The economic recovery of the UK is not only placing the country back on track after the full swing of the global financial crisis, but local property companies like Rebosis Property Fund (Rebosis) are pouring investments into the country.
JSE-listed Rebosis recently announced its exposure to the UK by acquiring a 62% stake in New Frontier Properties (New Frontier).
Shopping centre owner New Frontier is focusing on acquiring retail centres in London, which offer attractive rentals and a potential for redevelopment.
The company has recently secured two shopping centres in the towns of Middlesbrough and Burton with a forward yield of 7%.
New Frontier, which has a secondary listing on the JSE’s AltX, successfully raised £84 million (R1.5 billion) through placing shares on the market and proceeds were deployed in funding the acquisitions.
The shopping centres have a collective vacancy of 4%, with tenants including Marks & Spencer, Hennes & Mauritz (H&M), Top Shop and more.
The rand hedge player has another pipeline of acquisitions in the UK, enhancing its strategy of only focusing on retail assets. These retail acquisitions will in turn give Rebosis, with a market capitalisation of R5.3 billion, exposure to the UK’s retail market.
Rebosis CEO Sisa Ngebulana, who co-founded New Frontier and is now the executive chairman of the company says after investigating opportunities in leading economies, the UK came top of the list.
“It’s a first world economy. Secondly we are known in the UK and we understand the consequences of anything we get ourselves into. The UK is a market where there is good infrastructure and there is ease of doing business,” Ngebulana told Moneyweb.
The market is also showing attractive economic fundamentals, giving rise to the growth of the retail sector. “The UK is on a growth path. The growth rate is expected to be 2.7% for 2015. The retail side is also growing, with retail sales up by 5.7% in February, which is quite impressive given that inflation is flat,” says Ngebulana.
The dynamics are tepid in South Africa, as slow economic growth dims the country’s investment destination sparkle. He says with a growth rate expected to be below 2% this year; inflation that is above 5%; and retail sales growing at 2% – this represents “negative growth.”
Other markets are not piquing the interest of investors. Ngebulana says Germany is facing possible budget constraints in its economy and language barriers in the country did not appeal to the New Frontier team. The US, Ngebulana admits has a barrier to entry, as it is “very hard to penetrate that market and people have lost money.”
For Rebosis, its investment in New Frontier will also offer it exposure to hard currency (the pound) in terms of its return on investments. The investment will make about 9% of Rebosis’ total assets.
New Frontier will also be an opportunity for Rebosis to diversify from its 19 properties valued at R6.8 billion at the end of August 2014.
It is becoming increasingly difficult for local property companies to find value and attractive deals in the local market, which has seen the offshore diversification spree, continue.
Local companies like Emira Property Fund, Growthpoint Properties and Texton Property Fund are also growing their offshore exposure.
Total foreign exposure in the South African listed property index (Sapy), a benchmark for the performance of the listed property sector, as a percentage of total assets increased to 23%, says head of listed funds at Stanlib, Keillen Ndlovu.
Metope Investment Managers CEO Liliane Barnard says: “There is also an attractive initial yield enhancement by investing offshore given the low-interest rates these companies can secure by issuing debt in US dollar, euro or pound and investing in higher yielding assets.”