Outlook for listed property investors not as rosy as 2003

Posted On Thursday, 15 January 2004 02:00 Published by eProp Commercial Property News
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Pretoria - The property unit trust and property unit trust sectors of the JSE Securities Exchange generated a pretax total return of 42.6 percent for the 12 months to December, according to an analysis by Provest, the wholly owned property asset management subsidiary of Investec Bank.

Angelique de RauvilleBut Angelique de Rauville, Provest's managing director, said on Tuesday it would be naive to think listed property investors could generate the same healthy returns this year as they did last year.

De Rauville said earning growth of between 3 percent and 5 percent should provide investors with a total pretax return of between 14.3 percent and 16.6 percent this year.

Catalyst Securities said in its listed property sector monthly overview that market interest in the sector persisted, as indicated by the above-average value traded last month.

It said promising earnings for this year, specifically due to the lower interest rate, boded well for distribution growth.

"The increase in the market capitalisation and participants, with upcoming new listings, could fuel further possible growth," it said.

De Rauville said in Provest's latest monthly newsletter that the top two performers last year were the Pretoria Wapnick family-managed fund Octodec, at 109 percent and Premium Properties at 149.6 percent.

The underperformers of the sector last year were Arnold at 46.8 percent and Paramount at 15.5 percent.

De Rauville said it seemed the listed property sector would never be rid of its sceptics, and the question was: "Is the listed property bubble going to burst in 2004?"

She said this view seemed to be based on a combination of factors, including the fact that listed property was trading at a premium to net asset value (NAV); listed property was trading at a premium to direct property; there was still a property oversupply; there was a run in listed property stocks over the past year; and the upside from current levels was limited.

She countered these views, arguing that the NAV/share price differential was expected to close as a result of the increase in net asset values as capitalisation rates strengthened, while Provest had for many years believed listed property would and should trade at a premium to direct property, given the advantages associated with investing in listed property over direct property.

These advantages included diversification, liquidity, reduced costs associated with investing in listed property, and no property management hassle.

De Rauville emphasised that the premium rating of listed property over physical property "was a long time coming and is likely to stay".

She said brokers and direct property analysts had noticed an increase in occupancy levels and expected this to continue this year, while earnings growth was likely to filter through to distributable earnings as occupancy levels increased and the listed funds and companies acquired properties at a higher yield than the cost of financing these acquisitions.

However, De Rauville maintained it was very easy to make money in a bull market, and in-depth analysis would become crucial to outperforming the sector by growing capital and providing investors with sustainable earnings growth.

Last modified on Saturday, 10 May 2014 10:22

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