Real estate listing unlikely in 2019
Fund managers not keen on risk
Fund managers expect few, if any, real estate companies to list on the JSE in 2019 while weak economic conditions persist and SA property shares trade at a discount to asset value.
Fund managers expect few if any real estate companies to list on the JSE in 2019 while weak economic conditions persist and SA property shares trade at a discount to their asset values.
The head of listed property funds at Stanlib, Keillen Ndlovu, said few listings of any size could be expected to come to market. “The current environment makes it almost impossible for new listings to come through, more so for funds looking for immediate capital.
“The listed property sector is trading at discounts to net asset value of between 10% and 15% on average,” he said.
“This simply means that listed property shares are trading at levels lower than their physical property values. This suggests that the market expects physical property values to decline over time,” he said.
There was talk among market pundits in recent months that real estate companies, especially smaller ones run by black entrepreneurs, had wanted to list, with the intention of raising capital and then buying assets. But one analyst warned there were not enough fund managers with money to risk on potential new listings.
“We aren’t in a listings boom like we were a few years ago. Investors are far more hesitant about allocating funds to listings,” said Evan Robins of Old Mutual Investment Group.
“It used to be the norm that some funds, especially BEEowned funds, would list to get capital and then buy assets, but this just isn’t happening now. Fund managers just don’t have the extra cash for this.”
In 2018 a group of investors tried to list Inkunzi Student Accommodation Fund as the first dedicated student housing fund and one of a few blackowned and managed funds on the JSE.
But the fund did not actually own all of the assets in its prospectus and the management wanted to use the capital it would raise through the listing to acquire those assets. The listing fell through following a lack of support from the market.
Instead of new funds listing, consolidation is expected to take place on the bourse. Recently Fairvest said it was in talks to buy Safari Investments. Last week, Arrowhead Properties said it would merge with Gemgrow Properties through a reverse takeover, after which Arrowhead would be delisted.
Shareholders have called for the liquidity at Gemgrow to be increased, as well as the size of its asset base. The merger would help it to achieve these goals.
Gemgrow had previously been listed in 2016 to hold Arrowhead’s cheaper higheryielding properties.
Richard Henwood, an investment analyst at Bridge Fund Managers, said investors had wanted to buy into specialised funds a few years ago but these had not been large enough to receive buyer interest from index trackers. Sentiment had also soured around listed property, and smaller funds often carried more risk.
“Unfortunately many of the small-cap specialist funds in the SA Reit (real estate investment trust) market currently enjoy little institutional support, especially when they are not in the South African Property or All Property benchmarks. This leaves them with a restrictive cost of equity,” he said.