Making Sense of REITs

Making Sense of REITs

Offshore property investment remains big opportunity for REIT’s

International investment remains a compelling opportunity for the sector. Over 50% of SA listed property is exposed to offshore markets and this, believes Catalyst Fund Managers Director and Portfolio Manager, Zayd Sulaiman, will provide some cushion should the Rand depreciate even further.

Head of Research and Property at Anchor Stockbrokers, Craig Smith, reports: “Currency (ZAR) depreciation expectations should result in more demand for offshore property, all things being equal. This could lead to further inward listings on the JSE of offshore-focused platforms, especially those with a proven track record.”

Micro issues within the SA REIT sector which derailed its overall performance in the first half of the year are expected to have less impact on the listed property sector’s rebased second-half showing, which is likely to be driven by a combination of domestic and international macro developments.

Bandile Zondo, Equity Research Analyst for Real Estate at SBG Securities, says: “Global monetary policy shifts in developed markets have sparked a broad sell-off in emerging markets. Developed market central banks are rapidly pulling back post-crisis stimulus leading to a broad acceleration in yields, which has had a negative impact on sector returns.”

Sulaiman, points out that global political and economic events – ranging from trade wars and EU stimulus tapering to Italy’s debt worries and others – in a rising foreign interest rate environment, don’t bode well for emerging markets in the short-term.

In addition, weak domestic macro variables persist. “After the euphoria of the ANC elective conference in December, reality has set in and it has become clear that any economic recovery will take time. We need decent GDP growth to stimulate demand for space and reduce vacancies. This is taking longer than expected,” says Sulaiman.

Vukile delivers 7.7% full-year distribution growth

The impressive set of results reflect the solid operational performance driving Vukile’s core SA retail property portfolio, which produced good metrics in a relentlessly tough operating environment. It also showcases Vukile’s strong balance sheet, and entrepreneurial deal-making resulting in its landmark strategic international expansion in Spain.

Laurence Rapp, CEO of Vukile Property Fund, notes this has been a milestone year for Vukile, which now operates as a high-quality low-risk retail REIT in SA and holds 21% of its assets in Spain.

Rapp comments: “Vukile provides investors with clarity of vision, strategy, and structure, and we are well positioned with a firm focus on our South African retail portfolio and Spanish investment strategy. Vukile expects to deliver dividend growth of between 7.5% and 8.5% next year.”
  
Vukile closed its financial year with total assets of R23.3bn. This comprised R17.3bn (74%) in Southern Africa, R4.8bn in Spain (21%), and R1,2bn in the UK (5%). Its directly held domestic market portfolio is valued at R14.5bn, with 91% retail real estate assets that achieved like-for-like net income growth of 6.5% and positive reversions of 5.1%.

Vukile’s domestic retail portfolio is made up of 46 properties valued at R13.2bn, spanning 810,000sqm and with a national tenant base of c.80%. Strong operating performance further reduced its retail portfolio vacancies from 3.6% to 3.4%. The portfolio has a weighted average lease expiry profile of 3.7 years. It achieved an 87% tenant retention rate, contractual rental escalations ahead of inflation at 7.1%, and rental reversions of 5.2%. The average rent-to-sales ratio is 6%, which is an industry-leading number according to SAPOA figures.
   
Vukile announced its trailblazing Spanish deal in July 2017, acquiring eleven quality retail parks for EUR193m via Castellana. Spain is the fifth largest economy in Europe by GDP and the second most visited destination in the world, behind France. At the same time, it engaged a high-calibre Spanish management team, operating as locals on-the-ground, which has proven to be a source of advantage. It went on to complete the acquisition of a further two retail parks in December 2017 for EUR70m, which took its Spanish asset base to around EUR300m.

Emira acquires a stake in residential property fund Transcend

JSE-listed Emira Property Fund will take a minority stake in JSE AltX-listed Transcend Residential Property Fund, furthering Emira’s stated strategy of expanding its investment in residential rental property.

Transcend has announced its intent to issue new equity to fund the R1.27bn acquisition of eight properties, which will effectively double its portfolio value to R2.5bn, taking it from from 13 properties to 21 properties, and increasing its residential units from2,472 to 4,631. At the same time, it will realign its capital structure.

Emira has provided an immediate R45.9m equity injection into Transcend, resulting in a 9.9% holding of Transcend’s total shares in issue. In addition, Emira has committed to advance between R290m and R395m of funding for Transcend’s planned property acquisitions in the next 18 months and has signed an irrevocable commitment for between 25.1% and 34.9% of Transcend’s total shares in issue, effectively underwriting Transcend’s portfolio acquisition. 

Emira embarked on its first residential property investment with the R200m conversion of its Rosebank office properties formerly occupied by Sasol into the contemporary residential apartments of The Bolton. The apartments are currently being phased onto the market with strong take-up success among young professionals. For The Bolton, Emira is partnering with experienced experts in residential development, Feenstra Group and HB Realty.

With its Transcend transaction, Emira’s residential property exposure is now 3.5% of its total investment portfolio. It plans to increase this to between 5% and 10% of its total assets over time.

Grit delivers solid results

Grit, the only listed Africa-focused income distribution group to offer international property investors access to high growth opportunities in thriving African economies, outside of South Africa, continued on its strong growth trajectory, reporting solid financial results for the year ended 30 June 2018.

Grit significantly diversified its shareholder base following its successful listing on the London Stock Exchange on 31 July 2018 in which it raised US$132.2 million. New UK investors now hold 12% of the Company’s issued share capital via the London Stock Exchange. Investors on the Stock Exchange of Mauritius hold 38% and investors on the JSE account for the remaining 50%.

The Company declared a final distribution of US$6.12 cents per share, bringing the total dividend for the year to US$12.19 cents per share. This represents an 8.5% annualised dividend return (based on last issue price). The Company’s EPRA* NAV increased by 6% as a result of positive independent revaluations across the portfolio. 
“This is our ninth consecutive dividend in line with guidance. The perception around property investment on the continent outside of South Africa is continuously gaining positive momentum, both internationally and on the JSE.” 

“The additional transparency and benchmarking against EPRA reporting guidelines as a result of the London listing has significantly raised our profile internationally, allowing us to introduce several large, long-term international shareholders to the Company. We will in due course seek a conversion to a ‘premium listing’ on the LSE, which is regarded as the international gold standard for governance, to which investors attach a premium,” commented CEO and founder member Bronwyn Corbett.

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