Anchor’s Craig Smith optimistic about the property sector’s performance next year

The listed property sector had its worst year in 2018 when it lost 25.26% including dividends and capital growth returns. Instead of bouncing back in 2019, it has trudged along with a return of about 4%. But Craig Smith, head of property and research at Anchor Stockbrokers, says he is optimistic about the sector’s performance in 2020. Smith is a chartered financial analyst who began his career with Standard Bank in 2008 as an investment analyst and asset manager.

He has also worked at Stanlib Asset Management and was an associate director in the Sub-Saharan Africa capital markets team at property services company Jones Lang LaSalle (JLL).

He also runs Anchor Stockbrokers’ property internship. He spoke to Business Day about what may be in store next year.

What trends have stood out for the sector this year?

There has been a shift by the market in terms of an increased focus on the underlying property fundamentals, a stronger preference for listed property companies to be conservatively geared and to reward or favour management teams that have the ability and a demonstrated track record of allocating capital effectively. There is also an increased focus by the market on premiums or discounts to net asset value and generally more interrogation in terms of the robustness of the underlying property valuations; I see this trend continuing into 2020 and beyond.

How optimistic are you about listed property for 2020?

I don’t expect a significant rebound in 2020 as property fundamentals remain under pressure and the balance of power has most certainly shifted in favour of occupiers and is likely to continue as such into 2020.

However, weak property fundamentals are largely priced into the majority of listed property share prices and there remain a number of property companies which have solid balance sheets and portfolios that are performing reasonably well in this environment.

Therefore, stock selection will remain paramount in 2020 and there will be a sizeable spread in terms of performance between top performing and bottom performing listed property companies.

Have the best listed property stocks delivered this year?

There certainly are property companies that have weathered the storm over the past few years by strengthening or maintaining the strength of their balance sheets and ensuring that they have spent sufficient capex on their portfolios over the previous three to five years

it is unfortunately not the ideal time to be deleveraging and implementing or needing to implement an extensive capex programme in this environment.

How will the new Best Practice Recommendations (BPR) released for real estate investment trusts help the sector next year?

My overall impression is that it is definitely a step in the right direction, but would also highlight that it is a journey and future revisions should also focus on other metrics such as standardisation of rent to sales and trading density growth metrics among others.

I also think there could be more focus in terms of standardisation of valuations and disclosure about valuations.

But there have been many people who have done a lot of hard and valuable work to get to this point so one needs to commend these individuals. The key is to regain confidence in the merits of listed property and the standardisation of certain reporting metrics will certainly serve to support this.

What are your views in terms of transformation within the property sector?

Transformation is an imperative. While progress has been made in terms of transformation in the property sector, it has unfortunately taken place at a fairly slow pace, especially when one looks at the composition of executive teams within the listed property sector.

We believe through The Anchor Stockbrokers internship programme we can make a (small) difference by firstly promoting the property sector as an attractive profession to students and recent graduates.

We provide mentorship and facilitate introductions and networking opportunities with key stakeholders in the property sector.

We also provide interns with exposure and on the job training and enrol them in courses and programmes like the MIT/GetSmarter and LSE/GetSmarter real estate courses, CFA Investment Foundation programme and the Bloomberg BMC course.