SA Listed Property total returns at 0.83% trail SA Equities in September 2015

Posted On Thursday, 08 October 2015 17:21 Published by
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According to Catalyst Fund Managers, the yield to maturity on the Long Term Government Bond Index weakened by 5bps to end the month at 8.44% (8.39% - 31st August 2015).


The listed property historic yield for the 38 property companies, Catalyst Fund Managers report data on, ended the month at 5.84%. Excluding non-income distributors (Pivotal, Attacq) and 100% offshore earnings focused companies (New European Property Fund, Rockcastle, New Frontier, Capco, IntuProp, Mas, Sirius, Redefine International and Investec Australia) the market cap weighted historic yield of the remaining companies is 6.40% 

SA Equities recorded the highest total return of 0.95% for the month. SA listed property (0.83%), SA Cash (0.52%) and SA Bonds (-0.07%) were the next best performing asset classes. For the last 12 months SA Listed Property has recorded the highest total return (25.82%), followed by SA Cash (6.38%), SA Bonds (7.04%) and SA Equities (4.79%).  

Stenprop, which has properties in Germany, UK and Switzerland announced that they will be moving to the main board of the JSE and will have a dual primary listing on the JSE and Bermuda stock exchange.  

Real Estate fundamentals in South Africa remain challenging, but strong capital markets and lower yields for longer have been supportive of listed real estate pricing. Local listed property players continue to diversify their portfolios offshore in an effort to access stronger real estate fundamentals and attractive yield versus interest cost spreads. In the short term, listed real estate pricing is likely to take its direction from capital markets rather than real estate fundamentals, earnings and earnings growth. Over the long term, real estate fundamentals, earnings and earnings growth will drive performance.

The FTSE EPRA/NAREIT Developed Rental Index recorded a net total USD return of 2.00% in September. The best performing listed real estate market was North America, which recorded a total USD return of 2.92%. Australia recorded the lowest total USD return for September of -0.41%.

The economic slowdown and uncertainty in China continues to be felt around the globe. Australia's underperformance appears to be largely attributed to the meaningful economic ties it has with China coupled with weak commodity prices.

In Hong Kong companies such as Hysan and Wharf have seen tenant sales declining at their flagship shopping malls, albeit that these malls still have some of the highest trading densities worldwide. Office fundamentals in Hong Kong Central continue to be strong, driven by very low vacancies caused by almost no supply and steady demand. This demand is mainly Chinese financial institutions taking advantage of opportunities presented by the Shanghai Hong Kong Stock Connect.

In Australia the sentiment that we picked up is that investors are concerned that the economy could be heading towards a recession.

More monetary easing is expected as the Reserve Bank tries to boost the economy. Retail sales are primarily being driven by home owners releasing equity from their houses given the residential price growth. Economists that we spoke to indicated that both wage growth and migration are weak.

Listed real estate currently trades at an estimated forward FAD (Funds Available for Distribution) yield of 4.97%, 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 but the real estate sector appears to be pricing this in.

Source: Catalyst Fund Managers

Last modified on Friday, 09 October 2015 09:34

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