Income-chasing investors in the JSE’s real estate sector will soon have more options, as several listings are expected to make their way onto the bourse.
The more than R500 billion real estate sector has seen 32 listings that have come into fruition since 2013. But it seems that the next wave of property counters to debut will boast a different offering.
The listing of the first pure residential fund Indluplace Properties in June, which manages 3 600 housing units valued at R1.6 billion, was tipped to usher in an era of specialist listings.
Residential developer Balwin Properties is the latest to make an intention to go public on the main board in October. Balwin, said to be to the largest home builder focusing on sectional title residential estates in metropolitan nodes, will be the fourth listing in the sector this year.
The company focuses on building and selling residential units in the price range of R600 000 to R1.7 million. Since its inception in 1996, Balwin has developed and sold over 70 residential estates comprising about 13 500 residential units. It plans to expand its reach in the Western Cape, Pretoria, Durban and Nelspruit.
Balwin is already in negotiations for more developments over the next nine years in Kyalami, Johannesburg where it looks to roll out 15 000 units. Says CEO Stephen Brookes: “It is probably the biggest residential deal in South Africa at the moment,” says Brookes.
Balwin plans to build a rental portfolio of R2 billion to R3 billion by 2020 in addition to its current build-to-sell model. It is starting with its development of 290 apartments in Greenstone, where rentals would be pitched from R6 500 per month for a one-bedroom and up to R12 000 for a two- to three-bedroom apartment unit.
Balwin’s listing will offer a dividend yield of between 3.5% and 4%. Grindrod Asset Management chief investment officer Ian Anderson says Balwin is likely to appeal to a wider range of investors given its more equity-like character of a lower dividend yield, payout ratio and prospect for higher growth than the typical SA Real Estate Investment Trust (Reit).
“However, given the deterioration in the SA economy and the fact that we’re heading for higher official interest rates, it will be interesting to see the market’s appetite for a developer of residential properties at this point in the cycle,” says Anderson.
Management owns 70% of the company and 30% is owned by private equity partner, Buffet Investments. Brookes says shares in free float will be mid-30%.
Another expected residential-focused listing is by JSE-listed SA Corporate Real Estate Fund, possibly in the next three years. The company might spin off its R1.4 billion residential portfolio of largely inner-city apartments acquired from the Afhco Group in 2014. A separate residential listing, says MD Rory Mackey, might materialise once its residential portfolio doubles to R3 billion.
“We believe that we could grow the business and want to get some scale before we continue on a separate listing. We want to unlock value for shareholders,” says Mackey.
Meago Asset Managers director Jay Padayatchi says the residential sector in global listed property markets has a larger share than in SA. “This area [residential exposure] is a natural area for growth, especially given the fundamentals. Increased urbanisation, a growing middle class, a focus on growth nodes within the largest urban areas, all ensure demand continues,” says Padayatchi.
Offshore and Africa
A UK hotel-focused fund, assembled by Redefine International, might make its way onto the AltX. RBDL Investments will have a primary listing on the Luxembourg Stock Exchange. Redefine International CEO Mike Watters expects a strong response to the new fund. “South African investors definitely have an appetite for international property, especially if there is a good management team behind it,” he says.
More offshore funds are in the pipeline. Evan Robins, listed property manager for Old Mutual Investment Group’s MacroSolutions, confirms: “I know of some pending offshore companies looking to come on the JSE.” A UK-based retail property company is expected to debut on local shores.
Pivotal Property Fund is en route to bringing an Africa-focused fund through the inward listing of Mara Diversified Property on the AltX and will have a primary listing in Mauritius.