Climb­ing in

Prop­erty stocks lure more off­shore money

Finweek English Edition - - INSIGHT - JOAN MULLER joanm@fin­

WHILE OVER­SEAS buy­ing of gen­eral eq­ui­ties may well have dwin­dled over re­cent months, it ap­pears the JSE’s R125bn listed prop­erty sec­tor is be­com­ing a hot com­mod­ity among in­vestors off­shore. Prom­i­nent global as­set man­agers in search of high in­come yields – in­clud­ing the likes of Black­Rock, State Street, Prin­ci­ple Global In­vestors and Sin­ga­pore In­vest­ment Cor­po­ra­tion (GIC) – have been pour­ing mil­lions into some of the big­ger prop­erty coun­ters over re­cent months.

Sec­tor heavy­weight Growthpoint Prop­er­ties, with a mar­ket cap of R27,4bn, has seen its over­seas share­hold­ing jump from 3% to 11% over the past year, which rep­re­sents an ad­di­tional off­shore cap­i­tal in­flow of around R2,2bn at cur­rent share price lev­els. Re­de­fine – SA’s sec­ond big­gest listed prop­erty counter, with a mar­ket cap of R20,3bn – dou­bled its off­shore share­hold­ing from 4% to 8% in the same pe­riod.

More cap­i­tal is likely to flow to SA’s prop­erty funds fol­low­ing Bank of Amer­ica Mer­rill Lynch’s an­nual for­eign in­vest­ment con­fer­ence held at Sun City last month. It was the first time prop­erty com­pa­nies – such as Growthpoint and Emira Prop­erty Fund – were in­vited to put their case to a strong con­tin­gent of fund man­agers from the United States.

Growthpoint ex­ec­u­tive di­rec­tor Esti­enne de Klerk says in­ter­est in SA-listed prop­erty has never been so keen. “Global in­vestors are now tak­ing note of the fact that South African listed prop­erty of­fers far more at­trac­tive re­turns – to­tal re­turns of close to 30% last year – than other global real es­tate mar­kets.’’

Re­de­fine CEO Marc Wainer agrees fund man­agers over­seas are buy­ing into SA’s growth story. “Not alone do our prop­erty stocks of­fer higher ini­tial yields of more than 8% on av­er­age, but un­like most other parts of the world our yields are still grow­ing at 6% to 7%/year.”

Mac­quarie First South Se­cu­ri­ties prop­erty an­a­lyst Leon Al­li­son ex­pects more fund man­agers over­seas to dis­cover SA’s listed prop­erty sec­tor over the next 12 months as the sec­tor con­tin­ues to grow in size and liq­uid­ity – key cri­te­ria – with off­shore fund man­agers gen­er­ally only in­ter­ested in coun­ters with mar­ket caps north of US$1,4bn (around R10bn) and trad­ing vol­umes of at least $5m (R35m)/day.

Al­li­son notes the sec­tor is likely to have six funds – up from the cur­rent two – with mar­ket caps of more than R10bn by year-end. They in­clude Hyprop In­vest­ments (once the At­t­fund ac­qui­si­tion is com­pleted), the merger be­tween Cap­i­tal Prop­erty Fund and Pang­bourne Prop­er­ties, a po­ten­tial merger be­tween Acu­cap Prop­er­ties and Sycom Prop­erty Fund and the much an­tic­i­pated list­ing of Old Mu­tual’s R12bn prop­erty port­fo­lio.

Al­li­son says the ma­jor­ity of new as­sets com­ing to the listed sec­tor are of high qual­ity, in­clud­ing seven of SA’s top 30 big­gest shop­ping cen­tres. If all the new listings and ac­qui­si­tions ma­te­ri­alise, the over­all mar­ket cap of SA’s listed prop­erty sec­tor could swell to R150bn.

Says Al­li­son: “We be­lieve the com­bi­na­tion of qual­ity new listings/ac­qui­si­tions and more stocks with mar­ket caps of more than R10bn of­fer­ing de­cent liq­uid­ity would at­tract more in­ter­est from for­eign in­vestors. In ad­di­tion, a uni­form and sim­pli­fied REIT struc­ture, a ris­ing num­ber of in­ter­nally man­aged funds and con­tin­ued un­cer­tainty in global mar­kets should also cre­ate more in­ter­est off­shore.”

Al­li­son notes a trend among in­vestors over­seas look­ing to es­tab­lish emerg­ing mar­ket prop­erty funds. “Prop­erty in SA has a sig­nif­i­cant weight­ing and is a good di­ver­si­fier to other emerg­ing mar­kets.” Al­though re­turns over the next decade will be more sub­dued than was the case over the past 10 years, Al­li­son says cur­rent pos­i­tive struc­tural changes will make the sec­tor more in­vestor friendly. He fore­casts a 12% to 15%/year to­tal re­turn for SA-listed prop­erty over the next three to five years.

LEON AL­LI­SON Ex­pects for­eign in­flow to ac­cel­er­ate

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