Property investors will soon have three more offshore offerings to choose from, bringing the number of pure rand hedge counters in the JSE’s R460bn real estate sector to no fewer than 20.
That’s in addition to at least 10 local property counters that have partial exposure to countries beyond SA’s borders.
The three new listings — leading UK mall owner Hammerson and Polish-focused GTC Group and Echo Polska Properties (EPP) — could take the sector’s offshore exposure as a percentage of total assets to more than 50%, up from close to 40% now and less than 5% in 2010 (Stanlib figures).
All three counters should appeal to hard currency income chasers, as they are expected to offer an initial dividend yield in the 5%-6% range.
GTC is set to list on the JSE on August 18. The company, listed on the Warsaw Stock Exchange since 1994, owns a €1.3bn retail and office portfolio spread across Poland and other Central and Eastern European countries including Serbia, Croatia and the Czech Republic.
EPP, which owns a €1.2bn portfolio of retail and offices in Poland, and Hammerson are both expected to list in September. EPP is the company in which Redefine Properties acquired a 49.9% stake earlier this year. It is the only one of the three that is looking to raise capital among SA investors, as it is seeking a dual primary listing on the JSE and the Luxembourg Stock Exchange.
The JSE debuts of both Hammerson and GTC will be secondary inward listings, so neither will issue new shares.
Hammerson, which already has a strong following among SA investors, is the most significant new property listing on the JSE in recent years.
It is the UK’s third-largest property stock and will become the JSE’s largest real estate listing, with a market cap exceeding R80bn, surpassing current sector heavyweight and fellow UK mall owner Intu Properties, whose JSE market cap is R74.5bn.
Hammerson owns 56 shopping centres and factory outlet retail parks across the UK, France and Ireland valued at £9bn. Its flagship malls include Brent Cross in London — the UK’s first shopping centre, which was built 40 years ago — Bullring in Birmingham and Les Terrasses du Port in Marseille in the south of France.
Hammerson has a track record of delivering above-sector dividend growth, achieving a compound 7.7%/year for the five years to end-December.
Last year alone, four offshore property companies listed on the JSE: Schroder European Real Estate Investment Trust; Redefine International hospitality spin-off International Hotel Group; London-listed mall owner Capital & Regional; and UK shopping centre fund New Frontier Properties.
Resilient-backed Greenbay Properties, which focuses on shopping centres in Central and Eastern Europe, made its JSE debut in June, raising a substantial R4bn.
SA investors have provided strong support for most rand hedge listings in recent years and offshore property stocks have typically outperformed their local counterparts.
However, Brexit and the ongoing geopolitical tension in Europe have raised concerns about the outlook for UK and European property markets, which may dampen SA investor appetite for new offshore listings, says Ian Anderson, chief investment officer at Grindrod Asset Management.
Though he believes Hammerson offers value in the medium term at current share price levels, Anderson says Grindrod is concerned about the longer-term prospects for all shopping centre landlords in developed markets.
"The traditional shopping mall is under threat from a number of trends that are influencing how we shop, how we transact and how we entertain ourselves."
ClucasGray portfolio manager Brendon Hubbard says it will be interesting to see what the level of demand will be for Hammerson shares on the JSE.
"The company boasts high-quality assets and great management, but the downside is that most economists expect the pound to weaken further against the rand.’’
Shaun le Roux, fund manager at PSG Asset Management, also doesn’t believe that now is the best time to invest in UK property stocks. He says that while the share prices of London-listed property companies were hammered in the wake of the Brexit outcome, PSG has yet to find attractive opportunities within the sector.
Le Roux says prices might seem optimally cheap now, but published asset values of most UK property companies appear stretched.
"The assumptions baked into the valuations extrapolate the recent lucrative environment for UK landlords many years into the future.
"Over and above very rosy rent assumptions, the rates at which the properties are capitalised are, in our view, a function of artificially low interest rates, which has resulted in unrealistic values."