Property attracts more investors

Share prices recover about 3.5% since index hit a seven-year low

Property share prices, which came under increased pressure in 2019 from weaker-thanexpected earnings, have recovered about 3.5% since September 11 when the SA Listed Property Index hit a seven-year low.

Property share prices, which came under increased pressure in 2019 from weaker-thanexpected earnings, have recovered about 3.5% since September 11 when the SA Listed Property Index (Sapy) hit a sevenyear low.

Analysts say there was something of a rebound in investor appetite for property stocks in the past week or so after posting of results for the June reporting period.

Craig Smith, head of research at Anchor Stockbrokers, said while some counters recently reported below-guidance dividend growth numbers and others revised their 12-month forecasts downwards, investors now had greater clarity on the sector’s earnings outlook. “Most of the bad news has been priced in,’’ Smith said.

Dividend growth for most property counters slowed to low single digits for the June reporting period in a lacklustre economy that has dampened demand for retail, office and industrial space. That compares with the sector’s 5% average dividend growth in 2018, and is significantly below the 9%-12% of the preceding four years.

Some companies, most notably Hyprop Investments and SA Corporate Real Estate, have reported drops in dividends as higher vacancies and lower rentals started to eat into profits and property valuations.

Smith said the good news is that property companies have now largely rebased their dividend growth numbers to lower levels from which sustainable growth can be more easily achieved once the economy improves.

Reduced likelihood of a credit downgrade by Moody’s Investors Service and lower interest rates globally have also provided some support for the SA listed property sector, Smith said. He said that in a global environment where interest rates are likely to be lower for longer SA listed property offered attractive entry yields for income investors. The sector is trading at a record high dividend yield of nearly 10%.

Keillen Ndlovu, head of listed property funds at Stanlib, said while dividends from property stocks are likely to rise no more than 1% on average over the next year, the sector is likely to return to inflation-linked growth from 2021 onwards.

“We foresee a meaningful recovery beyond 2020. The potential for improved economic growth and business confidence as well as a reduction in interest rates could be major boosts for the sector.’’

Ndlovu said another positive is that most SA-focused property companies are looking to strengthen their balance sheets by selling weaker assets and reducing loan-to-value ratios, which will stand them in good stead when the economy turns.

That most SA-focused property companies continue to increase offshore exposure will provide a further buffer against a weak SA economy.

“Companies such as Resilient, Emira and Growthpoint are all looking for further growth opportunities outside SA,” said Ndlovu. “This continues to be a big saviour for the local property sector as over 40% of the assets in our market already sit in offshore markets.’’

Growthpoint Properties, the JSE’s largest SA-focused real estate counter with a market cap of R70.6bn, earlier in September announced it is in talks to buy a majority share in UK mall owner Capital & Regional.

If approved, the deal, with a market cap of about R2.5bn, will push Growthpoint’s offshore interests to more than 30% of total assets.

COMPANIES SUCH AS RESILIENT, EMIRA AND GROWTHPOINT ARE ALL LOOKING FOR FURTHER GROWTH OPPORTUNITIES OUTSIDE SA