The Finance Ghost: The market lowdown on property funds and the quiet PGM performer

13 Oct 2024

There’s been a flurry of updates in the property sector as interest rates come down, while in the PGMs realm, Tharisa Minerals is quietly getting on with it

European property valuations are on the rise

The bottom seems to be in for European property values. Share prices in the property sector have already been moving higher in the past year in anticipation of lower interest rates.

As rates come down, property funds enjoy a double benefit: their cost of funding decreases and the yield applied to value the properties also comes down. A lower yield means a higher value, as property values behave like bonds: there is an inverse relationship between yields and capital values.

We’ve had a flurry of updates in the sector in the past week, starting with Sirius Real Estate and news from its portfolio of properties in the UK and Germany.

The expectation is for valuations in both countries to move higher for the interim period ended September 2024. With 5.5% like-for-like growth, those values will be driven by a combination of the decrease in rates and the solid underlying performance.

Sirius has been highly acquisitive recently, evidenced by a 14.9% increase in the overall rent roll. The difference between this number and the like-for-like growth of 5.5% is the rent that was in effect bought over the past year through the acquisition of properties. Sirius enjoys strong market support for its capital-raising activities, and this gives the fund quite a war chest for deals. It isn’t slowing down, either, having raised €180-million in July for further deals in Germany and the UK.

Another fund with an uptick in values is Equites Property Fund, with a logistics-heavy portfolio that achieved like-for-like rental growth of 5.6% in South Africa and 7.4% in the UK. Despite the positive news about the underlying properties and the increase in rental growth, the interim distribution per share was up just 1.7%.

To understand why, you need to be aware that Equites (like many other funds) uses scrip dividend alternatives that allow shareholders to elect to receive shares in lieu of cash dividends. This is basically a miniature rights issue each year, causing the number of shares in issue to go up. This leads to distribution-per-share growth being lower than the growth in underlying distributable earnings (in this case 5.4%).

Iberia has become a popular choice for South African property funds. After the deal to acquire Espai Girones for €168.2-million, Lighthouse Properties will have 76% of the value of its directly held properties in Spain and Portugal. The appeal is a combination of European risk and solid growth rates.

Finally, Hammerson added to the news with a summary of its balance-sheet initiatives to increase the weighted average term of its debt and reduce its cost of debt in the process. The market showed strong support for that strategy, when the issuance of a 12-year £400-million bond was seven times oversubscribed. Hammerson used the proceeds to repurchase bonds with maturities in 2026 and 2027. The net impact is a 20-basis-point decrease in the cost of funding to 3.6%, as well as the weighted average debt maturity increasing from 2.9 to 5.2 years.

Tharisa is quietly getting on with it

In the PGM sector, Sibanye-Stillwater always seems to hog the headlines. That company has some of the worst luck around. Its latest problem is a court battle that could lead to a substantial damages claim if there’s a crazy outcome in the courts.

Tharisa is also in the PGM sector, yet you hardly ever read about it. Over five years, Tharisa’s share price is down 20% and Sibanye is down 63%, so there’s some pretty serious outperformance for you.

One of the reasons for Tharisa’s relative performance is that it has focused on chrome as its non-PGM metal, whereas Sibanye has been doing all kinds of deals for other metals and suffered much pain in its gold business. Tharisa achieved an annual record in its chrome production at a time when average dollar prices were up 13.7%.

There isn’t much that these mining companies can do about the broader macroeconomic challenges. There’s a lot that they can do about production and how they allocate capital, and Tharisa has quietly done a great job. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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European property valuations are on the rise

Tharisa is quietly getting on with it