Tyrone Govender, CEO of Freedom Property Fund.
Freedom Property Fund has released results for its half-year to 31 August 2015 and at the same time, it confirmed that obstacles contributing to some delays in its development projects have already been removed. The company has broken ground on two major developments, which will create growing income streams for Freedom’s investors.
Commenting on this set of results, Tyrone Govender, outgoing CEO of Freedom, says: “As a fledgling fund that started from scratch to list on the JSE just over a year ago, we have experienced our fair share of growing pains. Delays in the development of our properties have resulted in Freedom having to pay out property and finance costs, without generating rental income from these properties. We are pleased to report this is already changing. We have started development at two of our residential developments – Tubaste Residential Estate in Steelpoort and La Bonne Vie in Pretoria. This will start to generate a return on investment. We believe this is the beginning of a snowball effect, and we are positive about the future of the company.”
Freedom is a property capital growth fund that listed on the JSE to strategically acquire and develop a portfolio of industrial and mainly residential properties, creating sustainable future income streams or significant development profits.
During the interim period, it increased its investment property revenue by 67.24%, however made a headline loss of 0.40 cents per share.
Govender notes while this interim period has been challenging for Freedom, it has made some positive progress.
The liquidity of Freedom’s shares has continued, although trading at a large discount to Freedom’s NAV. This is largely a result of certain vendors who sold their properties to Freedom for shares on listing, realising the opportunity to create liquidity by trading their shares.
This is compounded by the company’s current market capitalisation inferring the market has valued it only on income-producing assets, completely discounting its significant portfolio of property assets and development opportunities.
“We expect this to change as we deliver projects and return profitability,” says Govender. “In the meantime, new investors continue to realise the opportunity to invest in Freedom at discounted levels, expanding our investor base.”
Freedom’s forward focus will be on increasing income streams, containing costs and growing capital, while continuing to expand its portfolio of income-producing properties and growing its business.
“Freedom has progressed in our operations. This has enabled us to continue to implement our strategies and growth plans in line with our broad short- and medium-term goals of unlocking value for our stakeholders,” says Govender.
With tenants like Sasol, Weir Minerals and North Safety, Freedom is continuing to develop out its Steelpoort Industrial Park. It is confident that it can grow the park’s tenant base and successfully fill the vacant units. The property’s vacancy was 14% at the close of the half-year. It is also applying to re-zone the park’s remaining 6 hectares for the construction of a further 36,000sqm of industrial warehousing.
Freedom has also started the strategic growth and the roll-out of its sizeable portfolio of high-demand residential developments.
Its residential developments include Tweefontein Residential Estate in Steelpoort, Limpopo – where the demand for residential accommodation is currently placed at between 15,000 and 20,000 units, and continually expanding as new mines open in the area. Tweefontein Residential Estate will give Freedom exposure to over 4,000 residential development opportunities in the low- to mid-income market. A major mining group has expressed interest in taking up half of these immediately on completion.
At La Bonne Vie, in Montana, Pretoria, development is underway on the first 22 sectional title units of a total 90 to market in early 2016. This section title residential estate is adjacent to the well-known Kolonnade Shopping Centre and the Zambesi Country Estate.
At the mixed-use residential, commercial and institutional Langebaan Beach Resort in the Western Cape, Freedom plans to kick-off development with a demand driven 7,000sqm of commercial space. Govender reports that negotiations have commenced with high profile tenants that have a national footprint. This development borders Saldanha, where Transnet has announced a R10 billion harbour expansion, which supports exciting opportunities for Freedom’s property.
At Gevonden, on the high-demand urban edge of Stellenbosch, adjoining the successful Welgevonden Estate, Freedom is preparing to develop 43 residential units for the mid-market. Govender confirms the fund is investigating innovative methods of financing the development, which will allow it to be built out at a much faster pace than traditional institutional finance normally allows.
During the period Freedom disposed of its Stellenbosch Industrial property in the Western Cape, for R49 million. It is using the proceeds towards developing its residential portfolio and other strategic objectives.
“By developing Freedom’s land and providing rental accommodation to the low- to mid-tier income sector, Freedom’s vision goes beyond growing an appealing investment proposition. We want to address the challenges currently being faced in the South African residential property market. This includes correcting the lack of supply and delivery of homes for low- to mid-income earners, while growing our income-producing assets,” says Govender.