JSE property companies have been aggressive in striking overseas deals in recent years. But, unlike many of the blockbuster deals elsewhere on the JSE, these haven’t (yet) backfired for shareholders.
Catalyst Fund Managers analyst Naeem Tilly says the property sector’s impressive total return of 17% last year was, in fact, driven largely by companies with big offshore exposure.
Eight of the top 10 property performers last year were either 100% rand-hedge counters or SA-based firms with large offshore exposure. They include Sirius Real Estate, MAS Real Estate and stablemates Greenbay Properties, Resilient Reit, Fortress Income Fund and Nepi Rockcastle.
"The consistent theme among most of these counters is the high growth rates being achieved through [deploying capital] offshore," says Tilly.
Today the JSE’s property sector is made up of about 50 individual stocks with a combined market value of R868bn at the end of 2017.
But the offshore exposure of the SA listed property index makes up no less than 40% of the asset value, an eightfold increase from 10 years ago, when it was 5%.
Back then, only one SA property company was exposed to foreign real estate markets: Donald Gordon’s Liberty International (now known as Intu Properties).
An Investec research note finds that about 40% of the sector’s earnings come from offshore markets — from just 1% in 2009.
Most of the sector’s exposure is to Central and Eastern Europe (CEE) and the UK. Nepi Rockcastle, valued at R72bn (though under some pressure at the moment), is the JSE’s largest property counter — and the largest listed shopping-centre owner in CEE.
There’s no sign of this momentum slowing, either. Last year, property companies raised R49bn in capital, most of which was used to finance acquisitions overseas. The favourite destinations are CEE, the UK, Spain, Portugal and Australia. The Resilient group of companies alone raised R21bn last year.
Of course, the jury is still out on whether this strategy will make more money for shareholders in the long run than if the companies were to stay at home.
As with the other JSE sectors, the concern is that some of the newer property companies may have overpaid in their eagerness to scamper offshore.
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