Offshore property diversification spree continues

More JSE-listed counters announce offshore opportunities.

It is becoming increasingly difficult for JSE-listed property companies to find value and attractive deals in the local market, which has seen the offshore diversification spree continue.

Industry players believe that the sector has turned over the last few years, with more property counters eyeing offshore markets as a result of limited opportunities in South Africa.

The latest property counter to diversify outside of South Africa is Rebosis Property Fund (Rebosis), which has acquired a controlling stake in Mauritius-based New Frontier Properties (New Frontier) for R1.18 billion.

Rebosis has subscribed for 64.6 million shares of New Frontier (or 62% if its issued capital), which has a primary listing on the Stock Exchange of Mauritius and a secondary listing on the JSE’s AltX.

New Frontier embarked on a capital raising exercise, raising £84 million (R1.5 billion) by placing 83.7 million shares to market.

The proceeds from the private placement will be used to acquire two retail shopping centres in the UK.

New Frontier’s UK retail foray will in turn give Rebosis exposure to the market. Rebosis says the UK market is attractive, given that it boasts a forward yield of 7% in the pounds. “New Frontier’s acquisition pipeline provides significant opportunities for value enhancement within the company’s portfolio,” it says.

Rebosis CEO Sisa Ngebulana has also been appointed as non-executive chairman of New Frontier.

Property companies have the odds stacked against them in the local market. Sluggish economic growth, depreciating currency and borrowing costs which are higher than the yield on an investment, are factors dimming South Africa’s investment destination sparkle.

Metope Investment Managers CEO Liliane Barnard says: “There is also an attractive initial yield enhancement by investing offshore given the low interest rates these companies can secure by issuring debt in US dollar, euro or pound and investing in higher yielding assets.”

Total foreign exposure in the South African listed property index (Sapy), a benchmark for the performance of the listed property sector, as a percentage of total assets increased to 23%, says head of listed funds at Stanlib Keillen Ndlovu. This figure is with the addition of Rockcastle Global Real Estate to the index recently.

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Ndlovo says offshore exposure is now the UK, Australia, Switzerland, Germany, Romania, Poland and Slovakia. “The UK remains the favourite growth area,” he says.

Not only is New Frontier eyeing the UK, but also Texton Property Fund which recently acquired two properties (an office building and warehouse) in the region for £15 million. It earmarks about 25% of its assets being offshore, with an additional pipeline expected.

Australia is also a firm favourite, with Emira Property Fund (Emira) planning to grow its investment in the country for new growth ventures.

CEO of Emira James Templeton says the fund is planning to invest about R250 million in offshore investments, to add to its R707 million exposure to Australia’s property market through ASX-listed Growthpoint Australia (GOZ). Emira, with a market capitalisation of R8.9 billion, derives 6% of its income from GOZ.

“One of the opportunities we have is to use the security of GOZ shares to potentially invest in overseas stocks,” Templeton told Moneyweb.

Also an investor in GOZ, is the biggest property company by market capitalisation (R65 billion), Growthpoint Properties. The company grew its investment in the entity.

Growthpoint CEO Norbert Sasse this month said the company invested about R1 billion in a dividend reinvestment programme and an additional R280 million into GOZ.

“The cost of our investment is about R5.6 billion [from R5.3 billion] and market value is R9.3 billion at the year end. The Australian entity produced a 26% return,” Sasse says.

He says the attractiveness of the country is due to the dynamics of low borrowing costs and attractive yields. In the Australian market, Growthpoint can borrow money at prime rate of 2.25%, with a property yield of “6% to 7%”. In South Africa prime is 9.25% with a yield of “7% to 8%”.

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