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Listed property - winners and losers

Posted On Friday, 13 January 2012 02:00 Published by eProp Commercial Property News
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There was a rush of new listings in the property sector, billions raised by existing counters through rights issues and private placements in a bid to bring previously unlisted properties to the JSE.

Sisa Ngebulana

Listed property investors certainly can’t complain that 2011 was a dull year.

There was a rush of new listings in the sector — no less than seven since November 2010 — plus billions more raised by existing counters through rights issues and private placements in a bid to bring previously unlisted properties to the JSE.

These include Growthpoint Properties’ 50% acquisition of the V&A Waterfront and Hyprop Investments buying Attfund’s R9bn shopping centre portfolio.

In total, around R16bn in new equity was added to the sector last year, which helped push listed property’s market cap to R145bn by the end of December.

That’s despite Old Mutual unexpectedly canning the proposed listing of its R12bn Triangle Core Real Estate Fund in August. Property stocks also managed for the second year running to make more money for investors than other asset classes.

Stanlib figures show that listed property delivered a total return of 8,93% for calendar 2011. That compares to the JSE all share index’s total return of 2,57%. Cash and bonds notched up 5,71% and 8,8% respectively for 2011.

New listings are positive for the sector as they bring about increased size, liquidity and choice. These factors are likely to lure more investors to property stocks over time, which should support further share price upside.

But not all new funds that made their JSE debut since November 2010 have been received with equal enthusiasm. Some delivered disappointing returns. Others surprised on the upside.

Investec Property Fund is a particular case in point. Despite what most fund managers regard as a mediocre property portfolio, the stock has rallied more than 13% since its April listing. It appears that investors are buying into the fund’s wellrespected and experienced management team, which includes CEO Sam Leon and chairman Sam Hackner

Two new funds that didn’t live up to expectations are property entrepreneur Sisa Ngebulana’s Rebosis Property Fund and supermarket chain Spar’s brainchild Synergy Income Fund The latter had a muted start, with both A and B units failing to trade on the day of listing (December 14). But that could be a timing issue as most fund managers may already have been on festive season breaks by then.

Rebosis underperformed the overall sector, dropping 2,5% since its May listing. That was unexpected, given the fund’s quality portfolio. The latter includes Hemingways Mall in East London — one of SA’s 30 biggest shopping centres. The fund also offers better liquidity than most of the other new listings.

The key question for investors is which of the new listings currently offer the best buying opportunity. Stanlib head of property funds Keillen Ndlovu singles out Vividend Income Fund, Synergy (A units), empowerment player Dipula Income Fund (A units) and Rebosis.

Ndlovu says Vividend is looking cheap relative to the market. The stock, which focuses on smaller, high-yielding properties such as Clearwater Crossing in Roodepoort and Montclair Mall in Durban, was last week trading at a forward yield of around 11,4% against the sector average of 8,2%.

Though the fund initially listed with only one property in its stable, management has since made good headway in bulking up the portfolio. It recently announced the acquisition of 10 properties worth R790m, which will take its portfolio value to around R1,4bn once transfer is completed around April.

Ndlovu says both Synergy A and Dipula A offer investors looking for secure, predictable income streams attractive initial yields of 9,4% and 9,5% respectively plus virtually guaranteed income growth of 5%/year. Though 5% income growth is in line with the market it is more certain than that of other single unit property stocks given the income protection that A units offer, similar to that of bonds.

Both Synergy and Dipula focus on retail property — Synergy on convenience centres anchored by Spar supermarkets sized roughly between 10000m² and 25000m², while Dipula’s properties cater mostly to lower-income shoppers in rural areas.

Because of the way the income is split between the A and B units of both Synergy and Dipula, Ndlovu believes the two counters are better buys than the Resilient group’s Fortress A The latter listed in October 2009 and is trading at a forward yield of around 9%.

Ndlovu also likes Rebosis. “The fund offers superior income growth prospects compared to the sector yet it’s trading at a discount of around 100 basis points.’’

Hemingways Mall continues to improve off a low base in terms of vacancies, turnover growth and trading densities. Ndlovu notes Rebosis also has a great retail asset in Bloed Street Mall in the Pretoria CBD, while Mdantsane City near East London seems to be settling down following some churn in the 35000m² centre’s first few years of existence.

In addition, the fund owns a defensive office portfolio tenanted largely by government departments on long leases. “Rebosis has a small and manageable portfolio that poses less default and solvency risk compared with most listed property counters. Moreover, recently announced acquisitions worth a substantial R734m will dilute the Eastern Cape concentration risk.’’

Meago director Jay Padayatchi agrees that Rebosis at current pricing levels is likely to significantly outperform over the next 12 months. He says the fund offers investors a good spread between highquality government occupied office buildings and retail properties that dominate their catchment areas.

“The relatively low-risk, defensive portfolio offers significant growth opportunities with potential yield-enhancing acquisitions from a strong pipeline of developments via its founders, the Billion Group.”

Padayatchi says Investec Property Fund remains a good bet despite the share price already running hard last year. One of the fund’s biggest selling points is access to the Investec property division’s development pipeline. Its entrepreneurial management team have also impressed, securing a few prime acquisitions in recent months.

These include the Great North Road Plaza, a major shopping complex in Musina for R145m and the General Electric commercial property in Midrand for R76,8m. Says Padayatchi: “Investec Property Fund may well repeat its 2011 out performance this year provided management continues to make quality acquisitions.”

Last modified on Friday, 18 April 2014 17:33