Trouble in the property sector

Posted On Friday, 15 March 2002 03:01 Published by eProp Commercial Property News
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The list of property companies which have reported muted earnings growth is getting longer, indicating that the listed property sector of the JSE Securities Exchange SA is heading for trouble.

James TempletonMore worrying is the fact that this list of companies with declining earnings growth include those regarded as the best performers of the JSE's property sector reversing the trend of exceptional performances reported in the past few years by the sector, compared with other asset classes.

It was the highly regarded Grayprop which first shocked the market with earnings below forecast towards the end of last year.

The results of Marriott Property Fund (Martprop) and Rand Leases Properties, which were released last week, continued this downward trend in earnings.

Sycom Property Fund has been somewhat of an exception. Though it showed good growth, the group painted a less-than-rosy picture looking forward, saying 'given the weaker market conditions, this year's growth in distribution is likely to be about 3% compared to last year's 6,2%'.

Barnard Jacobs Mellet property and construction sectors analyst, James Templeton, said following a one percentage point hike in interest rates in January and another yesterday, 'we believe that the prospects of the property unit trust and property loan-stock sectors this year do not appear healthy'.

Templeton pointed at the combination of a slower economy and the over-development in certain nodes as key weaknesses adversely affecting rentals in some sectors of the local property market.

'This is expected to impinge on the growth in distributions of the listed counters over at least the next year and possibly into 2003,' said Templeton.

Marriot's distribution for the six months ended in January came in almost flat at 11,3c, compared to 11,75c of the previous interim period. Marriot said market conditions were not expected to improve much in the next six months.

Rand Leases's headline earnings a linked unit, for the six months ended in December, came in at 13,22c, down from 16,87c. Rand Leases also cited slow economic activity and depressed rental levels in certain decentralised nodes. Many property companies have been hit by the oversupply in rental property, especially those with a significant exposure to the northern suburbs of Johannesburg where vacancies are alarmingly high. Many serious investors tend to ignore the sector because it is too small and illiquid.

To attract the attention of investors, the sector has seen a flurry of corporate activity, including mergers, acquisitions and new listings. The sector's market capitalisation has almost trebled in the past three years to more than R12bn. With the current pace of expansion, it is expected to hit R30bn in the next few years.

Templeton had forecast total returns of 21,6% for the sector last year, but the actual returns from the property unit trusts and property loan-stock companies came below expectations at 7,7% and 19,1% respectively.

He forecast a total return of 15,4% for the sector this year compared to a forecast of 22% for the all share index.

Last modified on Tuesday, 29 April 2014 10:55

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