Rand, Bond yields impact Listed Property

South Africa’s listed property sector finally succumbed to a weaker Rand, higher bond yields and ‘private placement fatigue’ during the week ending 24 May 2013.

South Africa’s listed property sector finally succumbed to a weaker Rand, higher bond yields and ‘private placement fatigue’ during the week ending 24 May 2013.

Capital values declined by 5.7%, although income received increased the return to -5.3%, says Ian Anderson, chief investment officer at Grindrod Asset Management.

Growthpoint’s share price declined by 9.4% last week after the company announced it had raised R2.52 billion. That was the largest price decline in the sector during the week.

Listed property companies have been raising new equity capital at an unprecedented rate and it was only a matter of time before the new equity issuance would have a negative impact on prices. Obviously Growthpoint’s large issue last week was the tipping point for the market.

The market was also digesting a substantially weaker Rand and the fact that the South African Reserve Bank would not be able to cut interest rates again while the Rand remained at these elevated levels.

Redefine International’s price was boosted by the news that Australian associate, The Cromwell Group, had entered into unconditional agreements to purchase seven office properties from the New South Wales state government for AUD405 million. The purchase price represents an attractive initial portfolio yield of 9%.

Investec Property Fund announced a 7.5% increase in distributions for the year ended 31 March 2013. Like many of the other smaller companies in the sector, the portfolio has expanded substantially since listing.

During the year, management concluded R2.1 billion in acquisitions, raised R1.5 billion of new equity and made its first foray into the debt capital markets in an effort to lower the cost of capital. Investec Property Fund intends applying for SA REIT status before 1 July 2013 and has forecast growth in distributions of between 6% and 8% for 2014.

After last week’s large price declines, the forward yield on the sector has increased to 6.3%, but remains below the yield on a 10-year government bond. The sector is still susceptible to further increases in bond yields, either as a result of higher inflation or higher bond yields in developed markets.

Top 5 performers for the week ending 24 May 2013

Bottom 5 performers for the week ending 24 May 2013