Property listings just keep growing
The successful debut this month of Liberty group’s R10bn shopping centre fund and Transcend Residential Property Fund brings the JSE’s tally of new real estate listings since April to seven.
That’s on top of at least 10 new property listings in the prior 12-month period.
And additional property listings are potentially in the offing, including a student housing fund and a few secondary listings from European-focused funds.
Keillen Ndlovu, head of listed property funds at Stanlib, says, however, that new listings will have to become more compelling in their investment offering if they want to lure capital away from existing counters.
"Listed property investors now have so much choice – 52 property stocks in total, including A and B units – that there’s not much room for new generic funds or similar themes in future."
Both Liberty Two Degrees and Transcend met their pre-listing capital-raising targets of R3.8bn and R51.8m respectively. Latest Stanlib figures show that this brought the total amount of new equity raised through initial public offerings, book builds, rights issues and dividend reinvestments by the sector in the year to date to R32bn (R36bn in 2015).
The still-strong investor appetite for listed property comes as somewhat of a surprise, given ongoing share price volatility and a general sense that "new listings fatigue" may be starting to set in.
Liberty Two Degrees recorded a share price gain in the first week after listing. The stock has clearly piqued the interest of investors looking for exposure to the landmark malls in which it owns stakes, including Sandton City and Eastgate in Johannesburg.
However, some believe Liberty Two Degrees has listed at too high a premium. "The company is characterised by an iconic portfolio, but has also listed at an iconic price," says Catalyst Fund Managers investment manager Paul Duncan.
Liberty brought its fund to the market on December 6 at a forward yield of around 6.5% (based on a R10 listings price). This is against the market’s average 7.5% and fellow retail-focused Hyprop Investments’ 6.6% forward yield. The market view is that Hyprop and Liberty Two Degrees have assets of similar quality.
Though the Liberty Two Degrees portfolio is undoubtedly of good quality, Duncan says Catalyst does not believe the returns the fund is expected to deliver are attractive on a risk-adjusted basis. He says Catalyst also does not like the company’s corporate structure — the fact that it has an external management company, and the perpetual put option it has granted to Liberty.
Meago Asset Managers director Anas Madhi echoes the sentiment. "Our concern is with respect to the costs associated with the external management company, as well as the evergreen put option in place with Liberty," he says.
The agreement entitles Liberty to sell its shares of at least R200m in co-owned properties every six months to Liberty Two Degrees. "Though a formula has been created to manage the pricing of such an agreement, we are concerned about any process wherein a listed company is a forced buyer of any assets in perpetuity."
AltX-listed Transcend, only the second dedicated rental housing fund on the JSE, was brought to the market by private equity player International Housing Solutions (IHS) with a small portfolio of 2,472 one-, two-and three-bedroom units.
Though Transcend hasn’t yet lured support from larger, institutional investors due to its limited size and liquidity — it still has a market cap of below R500m — investors will no doubt keep a close watch on the counter, given that it has access to IHS’s R2.5bn pipeline of affordable housing units. These are typically valued at between R400,000 and R700,000 and fetch rentals of R3,000-R7,000/month, which Transcend CEO Rob Wesselo says is the "sweet spot" for SA’s growing urban middle class.
Wesselo hopes to add at least 2,000 housing units to Transcend’s portfolio over the next 12 months.