Recovery from a rocky road
The drop in Nepi Rockcastle’s share price has created a cheap entry point for patient investors
It seems that Eastern European property play Nepi Rockcastle, which last week declared impressive growth of 17% in its euro-based dividend payouts for 2017, has been unfairly punished by the market because of its association with the Resilient group.
A general skittishness among JSE investors following the collapse of Steinhoff’s share price has also not helped. Nepi Rockcastle’s stock has slumped around 42% in the year to date, which has wiped nearly R53bn off its market cap.
That’s a sharp turnaround from two months ago, when Nepi Rockcastle was still one of the most popular rand hedge stocks on the JSE.
Other companies in the Resilient stable — Resilient Reit, Fortress Reit and Greenbay Properties — have shed more than 50% in the year to date following what initially appeared to be an orchestrated short selling campaign by hedge funds. Market jitters were further fuelled by three reports that questioned the group’s crossholdings, BEE structures and the large premium to net asset value (NAV) at which the stocks were previously trading.
The Resilient group co-founded Nepi 10 years ago when the company bought its first shopping centre in Braila, in southeastern Romania. It was also involved in the start-up in 2012 of Rockcastle, which initially built shopping centres in Zambia but later shifted its focus to Poland.
Resilient Reit and Fortress Reit still own 13% and 24% respectively of Nepi Rockcastle.
However, analysts say Nepi Rockcastle’s aggressive sell-down since January 10 appears somewhat irrational given that it operates as an independent offshore entity with no exposure to BEE structures or crossholdings in other group companies.
Moreover, unlike Resilient Reit and Fortress Reit, whose portfolios consist of sizeable stakes in listed entities, 90% of Nepi Rockcastle’s portfolio consists of a direct portfolio of incomeproducing properties. Nepi and Rockcastle merged in July last year, becoming the largest shopping centre owner and developer in the Central and Eastern Europe (CEE) region — its portfolio of 56 properties is spread among eight countries and valued at close to €5bn.
“The sell-off has been completely overdone. The market is now fuelled by fear and the pendulum has swung too far, in our view,” says Len van Niekerk, senior property analyst at Nedbank Corporate & Investment Banking.
Kundayi Munzara, director and portfolio manager at Sesfikile Capital, has a similar view: “Markets tend to overreact in both directions, and the recent correction may have been unfair to Nepi Rockcastle if based solely on its association with the Resilient group.”
Munzara nevertheless believes the premium to NAV of around 80% that Nepi Rockcastle was trading at by the end of 2017 was excessive. He says that even with a big development pipeline the large premium was unsustainable, especially if one compared it to prominent Western European mall owners such as Unibail-rodamco, Klépierre and Eurocommercial, which now trade at double-digit discounts to NAV. The upshot of Nepi Rockcastle’s substantial share