Former CEO of RDI REIT, Mike Watters, and chairman of GRIT Real Estate Income Group Limited, Peter Todd, will list a new petrol service station REIT, Afine Investments Limited, on the JSE on Thursday, the 9th of December 2021 – a first of its kind in South Africa.
Controlled by oil companies and a small group of petrol service station property owners, petrol stations in South Africa often entail high property prices, complex legal structures, environmental legislation, and licensing requirements which create high entry barriers for ordinary property investors.
Holding a portfolio of income generating immovable properties in four of South Africa’s nine provinces, Afine’s primary objective is to afford ordinary property investors the opportunity to participate in the ownership of petrol service station properties.
“The recent trend in REIT investment demand from investors has been for specialised REITs over generalised portfolios. This has gathered momentum with specialisations in logistics (Equities Property Fund Limited), self-storage (Stor-Age Property REIT Limited), and multi-let industrials (Industrials REIT and Sirius Real Estate Limited). Until recently, ownership of petrol service stations in South Africa was not concentrated. Afine’s objective is to consolidate ownership through a REIT structure, with an acquisition strategy to grow the business substantially over the next five to ten years“, commented Mike Watters.
Llewelyn Gerber, a Corporate Finance Principal at Bravura, an independent investment bank that acted as Corporate Adviser on Afine’s JSE listing, says that the trend for specialised REITs is not unique to South Africa: “The trend is well known in the Australian and international listed markets. Specialised investments in the property sector, including investments in petrol service stations, are tapping into the interest from both investors and lenders. This is not surprising considering the returns offered by this specialised sub-sector of property investment. Even in a lockdown, petrol service stations offered solid opportunity – in the right locations”.
Results from professional services firm BDO Australia’s 26th Annual Survey of Australian REITs highlights two REITs with mainly petrol service station assets as included in the 2020 top 10 Australian REITs. Waypoint REIT (formerly Viva Energy REIT Ltd) is Australia’s largest listed REIT with a market cap of $2 billion. It owns a portfolio of service stations around the country with more than 400 Shell-branded services stations. APN Convenience Retail REIT, which owns a portfolio of 80 petrol service stations and convenience retail assets across Australia, is valued at $455 million.
Gerber says this trend is evident in the USA as well. “For example, Getty Realty is a USA-listed REIT that owns convenience stores and petrol service stations. The company owns or leases 947 properties across 35 states with its stations leased to nationally known fuel brands including BP, Shell, Mobil, and more”.
“In the United States, there is a world of difference between the investment returns from the best REITs and the worst ones, and this is mainly based on the type of property. Many retail-focused REITs lost more than 50% of their value as consumers minimised shopping trips during the Covid-19 pandemic. Office REITs also struggled as large-scale work-from-home strategies have investors rethinking the future of office space. REITs with petrol service station assets are riding out the pandemic shutdowns relatively unscathed – and some are even benefiting from the changes in the business environment.”
“This listing of a specialised REIT with exposure to petrol station assets is a very interesting first for South Africa. Given the resilience of returns from petrol service stations, especially in a post lockdown economy, we believe it will achieve more interest and better valuations as a specialised asset class that investors have been looking to invest in”.
Michelle Krastanov from AcaciaCap acted as the Designated Advisor on the listing. She explains that Afine has secured long term leases with oil majors, which provides reliable and sustainable revenue and has also entered into an agreement with Petroland, one of South Africa’s major petrol station developers, in terms of which Petroland will provide strategic management services. Afine has furthermore negotiated a right of first refusal on all new Petroland development projects. Petroland has a significant client base in the commercial property industry from which many new petrol service station opportunities are generated. This includes the Engen Platinum One Stop, one of the most successful petrol service stations in Southern Africa, which was completed in 2012/13.
Afine will be headed by founder of the Petroland Group, Anton Loubser.