German property company to make JSE debut
Deutsche Konsum REIT-AG, a German property company with real estate investment trust (REIT) status in Germany, is set to make its debut on the JSE’s main board on Monday with a secondary listing by way of an introduction, it was announced this week.
Set for 8 March, the listing will be in the Retail REITS sector of the JSE under the abbreviated name DKR. With a market capitalisation of approximately EUR 557 million, the company invests in convenience retail properties in well-established micro locations in the central and regional areas of Germany outside of major cities and is listed on a number of German Stock Exchanges.
DKR’s real estate portfolio consisted of 165 convenience retail properties with a gross lettable area of approximately 901,016 m² and a market value of EUR 829 million. Following the transfer of seven new property acquisitions that have been notarised but will only transfer after the listing, the DKR real estate portfolio will consist of 172 convenience retail properties with a gross lettable area of approximately 958,747 m² and a market value of approximately EUR 880 million.
Announcing its intention to list on the JSE, DKR CEO Rolf Elgeti said: “The rationale is to establish a positive relationship and reliable track record with the South African market. Also, to raise capital in a new market to fund further acquisitions in due course and to increase the liquidity and tradability in the company’s shares.
“Furthermore, we want to provide South African investors with an opportunity to participate in the DKR’s income and capital growth potential and an additional local platform to invest and trade in the company’s shares.
“The company was initially attracted to South Africa by its deep capital markets, the understanding of the property space by the investor community and its well-regulated exchange,” Elgeti said.
The company said despite the current Covid-19 pandemic, DKR has shown resilience in a large part due to its investment strategy.
“Our investment focus on non-cyclical retail tenants, such as large German food retailers, retail warehouse stores, drugstores and the like which provide ‘essential’ services and goods to consumers have made the business resilient to the impact of the lockdowns in Germany,” Elgeti said.
DKR acts as a professional investor in this niche area, as the investment value per property, generally up to EUR 25 million, is in many instances too high for private investors or too low for institutional investors. Operating in this niche area, creates an efficient property acquisition process for the company, with little competition from competing bidders, who would ordinarily drive up the purchase price of similar properties in major cities.
DKR has a particularly streamlined administrative structure which allows for efficient decision making. The experience of DKR’s management and their existing network, as well as the flat structure of the business, facilitates quick decision making, which further enhances the acquisition process.
Strategic asset and portfolio management, as well as targeted and value-adding investments, has enabled DKR to reduce vacancies and enter into strong lease renewals, which has historically led to an increase in the value of its portfolio. In this respect, properties with higher vacancies and short rental contract maturities are deliberately bought, in order to allow DKR to exploit value-adding opportunities.
Through the growth and refinement of its real estate portfolio, DKR is able to achieve economies of scale with regard to ongoing administrative and management costs, as well as in relation to borrowing costs, which further enhances returns to shareholders.
This results in a highly profitable, low-risk and efficiently financed real estate portfolio of institutional quality, which generates sustainable and attractive dividends from non-institutional individual properties and allows the Company to take full advantage of the tax benefits of the company’s REIT status.
The non-cyclical retailers which form a significant portion of the tenant base were excluded from the mandatory lockdowns in Germany applicable to ‘non-essential’ retail stores and accordingly have continued to generate rental income for the company during the Covid-19 pandemic.
DKR does not currently see any declines in the supply of its prospective acquisition pipeline that will impact the further growth of the company’s property portfolio. To the contrary, it has seen an increase in interest in their food-anchored properties.
Notwithstanding the short-term impact of the Covid-19 pandemic, the company are of the view that its long-term prospects are very encouraging. This is further enhanced by the fact that each new acquisition will contribute towards the economies of scale and thereby positively impact profitability.
The company has been strategically positioned to provide a significantly de-risked business model with a property portfolio that provides high-yielding and non-cyclical cashflows through the acquisition and letting of German convenience retail properties, financed in part with institutional debt at low debt costs.
“We have also adopted a lean management structure in an institutional and transparent REIT company. Collectively, this positions DKR as an attractive investment opportunity with positive and sustainable cashflow generation underpinned with real assets,” Elgeti said.
