South African investors will soon have more rand hedge property stocks to choose from – with two real estate counters planning a JSE-listing – extending the listings boom over the past three years.
London Stock Exchange-listed shopping mall developer Hammerson and Poland- focused Echo Prime Properties are both set to list in September.
A successful listing of both counters will bring the count of listings on the JSE’s real estate sector to more than ten in two years. Rand hedge property stocks have been a long-time favourite for South African investors, who have had an appetite for offshore markets and hard currency earnings.
Hammerson – which owns shopping malls and retail parks in the UK, France and Ireland with a property portfolio valued at £9 billion (R169 billion) – is planning a main board listing to grow its shareholder base, paving the way for a wider pool of international capital.
CFO Timon Drakesmith says Hammerson has established positive engagements with South Africa investors who “have appreciated our dividend yield and high-quality retail properties over many years”.
South Africans already hold about 10% of the company’s shares, among them is investment firm Stanlib, which has taken an overweight position in Hammerson on its Stanlib Global Property Fund.
Shopping malls included in Hammerson’s property portfolio are Brent Cross in north London, Bullring in Birmingham, Cabot Circus in Bristol and Dundrum Town Centre in Dublin. The company also owns premium outlets in the UK and around Europe.
A successful listing will see Hammerson join the ranks of its UK-focused peers that are already listed on the JSE such as retail and residential focused-Capital & Counties and shopping mall owners Capital & Regional and Intu Properties.
Stanlib’s head of listed property Keillen Ndlovu says the listing of Hammerson will create more choice for investors and bring diversification and liquidity into the sector. Given that Hammerson has a market capitalisation of £4.34 billion (R81.6 billion), Ndlovu says it is likely that it might make it to the JSE Top 40 Index.
The share price of Hammerson has fallen nearly 6%, in line with other UK-focused stocks, following the Brexit vote which has sparked investor jitters given the country’s gloomy economic prospects. Ndlovu says the sell down of Hammerson’s stock creates a better entry point for South African investors. “Hammerson is now trading about 22% below net asset value,” he says.
Drakesmith says although there is uncertainty about the UK’s market, prime retail properties are still in demand as seen in its “strong” leasing activity. Hammerson has signed 20 leases at rental prices ahead of expectations. He says its investments are diversified from the UK as 40% of its property portfolio is exposed to Europe.
Echo Polska Properties’ listing
Another new listing that is expected to find its way onto the local bourse is Poland-based Echo Polska Properties, which is 49.9% held by sector heavyweight Redefine Properties. The secondary listing of Echo on the main board of the JSE will coincide with its primary listing on the Luxembourg Stock Exchange, which is set for August.
Echo is also looking to diversify it sources of capital with the listing and provide existing and prospective shareholders access to Poland and its €1.2 billion (R18.9 billion) portfolio of largely retail properties.
CEO Hadley Dean says the company has the capacity to double in size over the next two years given the pipeline of assets available to it. Echo has a 25% development profit participation in and has also secured the right of first offer from Echo Investment to purchase seven properties in Polish cities including Krakow, Wroclaw, Gdansk, Katowice, and Lodz.
“Poland has a large, stable and liquid real estate market which has become increasingly attractive to foreign investors over the last few years due to its high growth potential… and shareholders stand to benefit from the returns that will emanate from high quality, modern and sizeable properties,” says Dean.
Anas Madhi, an executive director at Meago Asset Management supports Dean’s view saying Echo’s pipeline enables it medium term income growth, “overcoming a key concern for property companies operating in the Polish deflationary environment”.
He adds: “Peer comparisons suggest that attractive yields are possible on the JSE, and the success of recent capital raises suggest that the IPO should be well supported.”
Redefine’s investment into Echo in March triggered an infatuation with Central and Eastern European markets – as South African-focused companies like Tower Property Fund, The Pivotal Property Fund, Accelerate Property Fund, Hyprop Investments and Attacq Limited have recently concluded deals in the region.
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