ACTIVITY on the mergers, acquisitions and new listings front has slowed, as a weak economy and rand volatility put a brake on companies’ expansion plans, but the JSE’s property sector is bucking the trend.
About R20bn in fresh capital has been raised by more than a dozen real estate investment trusts (Reits) in 2016, the latest figures from asset manager Stanlib show.
If the pace continues, the total amount of capital raised in 2016 through book-builds, private placements, rights issues and dividend reinvestments is likely to exceed the R36bn raised by the listed property sector in 2015. It could even surpass the R40bn record achieved in 2014. Back then, initial public offerings (IPOs) accounted for the largest chunk of investment flow.
This time around, most of the activity is being driven by rand-hedge counters looking to expand offshore. The R450bn sector has already grown its exposure to beyond SA’s borders to close to 40% today, from less than 5% of total assets in 2010.
The largest capital raisings undertaken so far in 2016 are that of Romanian-focused New Europe Property Investments and UK-and German-focused Redefine International, which each raised about R2.5bn.
The IPO of recently listed Greenbay Properties netted R4bn. Greenbay, which is backed by the Resilient group, has already bought a 31,600m² shopping centre in Slovenia for €56m and plans to acquire more properties in other Central and Eastern European countries.
On Friday, MAS Real Estate raised R500m in an oversubscribed book-build, bringing the total amount of money raised by MAS in 2016 to R1.153bn. The company will use the money for a recent acquisition in Germany, and to fund its push into Central and Eastern Europe.
Keillen Ndlovu, head of listed property funds at Stanlib, said on Friday that the capital raised in 2016 had exceeded expectations. Most book-builds and placements have been oversubscribed, which Ndlovu said showed the appetite for listed property was still strong.
He noted that higher interest rates made it cheaper for property counters to raise capital in the market than to borrow money from banks.
Property stocks were trading at yields of 4.5%-8.5%, versus borrowing costs of 10% or more. "Besides, most listed property companies aren’t keen to increase their loan-to-value ratios above 40%, with the average currently around 30%."
Thabo Ramushu, a director of Meago Asset Managers, said raising equity capital at a time when most property stocks were trading at a premium to net asset value made sense as it was earnings accretive. "It also allows property companies to pay off debt and strengthen balance sheets for future expansion opportunities."
A case in point was Redefine Properties, which raised R1.5bn in July. Ramushu said Redefine might be building a war chest for a possible local acquisition.
Ramushu said he believed companies with highly regarded management teams and a track record of successful expansion would continue comfortably to raise capital to fund quality, yield-accretive acquisitions.
However, he said not all future capital raisings would be successful. "The market has become more circumspect, particularly where the proceeds are intended to fund dubious acquisitions in a nervous European and UK environment."