Listed property gains despite weak rand, rising bond yields

Posted On Wednesday, 22 May 2013 20:45 Published by eProp Commercial Property News
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Despite further Rand weakness and rising long bond yields, South Africa’s listed property sector gained 1.2% during the week ended 17 May 2013. 

Ian AndersonThere was little in the way of company news to excite investors, although New Europe Property Investments (NEPI) reported results for the three months ended 31 March 2013. NEPI remains on track to deliver 15% growth in distributions in Euros in both 2013 and 2014.

Synergy Income Fund announced the proposed acquisition of Atlantis City Shopping Centre for an amount not greater than R340 million. The announcement must have sparked some interest in Synergy as the A-units surged 9% and the price of the B-units increased by 4% last week. It is expected that the acquisition will be marginally earnings-enhancing.

Hyprop announced a change in year-end to 30 June to expedite the process of applying for SA REIT status (companies can only apply for SA REIT status after their financial year end).

The recent performance of South Africa's listed property sector has benefited from declining interest rates and bond yields, the introduction of REIT legislation in South Africa and strong distribution growth despite weak economic fundamentals. The introduction of REIT legislation has increased the attractiveness of South Africa's listed property companies for foreign investors, while distribution growth is expected to average approximately 8% per annum over the next three years.

The major risk facing the sector in the short-term is therefore an increase in bond yields. Currently, bond yields are pricing in the chance of further interest rate cuts, which may not materialise given the inflationary consequences of a weaker Rand.

Bond yields have started to drift higher as the Rand has continued to weaken, while listed property yields have continued to fall (i.e. prices have continued to rise). The forward yield on the sector is now more than 40 basis points below the yield on a 10-year government bond, providing no margin of safety for investors when interest rates and bond yields start rising.

Top 5 performers for the week ending 17 May 2013

Synergy A

9.09%

Redefine Intl

8.36%

Hospitality B

8.18%

Dipula A

4.89%

Synergy B

4.00%

Bottom 5 performers for the week ending 17 May 2013

Octodec

-1.85%

Fortress A

-1.90%

Fountainhead

-2.59%

Ascension A

-3.09%

Ascension B

-4.53%

Last modified on Friday, 18 April 2014 09:34

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