Tech constructs of the SA-REIT landscape

A look into who is faking #IT & making #IT in this technological world. [Article 1 of 6 in the series]

Keywords such as PropTech, Technology, Innovation and Social Media…. are these words that are overlooked by SA REITs?

IAR’s or Integrated Annual reports ~ these buggers, produced on an annual basis, are insights into what listed companies do, right?

By law, as they are listed, these companies are required to give an account of themselves through quantities (financial statements & stats about performance) as well as qualities (through reports & future plans to take over the world – lol). The quantity & qualitative account of themselves then gives the public (investors ~ both individual or financial institutions) the ability to understand their businesses so that they can decide if there is value in buying, holding or selling their share (in a perfect world that is… no Steinhoff or Resilient interferences here).

Moreover, IARs are an opportunity for the management teams of companies to say: “Dear shareholders (& prospective shareholders), we are doing great. We have jumped through these legal hoops and we are doing nothing dodgy. We have, over the last year, stuck to our plan and produced these results. We plan to stick to this new/old plan for the next 12 months and into the future, and this is why you should buy our share. Oh, and please approve my compensation package for the coming year (sorry, I went there!)” [if only IARs were this simple, right CEOs?].

So, the idea is through companies’ IARs we can have a look into their strategy that they implemented over the last year, and most importantly the strategy that they will follow for the next year.

It’s with this in mind that I introduce the topic of our next series of articles: Proptechtalk’s annual keyword analysis.

The idea is that semi-annually we as a platform will analyse keywords relating to PropTech in SA REITs’ IARs and report them in a series of 6 articles (analysing 5 companies then 1 for conclusions). Okay, we concede, this first round of keyword analysis has been initiated by yours truly, however the idea is that each year our subscriber-base can recommend, not only words, but also REITs for us to analyse on your behalf. [should this of course not happen, we will take liberties 😊].

So, what was done? We analysed the following 5 SA REITs & their latest IARs, these companies include:

  1. Accelerate Property Fund (Makis’ old stomping grounds);
  2. Emira Property Fund;
  3. Growthpoint;
  4. Hyprop; and
  5. Redefine.

Each company will represent an article where we analyse the use of the words searched in their IARs. The following words/phrases were analysed in each company’s IARs:

  • PropTech – Buzzword… or is it?;
  • Technology (and its adjectives) – is it really the future we keep being told about;
  • Innovation (and its adjectives); and
  • Social Media [sorry we went there].

The findings are very interesting to say the least. Let’s have a look at each company one by one each month. Enjoy

_______________________________________________________________________________

Accelerate Property Fund:

Accelerate Property Fund’s logo

Intro:

Accelerate Property Fund listed in 2013 and has since increased its asset base by purchasing properties such as:

  • The KPMG portfolio – A/P grade office buildings across South Africa;
  • Portside – P grade office building in Cape Town;
  • A European portfolio of 9 standalone retail warehouses housing a DIY retailer called OBI (4th biggest in the world) in Austria & Slovakia;
  • Eden Meander – a regional shopping mall in George, Western Cape; and
  • Citibank – A grade office building in Sandton, Johannesburg.

The company recently finalized the equalisation of Fourways Mall in Johannesburg’s Northern suburb of Fourways. This transaction is the Fund’s key investment and offers the most upside when considering a buy or hold position on its share.

The problem is, does the company innovate enough? What attitude does it have to innovation? AND, does it take technology seriously? And, lastly, does it believe in a technological disruption story?

Let’s have a look at the analysis, shall we?

PropTech & Social Media – occurred 0 times:

  • The words PropTech and Social Media were not included in the Fund’s IARs. What does this mean? Look, as there hasn’t been wording on it, we cannot make a call as their attitude toward it.
  • So, let’s have a look at the rest of the words analysed in their IAR.

Technology etc. – occurred 27 times:

  • Disruptive technologies seen as a not so likelihood of occurring with a not such a big impact on Accelerate:
Accelerate’s risk matrix 2020 IARs.

Their words:

“DESCRIPTION AND IMPLICATIONS FOR VALUE CREATION” – Disruptive technologies could potentially create new markets and disrupt traditional business models, changing the way consumers shop and influencing their choices of businesses with which to engage – as demonstrated in the banking sector and with potential impact on other retailers.

“MITIGATING ACTIONS AND OPPORTUNITIES” – Understanding consumer habits in the context of technological changes enables us to futureproof our malls by offering a responsive entertainment experience. KidZania, Bounce, food courts and other shoppertainment offerings, have demonstrated the responsive nature of our business model. We will continue to monitor retail trends to ensure that we surpass our competitors in capturing opportunities as they arise.

To best serve our tenants, we must understand changing consumer habits in the context of technological and social changes, and futureproof our malls accordingly. As consumer behaviour changes, the definition of anchor tenants is evolving, moving from traditional grocery stores to entertainment and leisure offerings.

  • Commentary:

Dear Accelerate, I would say that technological disruptions have already disrupted traditional business models in the property. They are in fact in the drivers’ seat with regard to weakening property fundamentals.

Yes, COVID happened, and that meant that a lot of people were working from home, however this sparked a technological disruption if you look at the office sector. Therefore, technological disruption here sparked a shift in the already flailing office sector – [https://bit.ly/3b6P1jA].

Additionally, the fastest growing job in South Africa is…. Scooter drivers. Why? Online shopping and eating is growing. Offerings such as Uber Eats or Orderin or Checkers 60 minutes & Woolies Dash are or will be negating the need for traditional Anchor tenants to lease more space in malls. Disruptions bells are a ringing here!

On the flip side, we agree, keeping ahead of the game with shopper’s trends & concepts such as shoppertainment are important, however, the disruption above far exceeds the need to be ahead of trends here. Yes, we get it, one way to deter disruption is to strengthen the current business model, but the threat of substitute in this scenario is not being considered as seriously as it should.

We would suggest that technology be taken more seriously in their next financials, as it can be seen as an enabler to be innovative, rather than be a disruptor, which brings us to innovation.

Innovation etc. – occurred 11 times:

  • The more prevalent occurrences of the word:
    • Andrew Costa: We pride ourselves on our innovative approach to property and our bold implementation of leading ideas. I believe we bring innovation to the table along with traditional property thinking.
    • Our nodal focus is one such example of the forward thinking and innovation that sets us apart.
    • We understand that innovation must be borne from insight. We noticed shifts in consumer behaviour long before ‘shoppertainment’ became part of the property lexicon. With this in mind, we embarked on our plan to redevelop and futureproof Fourways Mall as a super-regional shopping centre.
    • Underpinned by ongoing innovation, such as differentiating the company’s retail properties, its strategic offshore diversification in 2016 and the executive team’s passion.
    • Look at different and innovative ways to manage our assets.
    • We continually strive to find innovative ways to meet tenants’ needs and manage these expenses. Through green technology, we become less reliant on municipal services, reduce our environmental impact and enhance our reputation as a responsible corporate citizen.
  • Commentary:

Interesting – Innovation was mentioned re strategies about property like the nodal strategy, diversification and shoppertainment. However, only one mention of innovation and technology together through the use of greening. Is the word innovation really appropriate here? It seems like a disconnect between the stated values and the lived ones.

Why oh why not connect innovation with the word technology? Is there a gap in one’s business strategy here? Our thoughts: DEFINITELY. We will see from the analysis below that other REITs mention buying into intangible assets to make their business models more flexible. But more on this later.

  • Conclusions:
  1. Disruptions are definitely MORE important than are currently portrayed in Accelerate’s IAR. Tech disruptions are driving the weak conditions in the property market, thus, it would be interesting to see if this risk identified in 2020 increases in importance by 2021’s IAR comes out. [some homework here]
  • Technology & innovation has, in our opinion, been identified as a huge gap. We question whether management will be able to pull the trigger with regard to actually doing something about it… Note: we are not saying that they don’t want to do it, we are saying that they are incapable of pulling the trigger on it. Once you see the next articles to follow you see that there are other SA REITs that have actually employed technologically driven non-executives that management teams lean on when needing help with tech disruption projects. This is trick that, in our opinion, Accelerate Property Fund are missing.
  • Lastly, we question whether the management team actually understands what innovation could actually mean for their business, and whether, if they do continue on their current trajectory, whether they will be left behind. Huge issues here in our opinion. Why do we say this? They have innovated by purchasing property up until this point. Not a lot of investing or time has been apportioned to innovating in their operating model with technology or greening their portfolio using green technology. The pool of funds has been used to buy properties.

In our next article we will look at an old friend, Emira Property Fund (formerly stated in our article titled: the Rise of the Phoenix https://bit.ly/2RBqRam). We will see the actual progress that can be made by a REIT if tech is taken a little more seriously (no offence Accelerate).

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