PICK OF THE MONTH
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