Property punters will be forgiven for ignoring the JSE’s offshore real estate counters over the past 18 to 24 months, given the extent to which their local counterparts have outperformed. But on the back of heightened uncertainty around interest rates and inflation, and its potential impact on South Africa Inc stocks, it would be foolish not to re-examine offshore exposure.
As Anchor Capital chief investment officers Peter Armitage and Nolan Wapenaar state in the latest issue of The Navigator, the boutique asset manager’s quarterly strategy and asset allocation review: “A meaningful allocation to offshore assets remains essential.”
They argue that the war in Iran has created opportunities to buy stocks at prices lower than justified by their earnings outlook. “The current rand/dollar exchange rate presents a reasonable opportunity to externalise a portion of your portfolio. Investment opportunities abroad are compelling, enabling access to a broader opportunity set while mitigating domestic-specific risks.”
Property analysts agree there’s plenty of value to be had among the JSE’s offshore property counters, most of which are still trading well below pre-pandemic levels. London-focused Shaftesbury Capital is a case in point.
Formerly known as Capital & Counties Properties (Capco), the company in its earlier guise was part of UK-focused Liberty International, founded in the 1980s by the late South African billionaire Donald Gordon. Liberty International, which used to be one of the JSE’s most coveted rand hedge counters, was demerged in 2010 into a shopping centre arm (the now defunct Intu Properties) and Capco. The latter held the group’s central London assets, anchored by the iconic live, work, shop and play precinct Covent Garden in London’s trendy West End.
Though Capco merged with fellow London-listed Shaftesbury in March 2023, Covent Garden is still the listed entity’s crown jewel. It represents just more than half (52%) of Shaftesbury Capital’s £5.4bn portfolio by value. The rest of the company’s assets, which comprise a mix of more than 600 buildings spanning retail, office, residential apartments, restaurants, cafés, pubs and clubs as well as music, theatre and entertainment venues, are primarily spread between two other West End estates: Carnaby Street in Soho (34% by value) and Chinatown (14% by value).
It’s no secret that UK-focused property stocks have been largely out of favour for several years due to a combination of Brexit-related uncertainty, a weaker UK economy, higher interest rates, regulatory and tax headwinds, and e-commerce-related tenant failures — all of which caused widespread valuation write-downs.
For South African investors in particular, UK property stocks simply couldn’t compete in the past two years with local real estate investment trusts, which staged a strong rebound on the back of the positive GNU narrative, the end of load-shedding, a stronger rand, lower interest rates and shored-up balance sheets.
However, Golden Section Capital MD Garreth Elston says the context is shifting. “The case for owning hard-currency property assets at material discounts to independently appraised NAVs is becoming harder to dismiss, particularly for institutional investors who need offshore exposure as part of a balanced portfolio.” He adds that while rand hedge property counters have significantly underperformed their South African-based counterparts on the total return front in recent years, several have seen their operational fundamentals quietly improve.
Investment opportunities abroad are compelling, enabling access to a broader opportunity set while mitigating domestic-specific risks
— Peter Armitage and Nolan Wapenaar
Elston says Shaftesbury Capital, which he places at the higher-quality end of the JSE’s rand hedge property counters, is a notable example. It is the JSE’s second-largest property stock (after Eastern Europe-focused Nepi Rockcastle) with a market cap of close to R60bn. Referring to the company’s latest annual results for the 12 months to December, Elston points to several impressive operational metrics: portfolio valuations rose 6.6% on a like-for-like basis, leasing transactions were closed at more than 10% ahead of estimated rental values, and the portfolio is effectively fully let with a 2.6% vacancy.
The upshot is that underlying earnings per share grew 12% while dividends were up 14.3%. Elston says the company’s balance sheet is also in exceptionally good shape, with a loan-to-value of only 16.8%.
Yet Shaftesbury Capital trades at a hefty discount to NAV of about 36%, one of the largest among the JSE’s 40-odd real estate counters. Elston says it’s a value proposition that’s becoming difficult to ignore, especially given the quality of the company’s assets in premier West End destinations, which count among London’s major tourist hubs. “For longer-term investors comfortable with British pound exposure and some patience on the rerating cycle, the risk-reward looks increasingly compelling.”
It’s a sentiment clearly shared by Norwegian sovereign wealth fund Norges Bank Investment Management, one of the largest real estate investors in Europe, which last year bought a 25% noncontrolling stake in Covent Garden for £570m. At Shaftesbury’s recent results presentation, CEO Ian Hawksworth said the deal underlines the desirability and long-term appeal of the company’s portfolio in the West End’s “most vibrant, pedestrian-centric locations”.
Given limited new supply and consistently high demand for prime space in the West End, Hawksworth added there’s still plenty of rental growth to unlock in what he refers to as Shaftesbury Capital’s “impossible to replicate” portfolio over the next few years. He said the average zone A rentals in Shaftesbury’s portfolio are only about a third of those achieved for other prime West End properties.
Meanwhile, London is set for an ongoing recovery in international tourism once oil prices and flight costs normalise, which will no doubt boost foot count and spending at Shaftesbury Capital’s West End estates — another reason investors should take a fresh look at the counter. UK national tourism agency VisitBritain expects 45.5-million inbound visitors to the UK in 2026, up from a provisional 41-million in 2025 when tourist receipts returned to pre-pandemic levels for the first time.
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