No end in sight for pain in listed property sector

The Covid-19 pandemic has made life for the SA listed property industry even more uncertain — and another 12 months of misery cannot be ruled out.

In 2020 the industry was thrown into disarray as the pandemic spread across SA.

Landlords gave tenants rental cuts and holidays to help them survive a difficult time. Many listed property funds slashed or put dividends on hold. The sector ended up delivering a total loss including share price growth and dividends of 34.5%.

This was far short of equities, which achieved 7% and cash which mustered 5.4%. Things could have been worse had the hard lockdown persisted. In about mid-2020, listed property was down 50%.

The industry relies on economic growth, business confidence and certainty.

A vaccine rollout will provide certainty for SA’s property funds, but right now that looks more likely to be for those funds that have offshore exposure rather than domestic focused funds.

At least 40% of the SA’s listed property sector is accounted for by offshore assets in Australia, Germany, Eastern Europe, the US and the UK.

Since about 2007, SA property landlords have bought real estate abroad as they looked to diversify against economic and currency risk. But when the developed world takes a hit, SA landlords get burnt.

Competing with offshore landlords on their lawn has also been challenging. This time, however, being invested offshore looks set to help these property companies.

Citizens in the UK, Europe and elsewhere started getting their vaccinations at the end of last year, while SA’s populace is still waiting.

WILL CUT-BACK SUFFICE IN SAVING PETROSA?

As PetroSA moves to cut as many as 500 jobs, is downsizing the key to its future sustainability or just the beginning of the end for the national petroleum company?

PetroSA’s primary business is the production of fuel from its Mossgas refinery in Mossel Bay, making use of an offshore natural gas find as feedstock.

For a while now, it has warned that gas supply was drying up and would run out by the end of December 2020. Attempts to explore for more gas have so far failed and have only pushed the state-owned enterprise (SOE) into further financial trouble.

As part of a turnaround plan, PetroSA plans to sell off assets and pursue strategic partnerships that would help it to access the funding and skills required to accelerate explorations and gas production.

Meanwhile, the department of mineral resources & energy is yet to sign off the turnaround plan and, at the same time, has announced a merger of PetroSA with two other SOEs.

But as the gas quite literally runs out, the petroleum company — in what looks like desperation — has started a retrenchment process that could affect up to a third of its 1,424 employees.

Also off the coast of Mossel Bay, in an exploration block just above PetroSA’s, Total has made not one but two significant gas discoveries. PetroSA has registered its intention to be an offtaker of the gas.

The successful development of the resource is, however, many years away — and it’s anyone’s guess if PetroSA will survive until then.

PETROSA PLANS TO SELL OFF ASSETS AND PURSUE STRATEGIC PARTNERSHIPS THAT WOULD HELP IT TO ACCESS THE FUNDING AND SKILLS REQUIRED TO ACCELERATE EXPLORATIONS AND GAS PRODUCTION.