Office buildings. Picture: ISTOCK
Office buildings. Picture: ISTOCK

The South African listed-property sector has seen a dramatic shift offshore with about 46% of its value in overseas markets, including eastern and western Europe.

South African property stocks’ offshore exposure has more or less doubled since 2014 as investors have diversified their risk and sought better growth opportunities.

The South African listed-property sector is now worth about R500bn and is exposed to 25 countries, most recently Spain, according to Keillen Ndlovu, head of listed-property funds at Stanlib.

"The exposure to these 25 countries now makes up almost 50% of the South African listed-property sector. Therefore it has become a very diversified sector with most of the exposure in eastern Europe," Ndlovu said.

Much of this offshore exposure was in new and relatively untested markets. This meant fund managers had to learn quickly to perform in highly competitive arenas, he said.

About 54.3% of all property companies listed on the JSE are based in SA. Research by Avior shows that this exposure was at 59.5% in 2015.

Ndlovu said that data showed the biggest portion of offshore exposure by market capitalisation was in eastern Europe coming in at 15.9%. This was followed by UK exposure of 14.8% and other western European countries coming in at 4.7%. US exposure was 4.4% and Australian exposure was 4.3%. African exposure was only 1.5%.

South African property investors have flooded eastern Europe over the past two years. The exposure to the region by market capitalisation was only 9% two years ago.

Rockcastle Global Real Estate and Redefine Properties have invested extensively in Poland. Rockcastle has also invested in the Czech Republic.

New Europe Property Investments (Nepi) has over more than 10 years become the largest owner of shopping centres in Romania. This week, Rockcastle and Nepi will merge into the largest listed-property fund on the JSE, with a market cap of about R91bn.

JSE-listed Resilient Reit owns various shopping centres in SA and stakes in Nepi and Greenbay Properties.

Greenbay invests in listed European property funds and distressed real-estate assets. It recently bought interests in Portuguese shopping centres.

It was the best-performing property company in the first half of 2017, with a return of about 23.4%, as a result of its aggressive acquisition strategy.

Vukile Property Fund said recently it would expand into Spain, the first South African property company to do so. It made a landmark deal worth nearly R3bn when it acquired a portfolio of nine newly built retail parks across Spain via its 98.3% holding in Castellana Properties Socimi.

The €193m off-market deal increased Vukile’s diversification, boosted its international exposure to about 21% of property assets and grew its Spanish portfolio to 11 properties.

"The transaction has given Vukile immediate scale in Spain. Vukile now offers the most focused exposure to Spanish property available in the South African real-estate investment trust or Reit market," Vukile CEO Laurence Rapp said earlier. Senior property analyst at Nedbank CIB Len van Niekerk said property investors had realised that the South African real-estate market would struggle in 2017 and therefore had gone abroad in a pre-emptive move.

The past few years of poor economic growth and increase in retail space in SA were now, with a lag effect, being felt in the letting and performance of shopping centres. Van Niekerk said that he expected companies to warn of lower growth in distributions from SA during the August reporting season.

The next frontier after Spain could be the US or Canada. "I believe that it is only a matter time before someone brings a portfolio of North American assets to the JSE," he said.

This region was a sophisticated and well-funded market and South African investors needed to carve out a specific niche to excel.

"One of the key issues is that the investment headlines aren’t as attractive as in Europe, initial yields in the US are lower and debt funding costs are higher," Van Niekerk said.

 

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