Listed property on the upswing

Posted On Tuesday, 22 October 2013 14:32 Published by
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The listed property sector has returned more than 13% since it bottomed towards the end of August and more than 1.4% in six of the past eight weeks. 

Ian AndersonLast week's 2.3% gain was driven by falling bond yields and a stronger Rand. Yields on longer-dated bonds in South Africa declined by approximately 10 basis points while the Rand appreciated to R9.77/US$.

Investors are now forecasting an extension of the US Federal Reserve's bond purchase programme, given the political and economic uncertainty in the United States. Locally, investors will be focused on the Medium Term Budget Policy Statement, which Finance Minister Pravin Gordhan will deliver on Wednesday. Particular attention will be given to the government's borrowing requirements and the projected growth for the economy in 2014 and 2015.

During the week ended 18 October 2013, Arrowhead Properties announced the acquisition of a residential property portfolio for a purchase consideration of R406 million. If successfully concluded, the deal would mark a South African listed property company's first substantial investment in residential property.

Globally, residential property constitutes a significant portion of most publicly traded property markets, with a number of very large residential-focused property companies listed on exchanges throughout the world. Historically, residential property in South Africa has changed hands at substantially lower income yields to the other traditional property types, but sluggish growth in house prices and strong rental growth since the credit crisis have pushed residential yields higher. This is expected to be the first of a number of residential property portfolio acquisitions in the coming years.

Investec Property Fund announced the acquisition of a portfolio comprising 15 office and two industrial properties for a purchase consideration of R571.6 million. The office buildings are located in office parks in the commercial nodes of Bryanston, Lynwood Road (Pretoria), Constantia Kloof (Roodepoort) and Tyger Valley in Cape Town. The industrial properties are located in Linbro Park and Silverton, Pretoria. The portfolio is 98.2% let with no major leases expiring during first 24 months. Clover is the dominant tenant in the portfolio, contributing approximately 25% of rental income, and the balance of the space is multi-tenanted. According to management, the acquisition is in line with the company's growth and investment strategy of building a quality portfolio by investing in well-priced income producing properties that optimise capital and income returns over the medium and long-term.

Despite last week's price gains, South Africa's listed property sector continues to offer value relative to the bond market due to the fact that listed property sector earnings growth is expected to accelerate towards 8% per annum in 2015.

Top 5 performers last week

Synergy A

5.75%

Growthpoint

4.23%

SA Corporate

3.90%

Dipula B

3.80%

Redefine

3.56%

 

Bottom 5 performers last week

Emira

-0.54%

Vunani Prop

-1.26%

Ascension B

-2.13%

Octodec

-2.40%

Fortress B

-3.33%

Source: Grindrod Asset Management

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