Financial Mail - Investors Monthly - - Contents - Joan Muller

A sec­ond glance at Trade­hold

South African in­vestors who want to di­ver­sify their prop­erty in­ter­ests off­shore are be­com­ing spoilt for choice. It wasn’t that long ago — six years, to be ex­act — that JSE in­vestors had only one rand-hedge real es­tate counter to choose from: Lib­erty In­ter­na­tional (now known as Intu Prop­er­ties).

The UK mall owner has since been joined by at least 10 other prop­erty coun­ters that earn 100% of their rev­enue in eu­ros, dol­lars (US and Aus­tralian) or pounds. Many of th­ese, most no­tably Ro­ma­nian-fo­cused New Europe Prop­erty In­vest­ments (Nepi), sis­ter fund Rock­cas­tle Global Real Es­tate Com­pany, Lon­don-fo­cused Cap­i­tal & Coun­ties, UK and Ger­man-biased Re­de­fine In­ter­na­tional and MAS Real Es­tate, as well as Trustco in Namibia, have seen im­pres­sive re­turns in re­cent years.

In fact, Trustco was the JSE’s top-per­form­ing stock last year, with share price growth of 175%. The small-cap growth counter is one of the largest own­ers of zoned res­i­den­tial, com­mer­cial and industrial land in Namibia.

Nepi and Rock­cas­tle, both in the Re­silient sta­ble, have had good runs too and con­tinue to test new highs. The two coun­ters de­liv­ered a to­tal re­turn of 76% and 143% re­spec­tively for the 12 months end­ing April. That’s way ahead of the sec­tor’s av­er­age 38% over the same time, ac­cord­ing to Cat­a­lyst Fund Man­agers.

Over the past year, no fewer than five new rand hedges have listed on the AltX: Ger­man­fo­cused Sir­ius Real Es­tate, West­ern Euro­pean At­lantic Leaf Prop­er­ties, African play Delta In­ter­na­tional, Gerald Leiss­ner’s Sten­prop, which re­verse-listed into GoGlobal Prop­er­ties, and UK-biased New Fron­tier Prop­er­ties, co­founded by Re­bo­sis Prop­erty Fund CE Sisa Nge­bu­lana.

The R445bn South African listed prop­erty sec­tor’s global ex­pan­sion has in­creased so dramatical­ly over the past six years that more than 20% of the earn­ings gen­er­ated by the sec­tor now come from in­vest­ments owned be­yond SA’s bor­ders, ac­cord­ing to fig­ures from Stan­lib.

The out­per­for­mance of off­shore-fo­cused prop­erty stocks has not been driven purely by a weaker rand. Stan­lib’s head of listed prop­erty funds, Keillen Ndlovu, notes that prop­erty coun­ters with global ex­po­sure have also man­aged to post su­pe­rior in­come growth. That’s pri­mar­ily be­cause ac­qui­si­tions and new de­vel­op­ments in Europe, the UK, the US and Australia can be done at yields that are higher than fund­ing costs. In SA, that’s not the case.

Also, off­shore prop­erty gen­er­ally of­fers bet­ter value than lo­cal prop­erty rel­a­tive to bonds. As Ndlovu points out: “Off­shore prop­erty stocks typ­i­cally trade at a yield of around 3%-5%, which is com­fort­ably above in­ter­na­tional bond yields. The re­verse ap­plies to SA, where lo­cal prop­erty stocks trade at an av­er­age yield of 6% com­pared to bonds at 8%.”

One counter that hasn’t yet ap­peared on the radar of prop­erty fund man­agers but de­serves a sec­ond glance is Trade­hold, the R2,8bn UK-fo­cused in­vest­ment hold­ing com­pany ma­jor­ity owned by re­tail bil­lion­aire Christo Wiese.

The gen­eral per­cep­tion has al­ways been that Trade­hold didn’t have a clear in­vest­ment strat­egy. But the com­pany is now be­ing steered into a new di­rec­tion un­der joint CEO Friedrich Ester­huyse, who joined a year ago af­ter the ac­qui­si­tion of Cape Town-based spe­cial­ist fi­nan­cial ser­vices group Met­tle.

In the past, Trade­hold was al­most ex­clu­sively ex­posed to the UK bank­ing, fi­nan­cial ser­vices and prop­erty sec­tors. The fo­cus has shifted to the bur­geon­ing African (ex­clud­ing SA) real es­tate mar­kets. Trade­hold al­ready has a R3bn devel­op­ment pipe­line in Namibia and Mozam­bique, which man­age­ment hopes to dou­ble within the next three years.

The African prop­erty in­ter­ests of Dur­ban-based de­vel­oper Collins Group were re­cently ac­quired for R409m to fa­cil­i­tate the com­pany’s en­try into sub-Sa­ha­ran Africa. Collins Group was one of the first movers into Africa.

Trade­hold also has a R500m res­i­den­tial devel­op­ment un­der con­struc­tion in Maputo, com­pris­ing 70 large rental apart­ments. The lat­ter have all been pre-let on 8-10 year leases at an at­trac­tive 11% yield (in US dol­lars) to the Amer­i­can Em­bassy and Anadarko Petroleum. In ad­di­tion, Trade­hold is look­ing to in­vest $40m to build shop­ping cen­tres in Mozam­bique’s In­ham­bane, Vi­lan­cu­los and Beira, which will be an­chored by Sho­prite and Pep­kor stores.

Trade­hold of­fers in­vestors a mix of de­vel­op­ing and de­vel­oped economies and its African growth am­bi­tions will be aided by shar­ing a com­mon share­holder with Sho­prite and Pep­kor. The stock is pre­dom­i­nantly a cap­i­tal growth play but pays a small div­i­dend once a year (div­i­dend yield less than 1%). It is tightly held, though, with 85% of the shares owned by Wiese and Collins Group.

The out­per­for­mance of off­shore-fo­cused prop­erty stocks has not been driven purely by a weaker rand

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