JSE is a stock to watch…
The JSEs property sector is worth R590 billion. But until now it's only consisted of industrial, retail and office properties.
But on the 19th June 2015 a new company called Indluplace listed on the JSE. This company is the JSEs very first purely residential property company (REIT).
This is a big deal.
Being the first mover in the residential property market gives Indluplace a massive advantage.
Let me explain…
South Africa’s residential property sector’s got at 700% growth potential!
You see, Indluplace is only a R1.8 billion company. It makes up around 2% of the South African listed property sector.
On international stock markets though, listed residential property makes up as much as 15% of the listed property sector.
So there could possibly be a lot of extra potential for Indluplace to increase its market share by acquiring more residential properties. And I expect there’ll be plenty investors standing in line to invest in the company as it does this.
Why the risks with residential property is so much smaller
In a typical commercial property portfolio a small shopping centre would be worth say R200 million and would only have, say, 20 tenants.
If one tenant defaults that could mean the loss of 5% of your income.
If a core tenant, like a Pick n Pay or Checkers moves or closes it could be 10% even 20% of the monthly income gone overnight.
With residential property a R200 million investment would entail roughly 500 different tenants.
So 1 tenant defaulting won’t even make a dent in your income.
Even ten tenants moving out all at once probably won’t affect you.
But guess what? Indluplace has contracts in place which ensures it a GUARANTEED RENTAL INCOME. Even when tenants move out and its properties stand empty for a month.
How Indluplace pockets guaranteed rental income
Because Indluplace is such a large property investor it gets in on sweet deal. One of its major investments is the Amberfield Village and Park Village in Vanderbijl Park.
Through these two developments the company owns 218 properties.
It has a rental contract in place with the North West University and the Vaal University of Technology for these apartments.
The two universities then rent these units to students as ‘shared accommodation’ with four students living in a two-bedroom unit, or six students in a three-bedroom unit.
These are long-term rental contracts with the universities. So Indluplace doesn’t have the hassles of managing hundreds of individual students. And the company doesn’t have any arrears rental income or admin issues.
In addition to this, the Department of Human Settlements’ data peg South Africa’s housing shortages at more than 2.1 million units, as supply fails to meet insatiable demand.
This is good news for Indluplace, as the company expects to achieve rental escalations of 7% to 9% in the first year, and average rentals of R5 300 across its portfolio.
What this share is worth right now
Following its listing Indluplace raised R400 million cash. It used this cash to pay off a loan, and now the company is debt free!
It owns around R1.67 billion worth of properties and expects to make R225 million in rental income in the coming year.
That means investors can expect around 84cps in dividends by 2016. That’s a dividend yield of 7.67%.
Growthpoint’s forward dividend yield is 6.63% and Redefine‘s forward yield is around 7.8%. So Indluplace is well priced against these shares.
What’s more, the entire 7-9% increase in rental increases the company expects in the coming year will flow through as extra dividend income because its debt free.
This is certainly a property stock I’d keep an eye on.
Rising interest rates won’t affect it at all but they will increase demand for rentals as even less people will be able to afford buying their own properties.
So while many of the geared commercial and industrial property companies will feel the pinch when interest rates head up it will be to the benefit of Indluplace…
Here’s to unleashing real value
Editor, Red Hot Penny Shares