Offshore is the Reit choice
Property groups are spreading their wings abroad as opportunities in their home market are few and far between
R6.9bn seeped out.
Coronation pays out virtually all its earnings, retaining a nominal 0.4c/share of earnings and paying the remaining 223c.
It is an entirely different philosophy from its two main domestic rivals.
Investec is expanding its offices in New York and Hong Kong. Allan Gray has expanded into the linked product business in SA and insources its administration.
Pillay describes Coronation as a tight ship. It runs largely on a variable cost model, with quite low basic salaries and discretionary bonuses, and it outsources administration: asset administration (such as keeping the share register) to Jpmorgan, and the transfer agency, or unit trust ownership record, is being moved from Maitland to a new black-owned business, Intembeko.
Pillay says Coronation’s main growth path will be from overseas. It already runs R60bn of assets for foreign clients but manages the portfolios from Cape Town. Its main success so far has been the Global Emerging Markets Fund, but African Frontiers and Global Managed have picked up business. It will start marketing its Global Equity product once it has sufficient track record behind it.
Coronation has only limited exposure outside long-only listed equity, though it runs a handful of small hedge funds.
Old Mutual Investment Group (OMIG) and Sanlam Investments (SI) both make around R1.5bn/year but have entirely different profiles. SI derives a quarter of its earnings from the quasi-merchant banking activities of Sanlam Capital Markets and a further 10% from its successful private client operation.
OMIG seems to have an impressive operating profit of R1.62bn, but R728m comes from wealth management, which includes the sales of investment policies to the wealthy, and just R224m is derived from the long-only asset manager, which is overshadowed by the
excellent alternatives (private equity and infrastructure) business bringing in R277m and by Omsfin, a Sanlam Capital Markets wannabe, with R394m.
For now Coronation remains the only listed large manager, with a franchise that should ensure that even with multibillion-rand outflows every year it will be a cash cow.
STABLE MARGINS
A number of SA real estate investment trusts (Reits) have clinched big-ticket offshore deals in recent weeks, as the sector’s search for hard currency exposure continues apace.
In May, two deals in excess of R1bn were announced: Investec Property Fund entered Europe for the first time through a R1.1bn stake in a pan-european portfolio of 22 logistics properties; and Vukile Property Fund bought a shopping centre in the coastal city of Torrevieja, Spain for R1.2bn.
The latter takes the value of Vukile’s Spanish retail portfolio to nearly R6bn.
In April, sector heavyweight Growthpoint Properties announced it will invest up to R2.175bn in Warsaw-listed Griffin Premium RE, a pure Polish property play focused on office and mixed-use assets.
Growthpoint already has a R4.35bn exposure to the Romania office market via a 29% stake in London Aim-listed Globalworth Investments.
Retail-focused Hyprop Investments earlier this year invested R1.12bn to acquire a 90% interest in two Croatian shopping centres, bringing its retail property exposure in southeastern Europe to more than R11bn.
Emira Property Fund, the first and only SA company yet to enter the US, recently bought its fourth retail park in that country, though Emira’s exposure there is still fairly small at R386m.
SA Reits’ offshore expansion trail has gained such momentum in recent years that about 40% of the assets owned by the 20 constituents that make up the SA listed property index (Sapy) are located outside SA, latest figures from Anchor Stockbrokers show.
That’s up from less than 3% a decade ago when JSE investors had only one route to offshore real estate markets: UK mall owner Liberty International, now known as Intu Properties.
2010 2011 * Based on analysts’ consensus forecast 2012 2013 2014 2015 2016 H1 2017 2017 H1 2018