SA’s biggest property investor on the prowl offshore

As global real estate company values tick up, local investors scour for lucrative property opportunities elsewhere

Global real estate markets appear attractively priced for an investor with a long term horizon, say some property fund managers.

According to the July review of the listed property sector by Catalyst Fund Managers, this does not necessarily mean there is value in every market and in every property stock. Global real estate markets are still a long way below their historic highs but many of the companies that make up this index look completely different to how they looked when the index was at those highs.

Catalyst fund managers warn investors to be careful not to place too much faith in historic income yields.

The manager's expectations are that off historic income numbers, the next twelve months' income (per share) will be lower than in the past, for a number of reasons including recent dilutive equity issuances.

Most of the value in the global listed real estate market is likely to be captured in a potential yield re-rating when the environment normalises.

According to Standard & Poor's Global Property & REIT report on global real estate, many companies throughout the world are rushing to raise cash in order to settle debts or to keep it on hand should the recession last longer than expected.

Should the recession recover sooner, ample liquidity will provide opportunities for cheap acquisitions, suggests the report.

JSE listed property company, Growthpoint Properties Ltd (JSE: GRT) chief executive officer Norbert Sasse told that thanks to the extent of the drop in property values and stock markets in the UK, US and Australia in particular, the global downturn has provided Growthpoint with an opportunity to acquire property at attractive yields and discounts to net asset values.

Growthpoint recently announced that it has entered into an agreement to acquire a controlling interest in Australia's Orchard Industrial Property Fund (OIF).

Sasse says the South African economic environment and property market has not been as negatively affected as the Australian market.

"There is very limited funding liquidity in Australia compared to South Africa," says Sasse.

Essentially, the OIF transaction provides shareholders the opportunity of geographically diversifying their investment in Growthpoint into Australia through the acquisition.

Growthpoint will initially invest $56m through the upfront placement and up to a maximum of $144m during the rights offer. The maximum interest that Growthpoint can have in OIF following a rights offer is 78% and this is expected to be completed by end of September, says Sasse.

Should OIF shareholders approve the deal, OIF will change its name to Growthpoint Properties Australia and Growthpoint will nominate three of its South African members to the OIF board.

Growthpoint is not the only big South African property investor on the prowl for lucrative opportunities elsewhere in the world.

Madison Property Fund Managers Holdings Ltd (JSE: MDN) recently cancelled its offshore property investment offering which was to be listed on the Bermuda Stock Exchange.

Madison said the cancellation was due to the disappointing results of subscriptions in the Initial Public Offering (IPO) which fell short of its self-imposed minimum level.

Also recently, a new offshore property company called British Capital was launched by Barnard Jacobs Mellet (BJM) and Cornerstone Asset Management to cash in on value opportunities in the UK property market.

Sasse says before talking a plunge into the Australian deal, Growthpoint conducted detailed research, looking at factors like legal and tax issues as well as the state of the property market. The availability of current OIF management following the recapitalisation was an important factor too.

Furthermore, Sasse says after an assessment of various offshore opportunities available, Australia proved suitable for Growthpoint because the real estate sector has been impacted significantly by the global financial crisis. Currently, real estate is trading at discounts of 70% from its highs in January 2008.

Australia's regulatory laws are similar to those of South Africa, OIF's tenant base provides a stable and secure platform to enable Growthpoint to establish a foothold in Australia and its size is appropriate as an initial investment into Australia, adds Sasse.

A big reason for local companies looking at buying opportunities elsewhere is the high levels of gearing being experienced abroad, says Niel Harmse, research analyst at IPD South Africa.

According to the UBS Securities' Global Investors Index, the global listed real estate recovered markedly for the three months to May 2009, says Harmse.

In dollar terms, the index was up more than 33% for these three months - virtually erasing the year's losses. North America and Europe were the major drivers of this recovery - up 37% and 32% respectively. Australia, recovered to be down only 4% for the year to May. The South African Listed Property Index is already up 19.6% for the year to May in dollar terms. In rand terms, however, it is down by 45 basis points, adds Harmse.

Article by: Denise Mhlanga -