South African-run property stocks that have offshore portfolios have been the stars of the real estate sector in 2017 and look set to continue to be favoured in 2018.
Offshore stocks have been buoyed by strong economic growth and have recorded strong euro-denominated returns for South Africans when converted to rand.
The constituents of the FTSE JSE South African listed property index have changed markedly in 2017. The index’s 10.4% total return in the year to November 17 was spurred on by offshore counters and hybrid counters with strong offshore components, said Stanlib property analyst Lawrence Koikoi.
Len van Niekerk, senior property analyst at Nedbank, said there had been a ranking overhaul among the largest property funds.
"Nepi Rockcastle’s market cap at R115bn is by far the largest, having comfortably overtaken Growthpoint’s R72.5bn after the merger of Nepi and Rockcastle. Redefine, which used to be in second position before the merger, dropped to joint third with Resilient, with equal market caps of about R60bn each.
"It’s been a year of the ‘local internationals’, the property stocks with the bulk of their equity raised in SA and traded on the JSE that are 100% international," he said.
"Nepi Rockcastle, Greenbay Properties and MAS Real Estate have been significant outperformers. We think that they will continue to find favour as these companies all offer far superior earnings growth in excess of 15% relative to the market [at] around 6%. Resilient’s rise has been supported by its large exposure to Nepi Rockcastle and Greenbay," Van Niekerk said.
Koikoi said that the five top-performing stocks regarding total return were Greenbay with 68.8%, MAS Real Estate (52.3%), Equites Property Fund (38.6%), Fortress Income Fund (33.3%) and Resilient Reit (30.4%).
Greenbay only invests abroad with a focus on infrastructure funds and struggling shopping centres it can improve. MAS recently extended its investment horizon to include east as well as west Europe.
Equites invests in industrial property in SA but has launched an arm in the UK. Fortress invests in logistics centres and commuter shopping malls in SA but also holds stakes in assets offshore. Resilient buys assets in SA but holds stakes in offshore groups. Echo Polska Properties was the sixth-best performer among listed real estate companies with a 16.8% return.
The worst-performing stock, with a negative 19.6%, was Accelerate Property Fund, which is mostly local and has a fledgling investment in east Europe. It was followed by Liberty Two Degrees (minus 19.3%), Octodec Investments (minus 12.3%) and SA Corporate Real Estate (minus 8.1%).