Property pivots and motoring missteps: Accelerate rises as CMH stumbles

All to play for at Accelerate Property Fund

Accelerate Property Fund has had a colourful life. The previous management team did a thorough job of making sure that most institutional investors wouldn’t go anywhere near the thing. Those chickens all came home to roost in the end, with the fund now under new management and trying to distinguish its future from its past.

Property funds use a lot of debt. This means that when things go wrong, they can go badly wrong. In fact, they can go so wrong that the banks end up with all the value, leaving little or nothing for equity investors. This is the outcome that Accelerate is fighting hard to avoid, as the balance sheet has been on a knife’s edge.

A strategy to execute a large number of property disposals has certainly helped here. In a voluntary pre-close update dealing with the year ended March 2025, the fund confirmed that property sales of R700-million were achieved in this financial year. Then, later in the same week, they released the exciting news that the fund’s proportionate ownership in Portside (the iconic office building in Cape Town) was being sold for R580-million. Aside from the obvious benefit this has for debt reduction, the other important point to note is that the selling price was pretty close to the last valuation of R609-million.

Why is this relevant? Well, with Accelerate’s share price trading at a vast discount to the net asset value per share, selling an asset of this size at close to book value is a big deal. It implies that the share price might not be giving this management team enough credit. Is this just a hangover of the previous management team, or are there other things to worry about at Accelerate?

As impressive as progress has been, there’s a long way to go. Fourways Mall is simply too big for modern shopping habits and for the surrounding area, leading to a nasty vacancy rate. In what is essentially a last-chance attempt to get things right, expert property developers Flanagan & Gerard and the Moolman Group were brought in to sort it out. The vacancy rate has improved by 560 basis points to 13.4%, so that’s an impressive trajectory.

The asset disposals and the improvements at Fourways Mall still weren’t enough. The fund needed to execute a R200-million rights issue and they expect another R100-million to come. This is sufficient to keep the banks at bay, with the commercial lenders renewing the debt book for two years.

Disruptors and disruptees

Being on the right side of disruption is the difference between success and failure in many industries. In the past week, we saw two unrelated examples of what it looks like to be the disruptor (where you want to be) and the disruptee (avoid).

I’ll start with the disruptee: Combined Motor Holdings (CMH. The onslaught of Chinese vehicles has thrown the new car industry and the relative market share into disarray. The dealer networks that had the skill (or luck) to see this coming and get an early start have done very well. The old-school players with a wide range of legacy brands are severely on the back foot, with CMH perhaps the best example of what would have once been considered to be a desirable portfolio of brands. Instead of being able to tell a great story about the most famous motoring names in the world, CMH is out there releasing trading statements that reflect a drop in HEPS of between 20% and 30% for the year ended February 2025.

In stark contrast, we have Purple Group as a great example of a disruptor. There have been some hard lessons for investors in this company in the past few years, as the share price ran miles ahead of where it should have been. Although there was never any doubt about how exciting the underlying story was, it was clear to experienced investors that the price was too hot. This didn’t stop new investors from burning their fingers, while ignoring dire warnings.

 

If you annualise the interim earnings, the forward Price/Earnings multiple is in the low 20s. That’s a lot more like it.
The disruptor is almost always a better choice than the disruptee – provided you don’t overpay for it.DM