The JSE, scorched by a delisting trend, will get a welcome lift next week with an opportunistic offshore property pitch.
On Monday, Deutsche Konsum Reit-AG (DKR) will debut on the JSE’s retail real estate investment trust (Reit) sector with an inferred market capitalisation of €557m or about R10bn.
Property analysts canvassed by the FM had not yet engaged with the company, but suggested the listing was "slightly opportunistic" in view of local investors craving rand hedge opportunities.
DKR will be the first new company to list on the JSE since the spinning out of the Bytes technology business from Altron in December. It is the first new listing of 2021, if recent developments at Montauk Renewables are deemed a relisting.
The company – the brainchild of German property wunderkind Rolf Elgeti — invests in convenience retail properties in micro locations in the central and regional areas outside major German cities. DKR is listed on a number of German stock exchanges, including a primary listing in Frankfurt.
DKR will join a host of internationally focused real estate counters on the JSE such as Nepi Rockcastle, MAS Real Estate, Capital & Counties, Hammerson and Schroder European Reit. Their track records have been mixed over the medium term.
It will rank slightly ahead of RDI and Stenprop (two well-established international property counters) in market value, and should appeal to investors seeking rand hedge diversification and hard currency dividends.
Aside from its size and scale, DKR could attract investor attention due to comparisons (and links) with Sirius Real Estate, a top JSE property stock.
Sirius is also a specialist German property company with a niche in business parks — and Elgeti previously served as a nonexecutive director of Sirius.
Its share price has appreciated more than 150% over the past five years, and the group has shrugged off the Covid-19 symptoms ailing the rest of the JSE’s real estate sector. Sirius shares are up 23% over a 12-month period.
In an interview with the FM, Elgeti says DKR will offer local investors access to a portfolio with consistent yield attributes tapping a resilient retail niche in Germany.
DKR’s real estate portfolio consists of 165 convenience retail properties with a gross lettable area of about 901,016m² and a market value of €829m.
Seven new property acquisitions will also transfer to DKR after the JSE listing, pushing the gross lettable area to close to 960,000m² and increasing the portfolio value to €880m.
While the listing-by-introduction means no new capital will be raised, local investors could be tapped later for fresh funding.
Elgeti says the rationale behind the secondary listing is to establish a positive relationship and reliable track record with the SA market. "Also, to raise capital in a new market to fund further acquisitions in due course and to increase the liquidity and tradability in the company’s shares."
He believes SA real estate investors are well versed in the property market fundamentals, making SA a compelling destination.
DKR’s specific investment focus is on noncyclical retail tenants — large German food retailers, retail warehouse stores and drugstores. These tenants provide essential services and have proved resilient against lockdowns in Germany.
DKR acts as a "professional investor" in this niche, as the investment value per property — generally up to €25m — is often too high for private investors or too low for institutional investors.
"Operating in this niche area creates an efficient property acquisition process for the company, with little competition from [other] bidders, who would ordinarily drive up the purchase price of similar properties in major cities."
According to German real estate media, DKR showed rental income up 32% year on year to €16.2m in its first quarter. NAV was €11.34 a share.
As at December 31 2020, the company had a balance sheet value of €831m before its latest acquisitions. The acquisition yield of the total portfolio was estimated at 10.4%.
In its quarterly comment, DKR says it experienced no significant rent deferrals or rent losses from tenants as a result of the Covid-19 pandemic.
It expects funds from operations for the 2021 financial year of between €42m and €45m.