The Brexit fallout may create more opportunities for consolidation in the listed property sector, as smaller companies with large exposures to the UK market come under rising pressure. It could help South African-based companies, who have been on the prowl for overseas portfolios, to acquire smaller property funds at competitive prices.
“Any fund which is trading at a low price and is not enormous, is a takeover target,” Evan Robins, listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, said on Monday.
Given the country’s slow growth environment and a lack of available assets for companies to buy domestically, many South African real estate investment trusts (Reits) have been on the hunt for assets abroad.
Funding costs have been relatively lower in Europe than in SA, which is in a rising interest rate cycle.
One company that could be a strong takeover target is Texton Property Fund. The company’s share price has fallen nearly 25% so far in 2016. Texton’s portfolio is more or less evenly split between SA and the UK. The company has a market capitalisation of R2.8bn. Its dividend yield is about 13.55%. This is while the South African listed property index has a forward yield of about 6.2%.
Tower Property Fund, which has exposure to Croatia, could also be a buyout target. It has a market capitalisation of nearly R2.7bn, and is trading at a yield of 11.39%. Central and eastern Europe are attractive markets for investors who are seeking potential high net-asset-value growth early on, if they can accept greater risk than in slower-growth western Europe.
Larger funds may also try in the coming weeks to acquire Reits, which are struggling domestically, but have some offshore exposure. Emira Property Fund is a case in point. The diversified property company has a market capitalisation of about R7.4bn and is trading on a yield of 9.66%. Its share price is down about 11% year to date.
In June, Emira became the first Reit to forecast negative distribution growth in the coming results season. It has a pipeline worth about R2.5bn, and owns a stake in Growthpoint Australia, worth just less than R800m, and which some larger funds may find enticing.
The chief investment officer at Grindrod Asset Management, Ian Anderson, said many South African institutional investors were still attracted to large, listed property funds.