Time to go back to UK market?
Uk-focused property stocks are trading at attractive discounts, but investors need to be selective
Though the share prices of some Uk-focused property stocks have recovered somewhat in recent months, most are still down 10%-20% over 12 months as uncertainty lingers about how Brexit will play out.
This raises the question of whether it is a good time for value-chasers to re-enter the UK property market via rand-hedge stocks.
SA investors who don’t want to take money physically offshore have at least nine Ukfocused counters to choose from on the JSE. These include Covent Garden-owner Capital & Counties Properties, SA retail tycoon Christo Wiese’s property arm Tradehold, Stenprop, Redefine International and Atlantic Leaf Properties, as well as pure retail players such as Hammerson, Intu Properties, New Frontier and Capital & Regional.
Most are now trading at a discount to net asset value (NAV), which is in sharp contrast to a number of other rand-hedge and even Safocused property stocks.
Peter Clark, who runs the listed property division of Investec Asset Management from London, says the company remains cautious about the outlook for Uk-property stocks given the uncertain political and economic backdrop.
Though there is still good demand for prime office and logistics space in the UK, retail property is no longer the flavour of the month, he says.
“Structural shifts in the retail sector brought about by online shopping, coupled to weak consumer confidence, have placed enormous pressure on retail sales. As a result, some of the big UK retailers are busy reducing their footprints in traditional shopping centres by up to 50%.”
Clark says mall owners with secondary shopping centres in secondary locations are feeling most of the pain.
However, he believes there is nevertheless value to be had in UK property stocks. The current strong rand also makes it a good time to buy for SA investors willing to take a three- to five-year view, he says.
Keillen Ndlovu, Stanlib’s head of listed property, agrees that UK property stocks offer good value at current levels.
“The overall UK listed property market is trading at an average 4% dividend yield and a discount to NAV of about 21%, with the star performers being industrial and logistic-focused stocks that are benefiting from the rise in ecommerce, such as Segro, Londonmetric and Shaftesbury.”
However, if one only considers Jse-listed Uk-focused property stocks, Clark and Ndlovu both place mall owner Hammerson as their top value pick.
Hammerson is the third-largest property company on the London Stock Exchange and the second-largest on the JSE, with a market cap of R78bn.
The company differentiates itself from other Uk-focused mall owners through a diversified earnings base, with a sizeable presence in European countries besides the UK.
It also owns a combination of three different types of retail centres: 23 traditional shopping malls that dominate their catchment areas, 18 retail parks (similar to value centres in SA) and stakes in 19 premium-outlet villages across Europe. The latter typically focus on top-end international fashion and luxury brands, and