Listed property recovered with 14% total return despite rising interest rates

Posted On Tuesday, 14 October 2014 17:41 Published by
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Listed property returns likely to beat forecasts

Paul Duncan

Though listed property had a rocky start to the year on the back of rising interest rates, the sector has recovered strongly in recent months, surprising on the upside with a 14% total return for the year to date (January-September).

Property analysts expected the SA listed property index (Sapy) to deliver a total return of no more than 8%-10% for 2014 as a whole. A report released by Cape-based Catalyst Fund Managers last week showed that listed property last month overtook general equities in the total return stakes, with the Sapy's 14% for the first nine months of 2014 now comfortably ahead of the FTSE/JSE All shsre Index's (Alsi's) 9.4%.

It seems increasingly likely that listed property will be a more profitable bet than general equities for 2014 as a whole, with the Sapy set to avert a repeat of last year's subdued performance when the sector's 8.4% total return lagged way behind the Alsi's 21.4%. Cash and bonds have not been able to keep up with either the Alsi or the Sapy, with a nine-month return of only 4.3% and 5.6% respectively.

Analysts said the Sapy's performance for the year to date has been lifted by the strong rally experienced by some randhedge stocks including the likes of sister funds Rockcastle Global Real Estate Company and Romanian-focused New Europe Property Investments (Nepi) as well as UK mall owner Intu Properties.

However, in recent months, South African-based property portfolios have announced better-than-expected earnings growth, which no doubt also supported money flow to the sector. Resilient Property Income Fund, Hyprop Investments, Fortress Income Fund, Hospitality Property Fund, Texton Property Fund and Ascension Properties all delivered double-digit growth in income distributions for the June reporting period.

The five best-performing property stocks of the R317bn sector's 43 counters in terms of total returns for the year to date, according to Catalyst, are Rockcastle (54%), Fortress B (49%), Nepi (40%), Resilient (39%) and Arrowhead B (23%). But not all property stocks have made good money for shareholders so far this year. The five worst performers for the year to date are Hospitality B (-23%), Delta Property Fund (-8%), Redefine International (-6%), Fairvest Property (-2%) and Rebosis Property Fund (0.18%).

Catalyst Fund Managers investment manager Paul Duncan said despite volatile capital markets and rising interest rate risk, listed property companies were likely to continue to deliver inflation-type income distribution growth over the next 12 months. "This is largely being driven by annual rental escalations and support from offshore earnings. ''

But Sesfikile Capital director Evan Jankelowitz did not believe that the run in property share prices was sustainable. "A short-term correction in the region of 5%6% is likely and would be justified." Property analysts had expected the SA listed property index (Sapy) to deliver a total return of no more than 8%-10% for 2014 as a whole.

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