Deutsche Konsum REIT-AG prepares for Johannesburg secondary listing
Following up on an announcement it made a year ago, Deutsche Konsum REIT-AG (DKR) – focused on grocery-anchored retail in northern Germany – expects to launch its secondary listing on the Johannesburg Stock Exchange on 8thMarch.
The move is designed to attract additional institutional investors, while at the same time giving South African investors unlimited access to direct investment in a foreign country on the JSE – not normally possible under existing laws which restrict South African investments in foreign companies. The listing should also improve liquidity in DKR’s stock, and could provide another future source of capital raising for the German company.
UK, Eastern Europe and even Asian companies have long sought a listing in South Africa, but DKR’s move represents the first time a German company has listed on the JSE. However, Sirius Real Estate, the owner and manager of branded business parks across Germany, whom we feature regularly in these pages, has also got a listing on the JSE, although its other listing is on the main board of the London Stock Exchange – despite all of its business activities being in Germany.
DKR has already taken its business model around South Africa’s finance houses and said it received strong interest. It plans a three-day virtual road show just before commencement of trading on 8th March, it said.
DKR is headed by Rolf Elgeti, who has a stellar track record in German real estate investment and management at among others TAG Immobilien, since returning to Germany some years ago after an equally luminous career in finance in London, where he worked as an analyst at UBS Warburg, Commerzbank and as head of equities strategy at ABN Amro.
He said of the impending listing, "We are very pleased that the DKR shares are now the first German company to be traded in South Africa. We are convinced that this opens up a special opportunity for South African investors to invest in a German REIT with a focus on robust and non-cyclical local shopping properties with everyday tenants. At the same time, we believe that we can generate additional financial support in South Africa to continue to grow strongly and profitably in the future."
Although he stressed he was not normally a fan of second listings (typically in the USA) because of the divisive effect they can have on liquidity, Elgeti said that South Africa represented an exception, because it has an investor community with a strong affinity for real estate, such as pension funds and life insurance companies, but also has capital movement restrictions, which limit investors’ international options.
Given that the JSE listing will take place without a capital placement right now, the additional demand and broadening of the shareholder base may prove beneficial to the share price, he said, while in the longer term the JSE could prove fruitful as a platform for further capital raising.
Based on the experience of other REITs with South African secondary listings, Elgeti believes that South African investors could end up holding between 10% and 20% of the share capital within a few years – or about one-quarter to one-half of the official free float of 40.6%. However, Elgeti claims that the actual free float is much higher, with a good 70% of the capital held by shareholders who have no strategic interests, he believes. Elgeti himself holds the remaining shares (28.6%) through his Obotritia Capital company, headquartered in Broderstorf, outside the northern German City of Rostock.
The company currently owns 172 retail properties which generate an annual rent of about €70m. As one of the few German REITs, it is exempt from corporation and trade tax, instead recycling dividends back to shareholders. With its rising share price the company has generated a total shareholder return (including dividends) of more than 170% over the past five years.
Earlier in February the company posted figures for its first quarter, with rental income up 32% year-on-year to €16.2m. The key FFO figure rose 38% to €10.2m, or €0.29 per share. NAV per share is put at €11.34.
The performance was attributed to improved economies of scale and the growth in the company’s portfolio, which in the quarter added a further 11 properties valued at €73m and with a rent roll of €6.9m. It also sold an asset in Berlin-Pankow which it bought two and a half years ago at an initial yield of 9.7% and which it now sold for 4.5%, booking a profit of €1.7m.
On December 31st the company had a balance sheet value of €831m before the latest acquisitions, and a lettable area of 917,000 sqm. The acquisition yield of the total portfolio is currently about 10.4%.
The company said it had experienced no significant rent deferrals or rent losses from its tenants as a result of the COVID-19 pandemic, with only a handful of individual cases in talks at the moment. The forecast of expected FFO for the full year 2020/21 remains at €42-€45m.