Returns on listed property slowed down in June

South Africa’s listed property sector declined during the week ending 14 June 2013, despite a fairly stable Rand and a moderate reduction in long bond yields, according to Ian Anderson, chief investment officer at Grindrod Asset Management

South Africa’s listed property sector declined during the week ending 14 June 2013, despite a fairly stable Rand and a moderate reduction in long bond yields.

Grindrod Asset Management chief investment officer Ian Anderson said industry heavyweight, Growthpoint Properties, declined by 4.1% and Fountainhead was down 4.3%. Hyprop was the only large listed property company to register a price gain last week, rising 2.4%.

During the week, Ascension Properties announced that it anticipates meeting its 2013 distribution forecast, but that in 2014, growth in distributions per B-linked unit will be 20% and not 14% as previously forecast. Management noted that the improvement in the 2014 forecast was the result of significantly better than expected acquisition growth at yield accretive prices, lower cost of capital and debt, and intensive asset management leading to enhanced overall performance in the underlying portfolio.

Ascension’s comments are not too dissimilar to comments made recently by the management teams of a number of the smaller listed property companies, all of whom are forecasting a significant increase in distribution growth due to the benefit of active asset management on a smaller pool of assets.

Ascension also announced the acquisition of Shell House and Ovenstone House from Atterbury Investment Holdings Limited for a purchase consideration of R341 million. According to management, the building is a landmark property in Cape Town and is a strategic addition to Ascension’s portfolio of Cape Town CDB assets.

Vukile Property Fund announced that it had terminated negotiations to acquire a portfolio of shopping centres without citing reasons for the decision. Investec Property Fund announced that the Fund’s application for Real Estate Investment Trust (REIT) status had been approved by the JSE Limited and that REIT status will be effective from 1 April 2013.

Acucap Properties reported growth in distributions of 5.1% for the year ended 31 March 2013. Management expect distributions to grow by between 5% and 6% in 2014, which is likely to be below the sector average. Although vacancies in both the office and retail portfolio remain well below sector averages, new leases entered into in the office portfolio were 7.7% lower than expiring leases.

Sycom Property Fund reported growth in distributions for the year ended 31 March 2013 of 5%. Management expects distributions to grow by approximately 6% in 2014.

Negative reversions of 12.1% in the office market detracted from an otherwise solid performance. Although negative reversions are forecast in 2014 on expiring leases in the office portfolio, management forecast they will be less than 3%.

Management also noted that the retail portfolio performed well, despite increasing household debt to disposable income levels, increasing inflation and declining consumer expenditure.

New Europe Property Investments (NEPI) announced a rights offer to raise approximately €100 million to fund potential acquisitions, which NEPI is in the process of negotiating.

On Friday, 14 June, Redefine announced that the JSE had found no breaches of the JSE Listings Requirements in the context of Redefine’s offer to acquire Fountainhead units.

The one-year clean forward yield on South Africa’s listed property sector is now 6.8%, with distributions expected to grow in excess of 7% per annum over the next three years. While this make the sector look attractive in absolute terms, given that interest rates are likely to stay lower for longer, the sector will remain vulnerable to rising bond yields in the short term.