Eastern European real-estate owners can be the boost property sector needs
Region’s counters on the JSE are primed for strong 2019 as they benefit from economic growth and rising rentals
Eastern European-focused property stocks such as Nepi Rockastle, MAS Real Estate and EPP NV look set to reward investors in 2019 as they benefit from strong economic growth and improving rentals there, say two prominent fund managers.
These companies have exposure to the likes of Poland, Romania and other countries in central and Eastern Europe, which have strong property fundamentals.
The World Bank has projected that the Polish economy will grow about 3.9% in 2019 and 3.6% in 2020. It expects 3.5% and 3.1% from the Romanian economy in 2019 and 2020.
This is while domestic property stocks are facing a barrage of challenges. South African fund managers expect the listed property sector to fall short of double-digit growth in 2019 as its counters battle with sluggish economic activity and rising electricity and other utility costs.
Lawrence Koikoi, an analyst at Stanlib, said his team forecast total returns for the FTSE/JSE SA listed property sector (Sapy) in 2018 to be 9%- 10% with income growth of 3%-4%.
He said most of the growth was likely to come from dividends. The many uncertainties plaguing the property sector in South Africa could result in Stanlib’s forecast swinging wildly.
The Financial Sector Conduct Authority (FSCA) is still to release findings about the Resilient stable of companies, and these could have a bearing on the direction listed property takes.
The FSCA’s investigation of the stable, which lost more than R100bn in value in 2018 following a sell-off, is twofold: it is studying possible insider trading and price manipulation in its shares, and false and misleading reporting by and on the Resilient stable.
Reitway Global portfolio manager Garreth Elston said property companies with exposure to central and Eastern Europe (CEE) offered strong prospects. .
Companies with a focus on central and Eastern Europe made up 20% of the Sapy. So while the index overall might not excel, these companies could be attractive, he said.
“We are positive on the prospects for CEE for 2019. Despite the political instability in Poland and Romania in particular, the region’s economic fundamentals and growth projections continue to look robust for the year.”
Elston said he expected solid results from companies with exposure to central and Eastern Europe.
Nepi Rockcastle, a member of the Resilient stable, is the largest owner of shopping centres in the region with assets worth more than €5.8bn in nine countries.
“Nepi Rockcastle still has a great deal of noise around it in the market, but with the release of a good set of full-year 2018 results and the conclusion of the FSCA investigation, the company should be able to be more clearly judged on its investment merits and re-rate,” he said.
Elston said positive sentiment on Nepi Rockcastle would have follow-on effects for MAS Real Estate, which owned assets in Eastern European countries as well EPP, which owns malls and offices in Poland, as investors became more positive about the overall region.
Stanlib’s head of listed property funds, Keillen Ndlovu, said the market had not yet warmed as much as it should have to numerous Eastern European property stocks.
“Nepi Rockcastle and EPP both acquired assets recently which have not yet contributed to their earnings for a full financial year so we see value in buying stocks like these in this region as their portfolios grow,” Ndlovu said.
But Craig Smith, head of research at Anchor Stockbrokers, said South African property stocks were well-priced with many trading at yields well in excess of 10% and that Eastern European property markets were not without challenges.