Rich pickings for property sector
As SA’S low-growth environment set to continue, opportunities abound for their portfolios
The year 2018 will be remembered as one of the toughest years for listed property investments on the JSE, where around R120bn of market capitalisation was lost off the indexes. Some shares lost more than 60% of their values and now trade at prices well below their net asset value.
With SA’S low-growth environment set to continue, property companies are making sure their portfolios are primed to take advantage of the growth opportunities available.
“For us it is important to get good leases with good escalation rates as a way out of this lowgrowth environment,” says Fortress CEO Mark Stevens. “We are securing lease escalations with blue chip businesses — with escalations at 7% to 8% — as a defence against the low-growth environment which we see persisting for the next 12 to 24 months.”
He says Fortress’s portfolio is moving increasingly towards logistics (big box distribution centres), which comprise over 40% of its portfolio, and retail (30%), while reducing exposure to industrial and office spaces, which make up the rest.
About 40% of its assets are offshore through its 24.3% stake in
JSE and Euronext-listed NEPI Rockcastle. It is a retail-focused investor in the central European market in countries growing at 4% to 5% and good long-term investment potential, providing an alternative to the low growth in SA.
Back home the group’s retail investment is largely skewed towards about 60 rural and small town properties, which has been a strong sector over the last couple of years. Logistics remain the largest focus, and the fund has about 100 buildings, many of which it has built or is building.
Fortress has a logistics development pipeline of about 1-million m² and along with the sale of the office and industrial portfolios, these developments will enhance the quality of the portfolio and provide growth once completed.
“Locally we are not seeing too much turnaround at the moment, which is why we have chased the logistics and rural retail market where we see growth. We are also selling lower-growth industrial and offices to smaller entrepreneurial investors who can extract value.”
The group’s retail properties tend to be exposed to areas where there is good farming, mining and tourism activity and significant government grant payments. This plays into retail sales in these areas, which are ahead of official retail sales numbers. Black Friday and Christmas sales will be big drivers of activity in a slowing retail market.
However, there is a long way to go before property investment regains its shine. Stevens says property is a long-term investment, and investors need to take that into account. “The last year has been very difficult, off a high base, but investors with a long-term view have still done well. Time and inflation are kind to property, and
What it means: The current slow growth in SA’S economy provides a fertile ground for property companies to prepare their portfolios