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Rand-hedge real estate counters on top

Growthpoint and Redefine are no longer the two biggest real estate companies on the JSE.
Intu Properties is now the largest real estate company on the JSE replacing Growthpoint Properties.

In times past, listed property heavyweight Growthpoint Properties cemented its dominance as the biggest company on the JSE’s over-R400 billion real estate sector for more than seven years.

Growthpoint’s counterpart Redefine Properties was the second biggest real estate company by market capitalisation as of 2009.

Retail and institutional investors into the sector had limited choice and often punted Growthpoint and Redefine as defensive stocks, owing to their inflation-beating dividend growth, blue-chip properties in their portfolio, prudent management and offshore exposure at a time when investing overseas was not in vogue.

But listed property and its rankings have changed over the years with more listed companies offering investors exposure to global property markets. 

Since April 2014, there have been 18 property listings, bringing the number of counters to 38. A look at the top three biggest real estate companies by market capitalisation reveals that offshore and rand-hedge property counters are now in vogue for investors looking to hedge their bets in developed markets.

UK mall owner Intu Properties is now the biggest real estate company with a market capitalisation of R90.5 billion.  Intu, originally known as Liberty International, owns 18 shopping centres, with its flagship property being intu Trafford Centre in the city of Manchester.

It also made a foray in Spain in 2013 by acquiring two shopping centres: Puerto Venecia in Zaragoza and Parque Principado in Oviedo and development sites in Málaga, Vigo and Valencia.

Intu’s rise has placed Growthpoint in third place with a market capitalisation of R59 billion. Replacing Redefine from its former second spot is UK-focused Capital and Counties (Capco) with a market capitalisation of R73.6 billion. See full market capitalisation ranking below.

Top ten largest real estate companies on the JSE by market capitalisation 

Ranking

Company

Market capitalisation 

1

Intu Properties

R90.5 billion

2

Capital and Counties

R73.6 billion

3

Growthpoint Properties

R59 billion

4

New Europe Property Investments

R52.6 billion

5

Fortress Income Fund A and B shares

R47 billion

6

Redefine Properties

R43.4 billion

7

Resilient Property Income Fund

R41.6 billion

8

Rockcastle Global Real Estate

R31.9 billion

9

Hyprop Investments

R22 billion

10

Redefine International

R16.4 billion

 

Figures were quoted on January 20 2016 at 15:22.

Capco has long been regarded for its prime properties in central London, which include the mixed-use precinct Covent Garden and the company’s rejuvenation of Earl’s Court into an urban precinct to rival cosmopolitan Chelsea and Kensington.

The recovery of the UK since the 2008/9 global financial crisis has benefited Intu and Capco. The region offers cheaper borrowing costs and higher acquisition yields on properties, which has contributed to the bull run of offshore stocks in light of the depreciation of the rand.

In December, property stocks with a significant exposure to SA were hammered following the abrupt sacking of former finance minister Nhlanhla Nene, which spooked markets and investor sentiment towards SA.

Grindrod chief investment officer Ian Anderson says as a result, the cost of capital (both equity and debt) has increased, which will temper with dividend growth over the medium term. “Not only will interest costs start rising, but funding accretive acquisitions will be far more difficult as the cost of capital starts to exceed the initial yield on new acquisitions,” says Anderson.

Already bonds were weaker during the period, and the SA 10-year bond yield spiked from 8.51% to almost 10.5%, sparking a selloff in property stocks, which include Growthpoint and Redefine. Bond yield and property prices trend together over the long term.

Although both Growthpoint and Redefine have offshore exposure through Growthpoint Australia and Redefine International respectively, Anderson says it is not enough to offset the negative sentiment currently driving the prices of South African property companies lower.

Growthpoint is still the largest constituent of the SA Listed Property Index (Sapy index), but its weighting has fallen below 20%. Sister funds Fortress Income Fund, New Europe Property Investments, Resilient Property Income Fund and Rockcastle Global Real Estate now account for below 40% of the Sapy index by market capitalisation, figures from Grindrod show.

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