Property Shares

Posted On Friday, 09 February 2001 03:01 Published by eProp Commercial Property News
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There aren't any easy bargains to be picked up along the way Two years ago you could have bought virtually any property share, property unit trust (PUT) or property loan stock (PLS) and made money.

Gerald NelsonThose bargain days are gone. Yields are no longer much higher than those of the alternative investments, industrial equity and bonds. From here on you will have to tread far more carefully and adhere to the bywords 'stay with quality'.
Top of the quality list is London- and JSE-listed Liberty International. Capitalised at R16,8bn, Libint is the JSE property sector - well, almost, at 95% of the combined property, PUT and PLS sectors' capitalisations.
As the UK's fourth-largest listed property group, Libint has the attraction of size with which no listed SA property group can compete. But its appeal lies also in the quality of its £3,9bn property portfolio. This contains seven of the UK's top 20 regional shopping centres and London West End offices.
Over the past three years, in sterling terms, Libint has increased dividends by 8,6%/year and appears set to continue growing these at around 8%/year. This growth comes with rand hedge attraction and the potential for capital appreciation offered by Libint's 33% discount to NAV.
Other than Libint, the imminent delisting of Amaprop leaves the property sector with nothing to offer in terms of shares with reasonable market caps.
But if you are tolerant of gearing, two shares in the Broll Property Group stable, Bonatla and Wescape, could be of interest.
Bonatla, with gearing at 290%, has properties valued at R647m, mainly in fast-growing nodes such as Midrand and the Johannesburg International airport area.
One of the drawbacks of a thinly traded share is evident in Bonatla's share price volatility. From a low this month of 48c/share, Bonatla has jumped 75% to 85c/share, narrowing what was a big discount to its 93c/share NAV to only 8%.
Wescape's gearing is a more modest 118% on a R146m property portfolio. Uniquely, all properties are treated as trading assets and are mainly prime vacant commercial and residential land in Cape Town and Knysna.
Trading at 62c/share, Wescape is rated on a 2 p:e and stands at a 26% discount to what appears to be an understated NAV. It adds up to interesting potential once more attention is focused on property shares.
For the average investor, the PUT and PLS route remains the safest. Again, quality is paramount and here Sycom, though not the largest PUT, stands out. Its fund manager, Gerald Nelson of NIB, says strong emphasis is placed on upgrading the R735m portfolio. Sycom's income growth and rating are well above average.
Active management of this nature is sadly lacking in the portfolios of many PUTs and PLSs, including the two largest PUTs, Grayprop and Martprop. Poor property market conditions hampered active portfolio rotation and the managements of both PUTs are now trying to enhance portfolio quality.
The result of ageing and obsolescent portfolios is evident in the stagnating or falling earnings and NAVs of many PUTs. The tempting 24% yield on a PUT such as Apex carries the risk of a portfolio focused on the Johannesburg CBD.
Another high yielder is Redefine, a PLS listed in February 2000. Redefine's R1,2bn portfolio has received an A+ rating from FitchBCA. Yet it trades at a 16,8% earnings yield, well above average and indicating that the market regards the portfolio as risky. Gearing of 135% is another factor.
Within the quoted property scene, the biggest deal this year has been PLS Richway Retail's acquisition of 58% of Century City from BoE and Monex for R417,6m.
Richway is aggressively building a quality regional retail property portfolio which management aims to increase from the current R1,2bn to as much as R3bn within 18 months. Century City, with its 124 000 m² Canal Walk retail complex and 9 400 m² of office space, is a quality development. How successful Canal Walk will be financially remains to be seen.
For Richway investors, 'competitive yields' warranted for three years by the vendors should add some comfort. With Sycom, Richway can be considered a yield sweetener by investors who have confidence in the retail sector.
If you are bullish on property but want to avoid direct property holdings, estate agency and fledgling financial services group Jigsaw (formerly Aida Holdings) may hold interest. Its prospects rest heavily on the residential property market's outlook. Right now 'we are bullish', says acting chairman and group MD Gian Sdoya.
Sdoya says a stock shortage in most centres is putting upward pressure on prices that even a slight upward move in interest rates is unlikely to halt.
But with taxed profits of about R7m, Jigsaw is a small group positioned in a potentially volatile market. A demanding 16 p:e with no dividends makes it speculative rather than a core property share investment

Last modified on Wednesday, 23 April 2014 13:02

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