PrimeTime spies nichein replete market
Keikantse Lesemela | Friday December 5, 2014 12:24
Managing Director, Sandy Kelly sits down with Mmegi Business Correspondent, KEIKANTSE LESEMELA and shares the company’s strategy
Mmegi: Briefly tell our readers about PrimeTime Property as a business.
Kelly: PrimeTime is a property investment company in which the number of shareholders grew from 1,337 at listing in December 2007 to over 1,850 by early 2013. It is invested in a diversified portfolio of office, retail and industrial properties throughout Botswana and more recently in Zambia.
The company is strategically exploring growth opportunities both in Botswana – where opportunities are present, particularly outside Gaborone – and regionally. The strategy of portfolio diversification into Zambia and other SADC regions is in the near future with investment opportunities currently being evaluated. The aim is to hedge our risk against a one-product economy.
Mmegi: What has been your experience in Botswana’s property market?
Kelly: Although we have been having good business in Botswana since we started, growth has been limited. We have just secured Barclays for the third phase of the Prime Plaza development and we are still confident of securing further investments in Botswana.
However, our concerns are over the medium and long-term reliance that the country has on diamonds and as such, we are pursuing a policy of risk diversification by seeking investments elsewhere in the region.
Despite the belief that the market is saturated, we still believe there is an opportunity in some sectors. The new Gaborone Central Business District (CBD) still presents good prospects for us to grow our portfolio. The retail market appears to be saturated in Gaborone but there is a greater opportunity for expansion in outlying areas such as Mochudi, Mahalapye and Kasane.
Mmegi: Let’s talk a bit more about the issue of market saturation. What is your view and experience?
Kelly: Well, large property owners agree that the (commercial) market is saturated. In the Gaborone CBD, many see a possible oversupply, as a number of buildings are being developed, more as a result of the pressure to develop and avoid forfeiting the plots back to government.
However, two of the three large buildings along the eastern boundary have all been let to government departments, who have been out of the market for the last four to five years.
From our own perspective, we are still confident that the new Gaborone CBD is still good for property investment. The completion of our properties in the CBD and tenants secured in the Prime Plaza development, have been our greatest achievement of 2014.
In the next few months, all our properties will be fully let. However, the challenging economic conditions remain and so we are continually pursuing the diversification strategy.
Our target is to grow the portfolio value to P1 billion in the next three to five years through the acquisition of suitable investments. We are currently negotiating prospects in Zambia and we have also been looking at Mozambique, Tanzania, Kenya and Uganda.
In Gaborone, virtually all retail space has been let with only a few small pockets available. The large retail centres are probably over-traded and the shopping public is now spoilt for choice.
They can go to any number of centres such as Game City, Rail Park Mall, Riverwalk and Airport Junction. The result may be that tenants are not able to sustain rentals and pressure may come on landlords down the line.
Industrial property remains in short supply, both for investment and for occupancy due to lack of new sites for development. However, the downturn in the economy has taken the pressure off demand.
As mentioned elsewhere, Francistown and the outlying towns are suffering from the effects of little or no government spend in those areas, combined with small civil servants’ salary increases, resulting in reduced disposable income. We see this continuing for some time.
Mmegi: What is your take on the covenant plan in the CBD market, which places a timeframe for development of properties?
Kelly: The covenant plan is a good initiative. The land should not be left without being developed for a long time. Most developers are looking for land to buy and develop but they cannot find it, while others are holding the land but are not doing anything about it. The land should be given to those who are able to use it.
Mmegi: How do you keep abreast of the competition in the market, as developers are likely under pressure to reduce rentals in light of the saturation levels?
Kelly: We are reviewing the rentals in our office properties. A new five-year lease has been agreed with Letshego who are also taking up more space, with rentals rebased to current market levels in the area. We will also be moving onto a similar exercise at the SA High Commission as soon as a new lease is agreed, and Independence Place has a new five-year lease has been signed with Alexander Forbes. The result is that we are comfortable now that we have good, long term secure tenants at market related rentals.
Whilst the new CBD is seen as the “place to be”, the Main Mall is still very much a sought after location due to its proximity to the Government Enclave offices and Extensions 9 and 11 which are the prime residential locations for senior executives. On our retail properties, we have also made substantial investments.
At South Ring Mall, we spent over P300, 000 making improvements to the access and car park, which has been well received by the tenants. A new 10-year lease was signed with Pick n Pay as the old Score lease came to an end. In Ramotswa, a new seven-year lease was agreed with Choppies who took over from Saverite. T
hey have made a significant investment into the store and we will be investing in the external works following the major improvements to the main road. A new 10-year lease was signed with SPAR in Gantsi where we have spent P1.5 million in refurbishing the property and rearranging the Ellerines shop.
So, we are well set for the next few years in these properties. Sebele Centre, our flagship retail property, is performing very well despite the advent of Airport Junction, and has cemented the location as a node. The brightness and accessibility, together with anchors such as Pick n Pay and Woolworths in particular, make it the convenience centre of choice.
Mmegi: Why do you think investors are directing their funds to commercial properties and not the residential market?
Kelly: The residential market yields low returns, probably five to six percent, but its management is intensive and in most cases offers short leases. It is a good market for individuals but not big companies.
Mmegi: Your thoughts on the future of the local market in the next five years?
Kelly: In Botswana, growth will be slow due to strict government regulations and stringent immigration laws. Nowadays there are few investors coming into Botswana.