Income distributions for the year to December, paid out in euros , have risen by a hefty 15%. That means Nepi investors have seen their income payouts rise by an average 12%/year since 2008. And it’s more than double the average distribution growth being achieved by SA-based property stocks. Nepi investors have also been handsomely rewarded on the capital return front. The share price has risen almost 60% over the past year. Nepi is listed on the JSE, London’s AIM and the Bucharest stock exchange.
The company’s stellar performance since inception is largely a testament to the Resilient group’s entrepreneurial flair and contrarian investment strategy. While their SA-listed peers, like Redefine Properties and Growthpoint Properties, branched into conventional offshore markets like Australia, the UK and Germany, Resilient opted for the former communist country because it was one of Europe’s least developed in terms of formal shopping centres.
Nepi has over the past six years become a major player in Romania’s real estate market. It started in 2007 with three employees under CEO Martin Slabbert Nepi’s staff has since grown to over 60. Its portfolio of more than 40 properties, worth around R5bn, consists mostly of shopping centres and office blocks. A major addition last year was the Ploiesti Shopping Centre, which opened in November. The 46000m² centre is the most ambitious project tackled by Nepi to date. An extension to the Promenada Mall in Braila was also completed in 2012.
Slabbert says the portfolio is poised for further growth over the next two years through various development and acquisition opportunities. Construction on nine retail development and extension projects is either already under way or expected to commence this year. These include five projects that will be anchored by German discount supermarket chain Kaufland.
Slabbert is looking to replicate Nepi’s Romanian model in other Eastern European countries, possibly including Slovakia, Serbia and Hungary. “We hope to complete an acquisition in one of these countries by June.’’ Slabbert is confident that Nepi will grow its market cap from around à700m (R8,3bn) now to more than à1bn over the next two years. Though Nepi’s share price has already run hard, analysts believe the counter still offers upside. In fact, Nepi ranks as Macquarie First South Securities analyst Leon Allison’s top property pick for 2013 for the second year running.
Ian Anderson, chief investment officer at Grindrod Asset Management, expects Nepi to continue to generate income growth of around 15%/year over the next two to three years. He says that though some future growth is already reflected in the current share price, Nepi’s forward yield of around 5,5% remains attractive versus other property stocks with similar expected growth rates.
Anderson cites Nepi’s low cost of capital (5%-6%) as a key positive. “This is applied to projects where initial yields can be as high as 11%. It is reminiscent of the SA listed property market a number of years ago, when most companies were able to initiate yield-enhancing redevelopments or acquisitions that delivered income growth of 12%-15%/year.’’ Management has also established joint ventures with major retailers like Carrefour and Kaufland, providing Nepi with access to projects not available to other players in the Romanian property market.
Anderson notes that the single biggest risk for Nepi remains the performance of the Romanian economy and how the newly elected government will address the issues facing that country.
