Property groups start to claw back R230bn in lost market value
With listed property stocks slowly coming back into favour, the industry still has a long way to go to regain its pre-Covid levels with the combined market capitalisation of groups listed on the JSE having more than halved in the past six years.
Listed property companies lost R230bn in market value since 2018 as market conditions took a turn for the worse due to the pandemic which affected occupancy as companies cut down on office space. The sales side of the market was also hit by high interest rates, which affected the availability of capital and the demand for investment in property.
Ian Anderson, head of listed property at Merchant West, said SA’s real estate investment trusts (Reits) started this year on the front foot, gaining more than 5% during January, continuing the momentum from the last quarter of last year, where the sector gained 13.5% on average.
“Overall, the sector was able to lift its overall market capitalisation to more than R200bn for the first time since the end of February last year, but it remains well off the R430bn at the end of 2017,” Anderson said.
POSITIVE BACKDROP
“SA Reits have returned 22.7% in the last three months, compared to 7.5% for the SA equity market and 7.1% for the bond market.
The prospect of lower interest rates, as well as less load-shedding, provides a more positive backdrop for SA Reits, notwithstanding the low levels of economic growth in SA.”
The sector delivered an impressive return of 9.9% in December. The best-performing listed property counters in that month were Lighthouse Capital, Hyprop Investments and Equites Property Fund, which all delivered double-digit growth.
SA’s biggest commercial property owner, Growthpoint, is the most valuable Reit listed on the domestic bourse, with a market capitalisation of just above R40bn — down 52% in the past five years.
Growthpoint owns and manages a portfolio of more than 300 directly owned properties in SA valued at more than R64bn. It has more than 130 office properties in metropolitan areas in Gauteng and KwaZuluNatal, and in Cape Town.
The company has 168 industrial properties across Gauteng, Durban and Cape Town and a further 39 retail properties in KwaZulu-Natal, the Western Cape, the North West, Gauteng and the Western Cape. Its flagship office space is the Discovery headquarters in Sandton.
The second most valuable Reit is Redefine, down 58% over the past five years.
Investment analysts at wealth and asset manager
Anchor Capital said SA Reits trade at an attractive forward dividend yield compared with five years ago. Anchor is projecting a higher total return for SAlisted property (12%) than domestic equity and SA bonds.
SA investors have over the past decade had a love-hate relationship with listed property.
The FTSE/JSE SA listed property index lost 62.6% of its value between January 1 2018 and October 31 2020. Most of the drawdown occurred during the outbreak of the pandemic, which saw many people working from home.
Anderson said investor sentiment towards listed property appeared to be improving, evidenced by the strong performance since the end of October.
“The sector, on average, continues to trade at a steep discount to net asset value and on forward dividend yields that are attractive relative to their history and money market instruments,” he said.
“Market rentals across most property types have started to rise from their post-Covid lows and vacancies are falling. Together with declining interest rates, this should result in better dividend growth in the medium term and a potential rerating for the sector.”