The SA Listed Property Index recorded 0.22% total return for the month ended August 2015

Posted On Sunday, 06 September 2015 08:25 Published by
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For the last 12 months SA Listed Property has recorded the highest total return (27.5%), followed by SA Cash (6.38%), SA Bonds (5.43%) and SA Equities (1.12%). 

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The yield to maturity (YTM) on the Long Term Government Bond Index weakened by 15bps to end the month at 8.39% (8.24% - 31st July 2015). The listed property historic yield for the 38 property companies, Catalyst Fund Managers report data on, ended the month at 5.81%.

Excluding non-income distributors (Pivotal, Attacq) and 100% offshore earnings focused companies (New European Property Fund, Rockcastle, Redefine International and Investec Australia) the market cap weighted historic yield of the remaining companies is 6.45%.

SA Cash recorded the highest total return of 0.54% for the month. SA listed property (0.22%), SA Bonds (0.14%) and SA Equities (-3.55%) were the next best performing asset classes.

For the last 12 months SA Listed Property has recorded the highest total return (27.5%), followed by SA Cash (6.38%), SA Bonds (5.43%) and SA Equities (1.12%). The month was a busy one for the SA listed property sector with regards to reporting results. The simple market cap weighted average distribution growth for the companies that reported was 13.59%. The distribution per unit (DPU) growth of 13.59% was impressive considering the current state of local property fundamentals. Management teams that were able to deliver superior growth can attribute this to the exposure to offshore earnings, the weakness of the ZAR, earnings accretive acquisitions, well contained operating expenses and proactive leasing.

Dominant retail remains the most resilient sub sector with good quality retail assets still achieving trading density growth which is driving flat to positive reversions. The office sector continues to be characterized by weak to negative rental reversions, high tenant incentives and leasing commissions. Industrial is experiencing similar headwinds to offices with regards to weak reversions, but demand for good quality, modern logistics facilities remains.

Hospitality property fund announced the acquisition of beneficial interest in the B units, by Southern Sun Hotels Proprietary Limited, a Tsogo Sun Holdings Limited Group Company, such that the total beneficial interests of the securities of that class held by Tsogo is now 55% of the total issued securities of that class, equating to 27.3% of the total voting rights of the Company. Hospitality also advised unitholders on discussions held on an appropriate swap ratio for a conversion of its share capital into a single class of shares. On the basis of those discussions, indications are that, in the context of a potential corporate transaction, there will be support for a swap ratio of one A share for every 3.5 B shares. Unitholders are advised to continue exercising caution unit further announcements are made.

Investec Property Fund announced the acquisition of a R7 billion property portfolio from ZenProp for a blended yield of 7.5% (7.4% after transactions costs). The portfolio, consisting of 26 properties; 12 office properties, 11 industrial properties and 3 retail properties, has a total GLA of 397,273m2.

Redefine properties raised R1.7 billion through the placing of 154 545 455 shares at a price of R11.00 per share, a 4% discount to the previous day’s closing price.

Vukile and Atlantic Leaf announced that they have agreed terms of a strategic relationship. Under the terms of the relationship, Vukile will subscribe for new shares in Atlantic Leaf to the value of ZAR 350 million, following which Vukile is anticipated to hold approximately 21% of Atlantic Leaf’s total shares in issue. Despite the impressive DPU growth achieved by listed property companies, commentary from management teams confirmed the view that real estate fundamentals in South Africa remain challenging. As commented in previous reports, capital markets have been supportive of listed real estate pricing.

The FTSE EPRA/NAREIT Developed Rental Index recorded a net total USD return of -5.55% in August. The best performing listed real estate market was Europe, which recorded a total USD return of -2.00%. Asia ex. Australia recorded the lowest total USD return for August of -6.71%. The global sell off over the past month has largely been capital markets driven and as a result of a risk-off environment and the economic slowdown in China. Typically one would expect the strengthening of US Bonds to be good for real estate, but it appears that the market remains risk averse and filled with capital market uncertainty.

Recent company results emphasized sound real estate fundamentals, muted supply and demand that looks set for a slow and steady recovery, which gives us comfort looking forward. We have seen direct property values holding up well over the past six months, especially for prime real estate as demand for this continues.

Listed real estate currently trades at an estimated forward FAD (Funds Available for Distribution) yield of 5.09%, which for a long term investor still appears attractive given where current 10 year government bonds are and the current growth environment. As bond yields move out we expect some volatility in the short term.

Last modified on Monday, 07 September 2015 09:39

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