UNTIL recently, Growthpoint Properties and Redefine Properties were the largest listed South African real estate groups, leaving institutional investors with limited choice.
In the past few years, however, counters such as New Europe Property Investments (Nepi), Fortress Income Fund, Resilient and Rockcastle Global Real Estate have all grown considerably and are catching up.
This is attracting more South African institutional investors — who did not traditionally focus on property — as well as foreign fund managers.
These larger property funds have benefitted from being included in real estate investment indices that attract global index investors. By adopting the real estate investment trust (Reit) capital structure and aligning themselves with global best company practice, between 2013 and 2014, various South African listed property funds gained the attention of foreign investors.
Funds including Resilient and Rockcastle have also benefitted from strong performances by their offshore assets.
According to research by Grindrod Asset Management’s chief investment officer, Ian Anderson, the largest property fund listed on the JSE is Intu Properties, with a market capitalisation of about R94bn. It is followed by Capital and Counties Properties, with a market capitalisation of about R76.62bn. These two groups operate solely in the UK.
The next biggest property company on the JSE is South African-based Growthpoint Properties, which has a market capitalisation of about R60bn. Romanian shopping centre owner Nepi ranks fourth, with a market cap of about R55bn.
But not too far off is Fortress Income Fund, which grew substantially last year following a merger with Capital Property Fund. The new Fortress is worth about R47bn.
Redefine Properties, meanwhile, has fallen to sixth position from second, with a market capitalisation of about R44bn.
Fortress focuses on retail centre assets situated near transport nodes such as taxi ranks and bus and railway terminals. By buying Capital, it acquired the largest owner of listed industrial property in SA.
Resilient Property Income Fund is close behind Redefine, with a market capitalisation of nearly R41bn. Resilient is a regional retail shopping centre-focused group, but it also owns stakes in offshore-based companies including Nepi and Rockcastle.
Rockcastle, which is focused on Polish assets, follows Resilient, with a market capitalisation of about R32.89bn.
The ninth biggest fund on the JSE, Hyprop Investments, is somewhat smaller with a market capitalisation of about R22.4bn. Hyprop is purely a shopping centre owner in SA that has recently diversified its asset base into other African countries including Ghana and Nigeria.
Mr Anderson said, however, that while many funds may have benefitted from index inclusion, some had later seen their share prices fall rapidly following new valuations.
Catalyst Fund Managers said in their December research report the rebalancing of the sector was driven by capital movements and that this would persist this year.
"We continue to maintain that in the short term, listed real estate pricing is likely to take its direction from capital markets rather than real estate fundamentals, earnings and earnings growth," the group said.