SA listed property looks offshore

Posted On Wednesday, 05 September 2007 02:00 Published by eProp Commercial Property News
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The plunge in the prices of listed property in the UK and Europe since the beginning of the year offers opportunities for South African listed property companies looking for offshore investments

Ian AndersonIan Anderson, director of Re-Connect Research and Advisory Services, says that with the recent US subprime market woes and consequent fall in global property prices, particularly in the UK and Europe, some listed property companies in those regions are now trading at substantial discounts to net asset value.

The UK listed property sector has lost about 25% of its value this year.

Anderson says this makes European and UK listed property companies ideal targets for South African companies as demand for listed property remains strong and access to historically cheap equity capital makes offshore acquisitions possible .

“It won’t be surprising if a number of other listed property companies in SA announce offshore acquisitions over the next 12 to 18 months.”

He says those most likely to look offshore are the top 10 local listed property companies by market capitalisation. Three of SA’s listed property companies have announced investments in foreign markets.

Listed property loan stock company Redefine Income Fund owns 18% of UK-based CIREF, which was listed on London’s Alternative Investment Market in May last year.

Diversified Property Fund, a listed property loan stock company that is part of the Resilient Group, has an investment in the Fortress Reit Fund.

The latest South African listed property fund to invest offshore is Sycom Property Fund, which announced last month it was investing R258m in the Stenham European Shopping Centre Fund, listed on the Channel Islands Stock Exchange.

Its only asset is a shopping centre situated between Leipzig and Halle in Germany.

Anderson says South African listed property companies are able to explore opportunities in the UK and Europe because capitalisation rates and the yields on listed property securities in SA have fallen dramatically over the past five years to levels comparable with many overseas markets.

“SA’s listed property companies are able to look at investments in those markets, fund them through the issue of new units here in SA and not dilute income in the short term.”

He says South African listed property companies are looking beyond the local market because there is a lack of good investment-grade property available SA.

“The country’s leading insurers, like Old Mutual and Liberty Life, continue to hold on to their property investments like Gateway, Menlyn Park, Cavendish, Sandton City and Eastgate (shopping centres), while pension funds also remain large holders of direct property.”

Anderson says it had been expected that with growth in SA’s listed property sector, a number of these “institutional” portfolios would have been securitised, providing a steady flow of transactions for the larger listed property companies.

“This has not happened, and consequently SA’s listed property sector is starting to look for offshore acquisitions.”

Craig Ewin, CEO of the South African Corporate Real Estate Fund, SA’s third-largest listed property fund, says management is “looking to profile” SA Corporate internationally to attract foreign investment.

Next month the fund will give a presentation at the Macquarie international property conference in London and New York.

“There is no doubt that the scarcity of property in SA, particularly major retail centres, and the fact that international listed property is trading at discounts to net asset value, presents an opportunity for South African listed property companies .”

Ewin says SA Corporate will “certainly be applying its mind to this”.

Pieter Prinsloo, MD of blue-chip listed property loan stock company Hyprop Investments, one of the top 10 listed property companies by market capitalisation, says the company is not looking to invest offshore, but if an opportunity arises where Hyprop can find suitable assets in line with its investment strategy, it might reconsider.

“But when funds invest offshore they take on additional risk in the form of currency risk and investors in these funds must be aware of the additional risk,” says Prinsloo.

Last modified on Wednesday, 23 April 2014 13:22

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