Listed Property sector reflecting a continuation of gradual improvement

The SA Listed Property Index (J253) recorded a total return of 1.01% in February 2012 according to Catalyst Fund Managers March 2012 report.

The Property Loan Stock Index (J256) and Property Unit Trust Index (J255) recorded returns of 1.82% and -1.17% respectively over the same period. 

Capital Markets weakened slightly during the month with the yield to maturity on the Long Term Government Bond Index ending the month at 7.92% (7.86% - 31st January 2012). The historic 12- month rolled yield of the SA listed property sector ended the month at 7.53% (7.56% - 31st January 2011).

For the second month running an increase in global risk appetite drove asset class returns. Financial markets appear to be pricing in a positive global outlook. This sentiment was driven by modest gains being reflected in economic data out in the US and China. In addition, sentiment around the Eurozone fragility has improved but does continue to be a major risk to a sustainable recovery.

Equities recorded the highest total return (+ 1.70%) of the four traditional asset classes for February. SA Listed Property (+ 1.01%) and Cash (+ 0.44%) were the next best performing asset classes for the month. For the last 12 months SA Listed Property, as an asset class, has recorded the highest total return (21.75%), followed by SA Bonds (13.59%), Equities (9.63%) and SA Cash (5.70%).

During the month, eight companies representing 60% of the SA Listed Property sector reported interim and full year results (for the period ended 31st December 2011). The best performer in terms of distribution growth was FortressB (54.1% interim distribution growth), followed by NEPI (15% full year distribution growth). The worst performer was Emira (-2.5% interim distribution growth). The market capitalization weighted average distribution growth of these reporting companies was approximately 7.3%.

The traditional drivers for total property returns remain intact. The current income yield plus prospect of income growth will drive the total return over the long term. As at the 29th February 2012 the historic rolled income yield of SA listed property was 7.53%. The outlook for distribution growth in 2011 remains reasonable and the sector is likely to deliver inflationary type growth in income distributions. Assuming distribution growth of 5% over the next twelve months, the forward yield from listed property at 29th February 2012 is 7.91%.

The risk to total returns in the short term is a weakening in capital markets and/ or deterioration in the income growth outlook. Listed property is a long term investment and over the long term the total return from listed property will be driven by the income yield plus growth in that income.

Source: Catalyst Fund Managers