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  Yawn.. Property was one of the best performing assets in 2015. Perceptions among local investors seems to be that SA is not a particularly safe haven for assets right now and people are (rightfully so...  

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Investors show renewed interest in offshore property stocks

Recent capital raises by offshore companies suggest jitters about SA’s precarious outlook.

While South Africa-focused property counters have struggled to achieve their capital raising targets, investors have been bullish on offshore property companies through certain rights offers, which were oversubscribed in a matter of hours.

More than R11 billion in capital has been raised via private placements and rights issues so far this year by property companies on the JSE.

SA’s listed property sector has been the most active sector on the JSE in recent years, with R32 billion raised in 2016, R36 billion in 2015, R40 billion in 2014 and R18 billion in 2013.

The largest capital raises so far this year has been by Slovenia – and Portugal-focused Greenbay Properties, which raised R3.1 billion in two tranches between March and May. Other offshore counters that have received fervent support include Poland-focused Echo Polska Properties, Europe-focused MAS Real Estate, Investec Australia Property Fund and others (see the table below).

Capital raises

     

Month

Company

Market focus

Amount

February

Investec Australia Property Fund

Offshore

R1.53 billion

February

Stor-Age Property Reit

South Africa

R400 million

February

Rebosis Property Fund

South Africa

R485 million

February

Spear Reit

South Africa

R119 million

March

New Europe Property Investments

Offshore

R1 billion

March

MAS Real Estate

Offshore

R1.75 billion

March

Greenbay Properties

Offshore

R2 billion

March

Mara Delta

Offshore

R200 million

March

Sirius Real Estate

Offshore

R200 million

April

Echo Polska Properties

Offshore

R2.2 billion

May

Greenbay Properties

Offshore

R1.1 billion

June

Spear Reit

South Africa

R528 million

Total

   

More than R11 billion

Source: Stanlib, Moneyweb

Analysts said the recent downgrades to SA’s credit rating, increasing economic and political uncertainty has resulted in investors allocating capital to offshore markets.

According to Keillen Ndlovu, head of listed property funds at Stanlib, growth prospects in offshore markets are better than in South Africa, where the retail sector has become saturated with limited development prospects and the office sector faces oversupply. “The situation is being worsened by slowing GDP growth,” Ndlovu said.

Anas Madhi, executive director at Meago Asset Managers, supports Ndlovu’s views, saying that recent company results by 100% SA-focused property companies indicate that property fundamentals particularly in office, industrial and retail sectors in the country are deteriorating.

“Hence, many South African companies continue to expand offshore, particularly within the dynamic Central and Eastern Europe region. We expect this trend to continue, despite the region attracting interest from investors globally.” 

The flurry of property listings on the JSE over the last five years has given investors exposure to the UK, Australia, Central and Eastern Europe, without having to physically take their rands offshore.

Investors can now invest, via the JSE, in more than 15 property companies that are exposed to offshore markets. Ten years ago, the sector had no exposure to offshore markets and now nearly 40% of earnings are derived from markets outside SA. 

It is becoming increasingly difficult for property companies to deliver inflation-beating dividend growth as tough economic conditions continue to bite. Analysts expect dividend growth for 2017 to be between 7% and 10%.

Offshore jitters 

Tough trading conditions have prompted local property companies to consider investment opportunities in Europe, Australia, the UK and rest of Africa. “In offshore markets, debt funding is cheaper relative to property yields, making it easier [and affordable] to make acquisitions. However, offshore markets are becoming more competitive,” said Ndlovu.

Going offshore, after all, brings a different set of risks such as currency fluctuations, which can impact rand-based earrings. For Madhi, the key concern is that local companies end up overpaying for property assets in offshore markets without the necessary local partnerships to manage investments.

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Connett Nthupi

Connett Nthupi

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I have warned before the arrival of “carpetbaggers” during these difficult times. don’t go there. if u want to invest offshore – go to your bank get the funds offshore into YOUR account so that you can access it when you want to. these REIT’s are simply another way of middle men taking your hard earned money.

-” a carpetbagger was a Northerner who moved to the South after the American Civil War, during the Reconstruction era (1863–1877). Many white Southerners denounced them fearing they would loot and plunder the defeated South and be politically allied with the Radical Republicans.”

also don’t forget what happened to capital and counties – down 50% on jse and will fall again after what happened in London yesterday and what’s going to happen with brexit. Don’t go there – either physically or financially

You are paying for a mediocre South African property manager to buy mediocre properties abroad and pay above average borrowing rates. In short, you are paying for a South African to live the life abroad.

Eish!- you must be a fool to buy this stuff.

Yawn.. Property was one of the best performing assets in 2015. Perceptions among local investors seems to be that SA is not a particularly safe haven for assets right now and people are (rightfully so) trying to get some offshore exposure.

It really depends on which REIT you choose now, as they are quite diverse. Some are focused within the UK (Capital&Counties) while most have exposure to different parts of Europe (Rockcastle, NEPI etc…). It will also depend on your views on what will happen in Europe. Some countries are showing some encouraging signs of economic growth (Portugal for example), so perceptions of continental Europe are improving. As we all know, this can all change quite quickly if something untoward happens (default on debt or similar), but at the moment things certainly seem to be getting a bit better.

Jomba, by what measure are these managers or properties “mediocre”? Please share where you have garnered these fantastical insights?

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