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Publication

FINANCIAL MAIL

Page

46+47

Date

Thurs 31 May 2018

AVE (ZAR)

63298.75

PROPERTY

Offshore isthe ReitchoiceProperty groups are spreading theirwings abroad as oppor tunities in theirhome market are few and far between

Joan Muller muller|@fm.co.za

@A number of SA real estate investment trusts(Reits)have clinched big-ticket offshore deals inrecent weeks, as the sector's search for hardcurrency exposure continues apace.

In May, two deals in excess of Rlbn wereannounced: Investec Property Fund enteredEurope for the first time through a Rl.lbn stakein a pan-European portfolio of 22 logistics prop-erties; and Vukile Property Fund bought a shop-ping centre in the coastal city of Torrevieja,Spain for Rl.2bn.

The latter takes the value of Vukile's Spanishretail portfolio to nearly R6bn.

In April, sector heavyweight GrowthpointProperties announcedit will invest up toR2.175bn in Warsaw-listed Griffin Premium RE,a pure Polish property play focused on officeand mixed-use assets.

Growthpoint already has a R4.35bn exposureto the Romania office market via a 29%stake inLondon AIM-listed Globalworth Investments.

Retail-focused Hyprop Investments earlierthis year invested Rl12bn to acquire a 90%interest in two Croatian shopping centres,bringing its retail property exposure in south-eastern Europe to more than Rllbn.

Emira Property Fund, the first and only SAcompanyyet to enterthe US, recently boughtitsfourth retail park in that country, though Emira'sexposure there is still fairly small at R386m.

SA Reits' offshore expansion trail has gainedsuch momentumin recent years that about 40%of the assets owned by the 20 constituents thatmakeup theSA listedpropertyindex (Sapy)arelocated outside SA, latest figures from AnchorStockbrokers show.

That's up from less than 3%a decade agowhen JSE investors had only one route to off-shore real estate markets: UK mall owner Lib-erty International, now known as Intu Properties.

SA has had 10years of verysubdued growthacross allpropertysectors. TheEuropean dealwill support

PROPERTY SECTOR'S OFFSHOREEXPOSURESapy counters by asset value

East & Africa (EMEA), said investment intothe European logistics sector doubled from2016 to around €40bn in 2017.Marketgrowth has been driven by the structuralchanges in the retail sector, the rising e-commerce trend and increased global trade.

Europe still has a low penetration of Attacq | 85 | 15

Today, only two of theSapy's 20 companieshave zero offshore expo-sure - Arrowhead andSandton City co-ownerLiberty Two Degrees(seetable).

Company êLocal (%) E Offshore (%)

ve Anchor Stockbrokers online shopping, unlike the US and UK | |dividendgrowth, ank meene ng one-|ArowheadProperties- |-100|o| hile the SA figures show that Europe__ where the sector is quite mature and online EmiraPropertyFund | g1 | 9wyne te is by far the most sales already represent about 20%of total hit i i

property soutfullerinvestment.-[EchoPolskaProperties- |_0|_100-portfolio is destination for SA prop-under pressure erty companies, with

around 35%of the Sapy(by assetvalue) exposed

Nick Riley

to the region.Others include the UK, Australia and the US

but each of these makes up less than 5%of theSapy's geographical spread.

Craig Hean, CEO of global real estate ser-vices and management group JLL in sub-Saha-ran Africa, has confirmed that SA propertycompanies have become major players in Euro-pean real estate - "so much so that SouthAfricans now feature regularly among the top10 investors in terms of quarterly capital flowsinto Europe".

Speaking at a conference on outbound cap-ital hosted by JLL in Johannesburg last month,Hean said that since2010 about $12bn(RlHIbn)has been invested by SA property com-panies in European real estate. A largechunk of the capital has gone intoshopping centre acquisitions inCentral and Eastern Europe(CEE).

In the first quarter alone, dealsworth $1.2bn(RI4.9bn)were con-cluded by SA investors in main-land Europe. He noted that therecord capital flows from SA toEurope de-correlated with theinvestment cycle in SA, which hasexperienced a marked slow-down in real estate trans-action volumes.

A key theme thatemerged from JLLsconference is that thesmart money is nowtargeting the Euro-pean logistics sector(modern warehous-

ing anddistributioncentres).

Nick Jones,regional director ofindustrial capitalmarkets for JLL inEurope, Middle

In Europe, e-commerce is still half of thatat an average 10%, according to Jones.

"The US has 10 times more logisticsspace per capita than Europe. Last year,30%of the industrial space take-up in theUK was by e-commerce businesses. InEurope, it is a lot lower so there's still a lotof growth to come," he said.

Unlike the US and UK, the Europeanlogistics sector has also experienced hardlyany rental growth over the past 10 years.

However, the sector has low vacanciesand a shortage of modern logistics proper-ties is becoming evident, which is starting toexert upward pressure on rentals.

"Verylittle new stock has come on

GreenbayProperties i 0 |

Equites Property Fund i 72 | 28

HypropInvestments i 78 | 22

Liber tyTwo Degrees i

NepiRockcastle | 0 |

RebosisPropertyFund i 95 | 5

SA Corporate Real Estate Fund | 95 | 5

Vukile Property Fund i 76 | 24

stream in the past few years so there's ademand squeeze developing in France, Ger-many, Spain and the Netherlands," Jones noted.

Investec Property Fund CEO Nick Rileyechoed a similar sentiment at the company's

recent annual results presentation, sayingthat the fund's acquisition of a 42.9%interest in a pan-European portfolio of22 logistics properties last month wasdriven by the rapid growth of e-com-merce across Europe.

"We are very bullish on Europeanlogistics and we like the sector'smacro and micro story," said Riley.Unlike many of its SA peers who havechosen the CEE region as their key

offshore destination, Riley saidInvestec Property Fund

prefers major West-ern European

transparent.The logistics

portfolio inwhich the fundhas acquired a

by European-Nick Riley: Bullishon based Ares,European logistics which has

$l10bnofassets undermanagement.

geographies, whichare both liquid and

stake is managed

Source: Anchor Stockbrokers

The 22 properties are spread across keyindustrial and transport hubs in Europe includ-ing Berlin in Germany, Lyon in France, Rotter-dam in the Netherlands and Warsaw in Poland.Some of the properties have been acquired from,among others, leading French developer Prologisand German real estate fund Spezialfonds.

Riley noted that the European deal is a moveawayfrom the company's usual strategy, whichis to stay on its own home turf. He said localproperty companies have been forced to lookfor expansion opportunities offshore, given SA'slow-growth environment.

"SA has had 10 years of very subduedgrowth across all property sectors. So the Euro-pean deal will support dividend growth whilethe SA property portfolio is under pressure."

Riley addedthat the deal can be fundedatattractive funding costs below acquisition yields,which makes it accretive from the outset.

"The timing of the deal was also attractivegiven recent rand strength," he said.

Investec Property Fund now has an equalexposure valued around RLIbn to each ofEurope and Australia (through sister companyInvestec Australia Property Fund).

Riley has already allocated another €75m(RLIbn)togrow thecompany'sEuropeanlogis-tics portfolio over the next two to three years.

"We are well on our way to grow our off-shore portfolio from the current 11%to 20%oftotal assets." x