The yield to maturity (YTM) on the Long Term Government Bond Index strengthened, to end the month at 7.12% (7.98% - 31 December 2014). The SA listed property historic yield ended the month at 6.13% (excludes Attacq and NEPI) (6.52% - 31 December 2014). The SA listed property sector historic rolled yield was trading at a premium spread of 0.99% to the Long term Government Bond yield to maturity at 30 January 2015 (1.46% - 31 December 2014.)
Asset Class MTD 12 - months SA Listed Property1 7.38% 46.43% SA Bonds3 6.47% 21.20% SA Equities2 3.08% 17.06% SA Cash4 0.50% 5.97%
SA Listed Property recorded the highest total return (7.38%) of the four traditional asset classes for January 2015. SA Bonds (6.47%), SA Equities (3.08%) and SA Cash (0.50%) were the next best performing asset classes. For the last 12 months SA Listed Property has recorded the highest total return (46.43%), followed by SA Bonds (21.20%), SA Equites (17.06%) and SA Cash (5.97%).
SA listed property sector is highly correlated to the long term government bonds. Yields on the long term government bonds have firmed materially to capture the expectation of the lower global growth and lower global inflation.
The strengthening of the long term government bonds has driven the strong performance of the SA listed real estate. SA listed property stocks raised approximately R35bn in capital, through equity issuances in the 2014 calendar year. Rebosis Property Fund was the first to raise capital in 2015, raising R565 million through the placing of 47 478 992 linked units at a price of R11.90 per linked unit.
Nepi announced the acquisition of the 34,000 sqm Aupark shopping centre in Kosice, Slovakia, as well as 12,800 sqm offices (part of the centre, WALE 5.6 years) and a strategic piece of land (4 hectares) in the city centre for €165m. Redefine recently announced the acquisition of the R4.1bn Leaf office portfolio on a yield of 8.0% as well as 50% of a R2.1bn retail portfolio in Germany (in a JV with Redefine International) at approximately a 7.5% yield.
Capital Property Fund reported full year results for the year ended 31st December 2014. The fund declared a dividend of 83.4c for the full year, representing a distribution growth of 10.3% to the previous comparable period. The company guided to growth in distributions of 9% for 2015 year.
Resilient Property Fund and Tower Property Fund released trading statements advising shareholders of at least a 15% difference to the financial results for six months ended 31st December 2014 and 30th November 2014 respectively.
Real Estate fundamentals remain challenging, but strong capital markets and lower yields for longer will be supportive of listed real estate performance. In the short term, listed real estate returns are likely to take their direction from capital markets rather than real estate fundamentals. Over the long term, real estate fundamentals will drive performance.
Global listed real estate currently trades at an estimated forward FAD (Funds Available for Distribution) yield of 4.25%, which for a long term investor appears attractive. SA Listed real estate companies are likely to continue to deliver inflation type income distribution growth over the next 12 months.
This will largely be driven by annual rental escalations and support from offshore earnings. The SA listed property sector trades at a historic yield of 6.13%. Assuming 12 months distribution growth of approximately 7.0%, the SA listed sector offers a forward yield of approximately 6.56%.
