SA listed property returns 50% in 2005: Catalyst

Posted On Thursday, 19 January 2006 02:00 Published by
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SA's listed property index is set to continue to outperform cash and bonds over the medium-term, says Catalyst Securities' Annual Review.

Norbert Sasse

SA's listed property index produced a total return of 50% in 2005, and is set to continue to outperform cash and bonds over the medium-term, according to Catalyst Securities Annual Review of the listed property sector.

As of year-end, there were 30 listed property-related groups on the JSE with a combined market capitalisation of 58.25 billion rand. The largest of these was Growthpoint with a market capitalisation of 7.7 billion rand.

Writing in its latest review released on Wednesday, Catalyst noted that in 2005 the listed property index (SAPY) had outperformed its total returns of previous years - 41.26% in 2004 and 41% in 2003. Within the sector, the Property Loan Stock (PLS) index had outperformed the Property Unit Trust (PUT) index with total returns of 55.48% and 40.59%, respectively.

PLS's had benefited from their greater flexibility to use debt funding to leverage growth, together with the savings achieved on debt funding costs as older fixed-rate borrowing was priced to current lower market interest rates, Catalyst explained.

PUT's can have a loan-to-property value ratio of no more than 30%, while PLS are allowed to determine this ratio in their articles of association - typically a ratio of higher than 50% is punished by the market.

Property market fundamentals continued to firm, with vacancy levels reaching supply constraint points in most markets, the group added. This created upward pressure on rentals and forced them closer to development viability levels.

The performance of the 10 largest stocks had posted an average improvement in vacancy levels from 6% to 5.1% of gross lettable area (GLA) over the year, observed the group.

Meanwhile, retail-dominant funds such as Growthpoint and Grayprop had seen vacancy rates improve from 4.7% to 4.1% of GLA, and from 3.71% to 2.1%, respectively. This was due to strong demand from retailers, who had been expanding their store space rapidly.

"Although these vacancy numbers include exposure to other sectors, the consensus view of fund managers is that quality retail is 'fully let'.Second-tier retail is also experiencing high occupancy levels."

Strong manufacturing growth, driven by domestic retail demand, had also led to improvements in industry occupancy rates, the group pointed out. On top of this there had been a declining supply of industrial space, with the ability to bring on new space impacted by lengthy re-zoning processes and environmental impact studies.

Martprop and Pangbourne, both industrial-focused funds, had improved their vacancy rates by GLA from 4% to 2% and 6.2% to 4%, respectively. Metboard, a fund that is 100% exposed to industrial property, had recorded a drop in vacancies to 2.08% from 3.6%.

For 2006, cost savings from lower debt financing would continue through mark-to-market pricing and margin savings, Catalyst forecast, while many of the listed property funds would benefit from accretive acquisitions made earlier in 2005. These would reflect for a full year in 2006, while the groups would also be looking to unlock other opportunities within their existing portfolios.

"We expect strong distribution growth in the medium-term, which bodes well for performance (of the property sector) relative to bonds and cash," the firm wrote.

Last modified on Thursday, 08 May 2014 15:53

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