Listed property sector

Posted On Wednesday, 26 July 2006 02:00 Published by eProp Commercial Property News
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One camp on the listed property sector of the JSE says it’s come up too far and too fast, that this small sell-off is just the start of more to come - but another camp is saying the sector is now undervalued. With Edwin Schultz from Coronation Fund Managers in Cape Town

Property-Housing-ResidentialLINDSAY WILLIAMS: Anything that falls 20% in a short space of time has to be worth buying, particularly when the fundamentals support it. Edwin, listed property has come down sharply - but was up even more sharply than that before - so what do we do now?

EDWIN SCHULTZ: We felt it had moved up too far too fast, but having said that if one looks at the magnitude of the correction - probably in some cases 24% to 25% to the bottom - we do think that there is now actually some good value in the sector. Particularly if you look at some of the larger cap stocks - we believe they are the real quality stocks in terms of the underlying property portfolios.

LINDSAY WILLIAMS: So the bigger stocks with the more diverse portfolios - is that what you’re looking for?

EDWIN SCHULTZ: Yes, I think if you look at the listed companies they’re generally quite diverse - but if you look at the larger ones in particular you saw Hyprop announcing they’re on track for distribution growth around 20% for the six months to June 2006. That’s phenomenal, and they own some quality centres. I suspect behind that the drivers would obviously still be Canal Walk that’s trading exceptionally well, the Glen, Hyde Park Centre, and they own the Rosebank Mall. So if you look at those large companies they own some of the top quality retail shopping centres, also office blocks and industrial parks - and that’s what I’m referring to when I talk about good quality.

LINDSAY WILLIAMS: So you tend to be focusing here on a company that’s very much retail exposed - do you still like that sector, and would you then advise going for stocks that have a slight bias towards retail?

EDWIN SCHULTZ: We probably would. If you look at the long term, and if you look at the international experience as well - in our opinion retail in the long run is really the best quality asset. It delivers the best growth over a long period of time. Having said that - given the particular point we are at in the cycle right now - I think the fundamentals of office space is looking particularly good. We’ve had tough years - a long period of declining rentals, and increasing vacancies - but that’s turning around. So there’s quite a bit of operational gearing in the property cycle, but in the long run I think you can’t really go wrong with retail - it is quality, it’s defensive. I think a lot of the growth is there in the long run.

LINDSAY WILLIAMS: Which particular company would you say has got more exposure in the office market?

EDWIN SCHULTZ: If you look at the two largest companies Growthpoint and Grayprop they’ve got reasonable office exposure in addition to their retail holdings, but I think if you want to go more focused Sycom can offer quite a bit of office exposure. Probably Redefine as well - they’ve probably got more of a bias towards the office side, and I think they will be beneficiaries from this recovery in the office market.

LINDSAY WILLIAMS: What about the niche sector - are there any little niche funds that have come to the market in the last year or so that have attracted your attention?

EDWIN SCHULTZ: It’s not necessarily the new ones as such, but I think the Hospitality listing has also come down quite a bit - we particularly like the Hospitality A share. That basically gives you a yield guarantee in preference to the B holders, and it also guarantees you - in preference to the B shareholders - 5% growth in distributions. We think that’s very attractive - we think they’ve got some good quality assets, a good management team - so I think that’s looking attractive. Then if you look at some of the smaller niche stock companies the one that stands out for us in particular at the moment would be Acucap - if you look at their larger assets they own the Festival Mall in Kempton Park, and Key West Mall in Krugersdorp. So they’ve got quite a big retail component - some good regional shopping centres - but also nice office exposure. That’s trading above a 9% clean yield at the moment, and we think it’s got very good growth prospects. For the sector as a whole we’re penciling in probably 10% distribution growth for the next two years. It’s quite attractive - that means your yield quickly unwinds and becomes even more attractive.

LINDSAY WILLIAMS: It’s certainly a compelling argument. Further consolidation in the industry - I’m just looking at the news out today: “Further to the cautionary announcement dated 2 June 2006 unit holders of Capital Property Fund are advised that negotiations are still in progress…” That means that there are moves still in the market - do you think that trend will continue?

EDWIN SCHULTZ: Absolutely. There’s actually a number of cautionaries out at the moment, and a couple of very interesting things happening. I think we’re probably should be expecting an announcement or two shortly. There’s definitely room for consolidation - there are a couple of players around that are ideally placed to consolidate - so I think watch this space.

Last modified on Tuesday, 06 May 2014 09:49

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