Investment Thesis

  • Secondary and tertiary CRE markets across Central & Eastern USA
  • Neighbourhood, Community and select Power Centres
  • Grocer/Necessity-anchored centres
  • Emphasis on internet(online)-resistant tenants
  • Sub-market geographic evaluation – demographics, market dynamics
  • Attractive financial performance 
  • 5 Year IRR of 12%+ – targeting 15%+
  • Initial Distribution Yield to shareholder of 6+% p.a.
  • Targeted Distribution growth of 5% p.a.
  • Fixed-term interest-only senior debt
  • Internally managed

Other Investment Considerations

Commentary on Vacancies

Vacancies of up to 10% are acceptable and can add value to the AmCon investment. Our property managers usually have a detailed asset-tailored plan on back-filling the space, which will consequently provide a marked uplift to year-on-year growth going forward. The vacancy remains outside the Portfolio purchase price and is factored into the NOI upside in terms of future financial reporting. In conjunction with Pad development opportunities that remain to be unlocked, the combined value-add that is inherent in the transaction is a positive driver and underpins the Investment Thesis for the Assets. The AmCon thesis of acquiring value-add assets, rather than fully stabilized assets with limited or no growth potential, is a key factor in our acquisition strategy.

Commentary on LTV exposure differences between the USA and Europe/South Africa

The CRE Market in the US offers a different approach to LTV analysis and debt covenants to those experienced in the European/South African property sector. The key element of the EU/SA approach is based on periodic asset revaluation to events and circumstances, which in turn requires greater amounts of equity input to maintain debt covenants at required ratios. In economic downturns, EU/SA Reits are negatively affected by the decline in their asset values and have had to constrain cash outflows accordingly, in order to maintain and top-up on their LTV covenants. However, financial institutions in the US adopt a very different approach to the same issue, whereby the focus is centered on debt serviceability coverage ratios and not on asset value, thus LTV’s are secondary to cash flows, which allows for US Reits, particularly in the private sector, to maintain LTV levels in the 50% to 65% range on the back of debt serviceability ratios of 2x to 3x. It remains a truism that cash-on-cash investor yield will be more advantageous to a fund geared to a 50% LTV ratio than at extremely conservative levels of 30% – 40%. Of further assistance to the US LTV model, is the availability of lower cost money, interest only ( IO ) and fixed for 10 years. This yield spread is unobtainable in the EU/SA Markets, thus requiring the EU/SA Reits to maintain lower LTV ratios.


Value Proposition

  • Direct investment offering 100% direct exposure to superior US CRE Assets and returns
  • US economy stands out Globally – robust CRE market performing strongly (particularly Neighbourhood centres). Steady, dependable history of industry growth showing resilience over time. 
  • In Sep 2020 retail sales returned to pre-pandemic trajectory
  • Proven investment thesis – grocer-based Neighbourhood retail; Power Centres in Central & Eastern USA
  • Proven standing in US property and banking sectors
  • Proven track record of retail asset sourcing, acquisition, value-add and returns in USA
  • Established network of reputable strategic retail real estate partners in USA
  • Distinct access to substantial assets and positioned to negotiate off-market assets
  • Early bird opportunity due to ‘on-the-ground’ market presence
  • Agile to capitalise on the dynamic playing field

US retail landscape

In September 2020 retail sales returned to pre-pandemic trajectory, growing 10.1% year-over-year on a seasonally adjusted basis. This is the largest year-over-year increase for a single month since tracking began in 1992

Secondary retail markets continue to outperform Top-10 city markets

USA greatest concentration of quality property assets in the world. Stand-out global performer during and post-pandemic lockdown

Holiday spending in 2019 increased  C.4.0%. December 2020 only marginally affected due to re-channeling of travel and entertainment spending – 1.9% growth

Pre-pandemic, struggling mall retailers continue to close while neighbourhood and strip-mall occupancy and leasing remain resilient

Although pandemic lockdown accelerated online purchases in Q2 2020. They remain below 15% of total sales

Grocer-anchored neighbourhood centres more defensible – highest occupation in retail. Migration from urban centres to suburbs a strong trend.

Secondary and tertiary markets typically have lower taxes. Cost-of-living, and buying cap-rates offer excellent value

Omni-channel strategies are starting to pay off, in many instances increasing store count. This trend was reinforced by the pandemic lockdown in March and April 2020

Retailer summary

Big box tenants downsizing – pressure on department stores accelerated by pandemic

More chains expanding than closing stores in all retail sectors. The demise of struggling retailers hastened by pandemic lockdown

Service-based tenants have been a key source of tenant demand

Major grocery players moving to small format, convenience-oriented concepts in urban locations

Entertainment and food = major draws, and expected to recover once vaccine rollout takes place

Winners and losers monitored closely by analysts and media = market transparency 

Online retail

Halo effect – opening stores increasing online traffic

Omni-channel strategies seen as essential for all retailers – growing stores footprint

80% of adults still plan to shop instore for gifts

87% of shoppers plan to research online before going instore

Although pandemic lockdown accelerated online purchases in Q2 2020, they remain around 15% of total sales

Online grocery sales not likely to achieve significant online market share 

Certain retailers more susceptible to online channels – technology, shoes, office goods – winners and losers