Num­bers do the talk­ing

But cherry-pick­ing now name of the game

Finweek English Edition - - MONEY CLINIC - JOAN MULLER joanm@fin­

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.”

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