Listed property dive
DISAPPOINTING: PROPERTY INDEX DELIVERS 1.3% IN FIRST NINE MONTHS
Outlook for growth in distributions will continue to be marred by poor performance.
Hopes for a stronger turnaround in SA’s listed property sector this year seem to have all but dissipated. Following the sector’s annus horribilis in 2018, which saw it lose some 25% of its value, listed property continues to be the worst-performing asset class.
According to the latest Rode Report on the SA Property Market (Q3, 2019), the SA Property Index (Sapy) delivered a total return (income yield and capital return) of 1.3% for the first nine months of 2019. In comparison, equities or the All Share Index were up 7.1%, cash delivered 5.5% and bonds were the top performer with growth of 8.4%.
The report notes that the Sapy “recovered somewhat” in 2019, but points out that in the 12 months to the end of September “listed property remained the worst performer among the traditional asset classes” with the total returns of both the Sapy (-2.7%) and the All Property Index (-7.7%) in negative territory.
The Sapy comprises the JSE’s top 20 largest and most liquid primary-listed SA real estate investment trusts (Reits), while the new All Property Index (Alpi) incorporates dual-listed funds such as Intu and Nepi Rockcastle.
Kobus Lamprecht, head of research at Rode & Associates, comments in the report that following the sector’s woes last year, listed property was “helped by positive findings of the Resilient-stable investigations and Edcon’s survival” this year. He says Resilient’s total return recovered significantly after falling by 55% last year, while the group was also cleared by the Financial Sector Conduct Authority of insider trading.
Lamprecht warns operating conditions in the listed property sector remain tough and the economy is struggling to grow. “Therefore, it is no surprise the latest [property] company results continued to disappoint. Companies generally reported weaker financial results and warned that results could get worse.
Winners and losers
“Most companies struggled over the first nine months of 2019, notably New Frontier (-99%), Rebosis (-89.2%), Delta (-85.6%) and Intu (-60.8%). Companies that stood out with total returns of above 20% include Transcend (+37.1%), Investec Australia (+32.6%), Sirius (+27.6%), Resilient (+24%) and Nepi Rockcastle (+21.7%).”
Lamprecht says the outlook for growth in distributions will continue to be marred by poorly performing property fundamentals. Keillen Ndlovu, Stanlib’s head of listed property funds, agrees. He tells Moneyweb that property fundamentals such as operating income and rental growth continue to deteriorate, pointing to further weakness in the market over the next year or two.
According to Ndlovu’s research, likefor-like net operating income growth among SA’s top 10 listed property counters has halved from 5.4% growth in 2015 to 2.7% this year. Rental growth upon lease expiry has declined to -3.5%.
7.1% The All Share Index were up this much Helped by positive findings of the Resilient-stable investigations