Numbers do the talking
But cherry-picking now name of the game
ALTHOUGH THE R127,5bn listed property sector represents less than 4% of the JSE’s total market cap, it would be foolish to still regard this asset class as little more than a income payer for widows and orphans. The numbers speak for themselves: not only did listed property thrash general equities, cash and bonds to the post last year but the sector was also the best performer over five years.
Catalyst Fund Managers’ figures show listed property delivered a total return of 29,62% last year, followed by the All Share Index (18,98%), bonds (14,96%) and cash (6,93%). Over the past five years, annualised total returns stack up as follows: listed property (18%), All Share (15,2%), cash (9,1%) and bonds (7,9%).
That said, investors shouldn’t expect a repeat of last year’s almost 30% total return. At a current forward yield of around 8,3% the sector is by no means cheap. And the likelihood of rising interest rates in second half 2011 and higher operating costs (rates, taxes and electricity) will no doubt put pressure on property returns.
Finweek asked three fund managers which stocks they believed would outperform this year and why. A units of Fortress Income Fund and Hospitality Property Fund. “Both appear to be offering value at current prices. Their yields are among the highest in the sector and the guaranteed distribution growth rates shouldn’t be underestimated in the current economic climate.” Redefine Properties. “The counter underperformed last year, after regularly missing guidance, and the current valuation suggests the market is slowly losing patience with its management. However, on a relative basis it’s now looking extremely attractive and likely to outperform the industry’s other heavyweight, Growthpoint Properties.” SA Corporate Real Estate Fund. “The stock may finally be able to put its chequered past behind it this year and deliver aboveaverage returns for investors. It offers the highest yield in the sector at 9,25% and is likely to show some distribution growth during the year.” Redefine Properties. “This company may not be in as comfortable a position operationally as Resilient, but the stock is perhaps a little too unloved at current levels. Its large stake in Hyprop Investments also provides it with some ‘blue sky’ potential, as it may dispose of that stake to take advantage of higher yielding opportunities.” Capital Property Fund. “Capital is trading at a yield similar to the market yet it offers better growth prospects, driven by a superior portfolio and great management. A merger with Pangbourne is another positive – size, liquidity and, hopefully, a better rating.” Emira Property Fund. “Offers a forward yield of 8,75% against the market’s 8,3%, with similar growth prospects. Emira has vacancies of 15% in its office portfolio, creating upside if the market turns. Management is also becoming more proactive in refurbishing some of its older buildings.” Resilient Property Income Fund. “Its retail portfolio is backed by superb management, with more yield-enhancing projects in the pipeline, including the Mall of the North (Polokwane) opening in April this year and Bloemfontein and Umthatha redevelopments.”