Declining bond yields paves way for Listed Property Recovery

There is still selective value in South Africa's listed property sector, at least relative to the bond market, says Ian Anderson, chief investment officer at Grindrod Asset Management.

SA's Listed property sector benefited from declining bond yields and a stronger Rand after Federal Reserve Chairman Ben Bernanke eased investor fears regarding the removal of stimulus measures that are currently keeping bond yields and interest rates at historically low levels.

Giving an analysis on listed property performance, Grindrod Asset Management Chief Investment Officer Ian Anderson reports that the sector continued to recover, with it gaining 3.1% during the week ended 19 July 2013.

Both Resilient and Hyprop climbed 5% last week, boosted by the release of positive retail sales data, although a number of retailers have recently reported a slowdown in revenue and profit growth. As a result of last week’s gains, the listed property sector in South Africa is up 10% in 2013, versus returns of 4.8% for the FTSE/JSE All Share Index and -0.7% for the All Bond Index.

Tower Property Fund had a successful debut on the JSE Limited last week, closing at 1 000c, having listed at 870c. Tower is the first listing of 2013 and is expected to be followed by a number of larger listings in the third and fourth quarters.

Annuity Properties has been granted REIT status with effect from the commencement of its current financial year, 1 April 2013.

Redefine International advised linked unitholders that it continues to anticipate paying a distribution per linked unit of between 3.07 and 3.29 pence for the full year ending 31 August 2013. This compares to 4.40 pence per linked unit paid to unitholders in 2012. The reduction in distribution is a consequence of an increase in linked units issued as part of a capital raise in October 2012.

Fountainhead Property Trust advised unitholders that Mr John Rainier intends retiring from the board of directors of Fountainhead, subject to approval by the Financial Services Board. John was previously the Managing Director of Fountainhead but currently serves as an independent non-executive director.

The current one year forward yield on the South African listed property sector has fallen to 6.6% and is almost 100 basis points below the yield on longer-dated government bonds. The gap is even larger when looking at the larger listed property companies, including Growthpoint (168 basis points), Hyprop (196 basis points) and Resilient (234 basis points). There are, however, a number of listed property companies trading on initial yields in excess of the yield on longer-dated government bonds, suggesting that there is still selective value in the listed property sector, at least relative to the bond market.

Top 5 performers for the week ended 19 July 2013

Bottom 5 performers for the week ended 19 July 2013