ABOVE AND BEYOND - JSE MAGAZINE

ABOVE AND BEYOND

How real-estate property fund Transcend achieved its goal of becoming a market leader in quality affordable housing

Transcend residential property fund listed on the Alternative Exchange (AltX) of the JSE on 1 December 2016 in the Financial Services/Real-Estate Investment Trust (REIT) residential sector. Transcend’s primary business activities are the acquisition and management of income-generating residential properties – focusing on housing opportunities that are affordable, will enhance lifestyles and are located in high-demand urban areas.

Transcend currently holds a portfolio of 23 residential properties valued at a combined R2.8 billion and comprising 4 767 units in Gauteng, the Western Cape and Mpumalanga in South Africa. In tough economic conditions, the residential rental asset class is less volatile, making it more defensive compared to other segments of the market, which is seen in Transcend’s year-on-year growth. The nature of multiple leases and high demand for rental opportunities when the bond market falls underpins the defensiveness of this asset class.

Transcend’s properties are predominantly two- and three-storey walk-up apartments, strategically located in desirable neighbourhoods, typically not in the inner-city CBD. Trancend’s properties are close to work opportunities and transport nodes, and are equipped with lifestyle-enhancing amenities. On average the properties in the fund are about six years old, and because of their location, quality, specification and management, they tend to have a high underlying capital value.

As a result, performance is at lower rental yields than inner-city properties, and in the view of Transcend’s board and management, the properties attract a better profile of tenant and have a greater potential for capital appreciation. The product services the affordable market with rentals from R3 600 per month and averaging at R5 500. The portfolio boasts an occupancy of 95% and arrears ratio as low as 1.5%. Transcend’s strategy is to keep investing in the affordable housing market – one of the few market segments where demand continues to exceed supply and where this gap continues to grow. Urbanisation is still rapidly increasing in SA and it follows that Transcend will offer investors exposure to a defensive asset class that delivers housing to a heavily under-serviced portion of the real-estate market.

Through the property cycle and in a difficult market and economy, Transcend aims to achieve consistent growth in dividends by optimising the performance of its property portfolio through inflation-linked rental escalations, and efficiencies in property and asset management.

Transcend offers investors exposure to a defensive asset class that delivers housing to an underserved portion of the real-estate market

THE VISION
Transcend intends to grow its existing portfolio through its investment in stabilised and high-demand open-market rental properties across the country.
The fund will acquire quality assets that demonstrate advantages that attract best rate rentals. Transcend will also focus on customer segments where the payment profiles are above national averages and are located in growth-orientated geographic markets.

The combination of superior property management and advanced product investment in relevant locations will continue to give Transcend an additional competitive edge. Part of this vision was achieved during the 2018 financial year, which saw the acquisition of a significant portfolio of properties. Transcend continues to build its pipeline of stabilised rental properties and has identified more than 2 000 units with a total value of about R1.1 billion, demonstrating the immediate opportunities available for portfolio expansion.

THE MISSION
Transcend’s goal is to drive the performance of its portfolio and establish a stable and consistent track record of dividend growth, by investing in accretive properties and leveraging off the experience and expertise of its property- and asset-management service providers. 
Transcend intends to pursue a migration of its listing to the Main Board of the JSE in the short term, enabling it to benefit from access to capital and improved liquidity, and secure a diverse and broader shareholder spread.

INVESTMENT THESIS
Transcend provides investors with exposure to a geographically diverse, well-managed and well-maintained portfolio of properties that are expected to return inflation-linked rental escalations over the long term, while also providing investors with the security of well-located, quality underlying capital assets that are expected to appreciate in value over time. Residential housing is a unique defensive investment that has the potential to act as an inflation hedge over the long term, returning real growth in distributions. 
Transcend is focused on ‘value add’ initiatives to improve portfolio performance, such as:

  • Attracting and retaining quality tenants
  • Providing well-managed, secure and controlled properties to tenants
  • Reducing vacancies and improving recoveries on properties
  • Investing capex strategically for better long-term performance and to maintain asset quality
  • Managing costs effectively.
Transcend has a proven track record in attracting and retaining quality tenants

PERFORMANCE
On 7 August 2019, Transcend’s board of directors approved an interim dividend of 30.24929 cents per share for the period ending 30 June 2019.
The increase in interim distribution is in line with management’s guidance of slightly better performance than the previous year, and an expected overall increase in distribution for the 2019 year. Despite continued economic pressures and increased concerns around consumer affordability, Transcend was able to grow its distribution due to the defensive nature of the residential asset class and by maintaining its strategy of owning well-located properties in high-demand areas.

THE TEAM
Transcend’s executive team is headed by CEO Solly Mboweni, who has experience in new business and asset management as head of housing operations at International Housing Solutions (IHS); former head of Absa’s SA Devco Sustainable Integrated Development; and former vice-president of the South African Institute of Black Property Practitioners. 
Myles Kritzinger CA(SA), Transcend’s CFO, is experienced in the affordable-housing market and new fund development, having worked as a deal-maker at IHS; manager at Deloitte & Touche; financial analyst at Absa Capital and Absa Retail banks; and consultant at Nimble Risk Services

Transcend’s COO, Vanessa Perfect, CA(SA), was head of rental asset management at IHS from 2010. Before joining IHS, she worked for City Property Administration. She has extensive experience in asset and property management with a demonstrated history of working in the real-estate industry, specifically residential property. She has overseen the performance and significant growth of the residential rental portfolio at IHS and assisted with the establishment of the IHS Property Management business, the internal property management company that manages the IHS and Transcend properties.

WHAT MAKES TRANSCEND DIFFERENT?
The secret to successful residential management is a professional, skilled and well-trained in-house property management team and a specialised executive team. Transcend ensures it is accessible to its tenants by using easy, effective methods of communication. It includes an on-the-ground presence at its properties as a point of contact for tenants and the increased use of smart-phone applications that benefit both Transcend and its tenants. Among other strengths are its:

  • Clear strategy and good track record
  • Defensive asset class
  • Specialised asset and property management
  • Affordable, quality product
  • Pipeline and growth strategy.

54 Peter Place, Peter Place Office Park,
First Floor, Block C, Cardiff House,
Bryanston, Johannesburg, 2191
+27 (0)11 300 8600
[email protected]
www.transcendproperty.co.za