Our opinion on the current state of ACCPROP(APF)Accelerate Property (APF) is a real estate investment trust (REIT) with a portfolio of 56 properties valued at R12.7bn, consisting of 70% retail, 15% office, and 15% industrial properties across six South African provinces. Its flagship property is the Fourways Mall, which it owns 50% of. The mall has been significantly expanded to 178,000 square meters, making it one of the largest shopping centers in Africa, with ambitions to compete with Sandton City. One of its planned features is the "Kidzania" site, a children's activity center, which had not commenced operations by November 2021.
Accelerate also owns Cedar Square and other development lands around Fourways. The Fourways development faced several delays, originally scheduled for completion by end September 2018, then by 22nd April 2019, and finally opened on 22nd August 2019, though it still appears to be incomplete. Given the global shift towards online shopping, further accelerated by COVID-19, the long-term wisdom of expanding a large shopping mall could be questioned, especially as online shopping has significantly grown in South Africa over the past five years and doubled during the pandemic. Accelerate aims to develop Fourways into a comprehensive business center, including office, retail, and entertainment facilities.
On 7th April 2022, Accelerate announced the sale of the Leaping Frog shopping center for R130m to reduce debt, at a price 7.1% or R10m below its book value. In its results for the year ending 31st March 2024, the company reported rental income down 0.8% and an after-tax loss of R624.7m, up from a loss of R592.3m the previous year. The company's net asset value (NAV) fell by 11.6%, and its loan-to-value (LTV) ratio increased to 50.3%.
Technically, the share is trading at 50c, a fraction of its net asset value (NAV) of 365c, though the NAV may drop further. While it appears to be a bargain at first glance, the company faces high and rising debt levels and a challenging retail environment. Its LTV ratio is particularly concerning for a REIT. Much now depends on the outcome of its R1 billion lawsuit against its insurers for losses sustained during the COVID-19 pandemic at Fourways Mall.
In conclusion, while Accelerate Property may seem undervalued, the high debt levels, increasing LTV ratio, and uncertain retail environment make it a risky investment. Investors should approach this stock with caution and closely monitor the outcome of the lawsuit and any further financial developments.
