More than R20bn and counting

• Well-supported rand hedges amass billions to fund growth ambitions across Europe and to diversify out of tough local conditions

More than R20bn in new capital has been raised in the year to date to fund the growth ambitions of rand hedge property stocks, according to a report released on Monday by Cape-based Catalyst Fund Managers. The bulk of the money will go towards buying or developing shopping centres in Central and Eastern Europe.

More than R20bn in new capital has been raised in the year to date to fund the growth ambitions of rand hedge property stocks, according to a report released on Monday by Capebased Catalyst Fund Managers.

The bulk of the money will go towards buying or developing shopping centres in Central and Eastern Europe.

Last week’s oversubscribed book-build by NEPI Rockcastle alone collected a hefty R5.2bn within a matter of hours. That was in addition to the more than R1bn raised by NEPI earlier in 2017 before the merger with sister company Rockcastle.

NEPI Rockcastle is focused on Central and Eastern Europe.

MAS Real Estate, which recently entered the Central and Eastern Europe region in partnership with Prime Kapital, led by former NEPI CEO Martin Slabbert, raised R1.9bn in September in addition to R2.2bn raised in March.

Greenbay Properties, which owns shopping centres in Portugal and Slovenia, has raised a substantial R7bn so far in 2017.

Pure Polish play Echo Polska Properties and German-focused business park owner Sirius Real Estate have also successfully tapped the market for fresh capital to fund various acquisitions.

Catalyst Fund Managers investment analyst Curwin Rittles said continued appetite for rand hedge counters comes on the back of a “challenging” environment in SA.

However, Rittles cautioned that with so much capital flowing to the Central and Eastern Europe region, it was critical that investors had access to local knowledge or they risked overpaying for assets.

“It’s important to understand the offshore landscape and invest in companies that have a platform in the region and a clear strategy,” said Rittles.

He noted that western European countries such as Portugal and Spain were also in favour.

Both Greenbay, in partnership with Resilient Reit, and Vukile Property Fund have already entered the region. More recently, the move offshore includes niche players such as South African-focused selfstorage fund Stor-Age Property Reit, which is in the process of acquiring Storage King in the UK in a deal worth more than R1bn.

“With property fundamentals still favourable in these regions we do not expect appetite for offshore companies to abate anytime soon,” said Rittles.

Anchor Stockbrokers research analyst Wynand Smit echoed the sentiment. “Our sense is that demand for rand hedge property stocks will increase further, especially if the rand stabilises or strengthens.”

Smit argued that real estate markets in a number of European regions were now experiencing strong demand and positive rental growth. “In Spain, Portugal and Central and southeastern Europe demand is being supported by robust GDP growth amid constrained supply. And unlike the case in SA, debt funding rates in Europe are still below acquisition yields.”

Not surprisingly, the JSE’s best-performing property stocks in the year to date are dominated by offshore counters or local companies with sizeable offshore interests.