Listed Property Sector Recovery Continues to Strengthen

Ian Anderson, Grindrod Asset Management Chief Investment Officer reports that listed property gained 1.3% in November, comprising a 0.6% increase in prices.

South Africa’s listed property sector continued its recovery and was up 5.3% for the month by 26 November.

The sector gained 1.3% in November, comprising a 0.6% increase in prices and a further 0.7% from income received by investors after both Fountainhead Property Trust and Redefine Properties went ex-dividend on 19 November. 

Ian Anderson, Grindrod Asset Management chief investment officer says there has been significant speculation in the marketplace as to why the listed property sector declined by 8.6% in September and October. One reason for the decline is National Treasury’s surprise announcement that foreign investors will pay a 15% dividend withholding tax on the income from South African Real Estate Investment Trusts (REITs) as from 1 January 2014. Another reason is the need by large fund managers to create liquidity in anticipation of the Delta Property Fund listing, as well as a number of capital raises in the sector during the fourth quarter of 2012 totalling approximately R6 billion.

Both these factors are plausible reasons for the sharp decline in prices. But the impact was always likely to be short-lived with interest rates likely to remain lower for longer (resulting in lower expected returns from competing asset classes like cash and bonds, as well as lower borrowing costs for South Africa’s listed property companies), a gradual improvement in property fundamentals and continued value creation through active asset management of the underlying property portfolios.

During the week ended 23 November, Redefine Properties subsidiary Redefine International plc announced the acquisition of 60% of the issued shares of BNRI Earls Court Limited for £8.7 million. BNRI owns the 150-bedroom Holiday Inn Express Hotel in Earls Court.

Annuity Properties released results for the six months ended 30 September 2012, which were in line with financial targets set at the time of listing, according to management. Annuity has recently acquired a high quality property portfolio valued at R817 million and is one of many smaller listed property companies growing aggressively through acquisitions.

Vukile released results for the six months ended 30 September 2012 after the market closed on Friday. Distributions were 5% higher than the comparable period last year and the company also announced details of the acquisition of a 50% undivided share of East Rand Mall from Redefine Properties.

Redefine Properties reached agreement with Sanlam Life to acquire East Rand Mall for R2.23 billion and Vukile exercised its pre-emptive right to acquire 50% of the property for R1.115 billion.

Top five performers for the week ended 23 November 2012

Bottom five performers for the week ended 23 November 2012

Source: Grindrod Asset Management