US Govt shutdown impacts Listed Property Sector

South Africa’s listed property sector declined by just under 1% during the week ended 4 October 2013 after US politicians failed to reach agreement on a budget for the remainder of the fiscal year, leading to a partial shutdown of the US government.

South Africa’s listed property sector declined by just under 1% during the week ended 4 October 2013 after US politicians failed to reach agreement on a budget for the remainder of the fiscal year, leading to a partial shutdown of the US government.

According to Ian Anderson, chief investment officer at Grindrod Asset Management, the South African equity market suffered a similar decline last week, while the Rand and bond market strengthened on the back of a weaker US dollar and lower US bond yields.

Markets currently expect a timely resolution to the US budget impasse and price declines have therefore been quite muted. A long and drawn-out struggle between the Democrats and Republicans, complicated by the need to raise the debt ceiling later this month, would in all likelihood lead to more pronounced price declines in global equity and listed property markets.

In the local company news, Investec Australia Property Fund (IAP) is set to list on the JSE later in October. IAP is an inward listing and therefore is considered a domestic investment despite the fact that the fund’s assets are in Australia. The current property portfolio comprises eight properties valued at A$129.85 million. The fund’s objective is to invest in high quality commercial real estate assets that are well located in major metropolitan cities or established commercial precincts in Australia and New Zealand. Based on the numbers contained within the abridged pre-listing statement, investors are being offered an initial yield, after withholdings tax of just under 9%. This compares favourably with many of the smaller listed property companies in South Africa, as well as Australian REITs.

Capital Property Fund updated investors with respect to internalising the management of the fund and the conversion to a REIT. The fund indicated that the implementation of these changes is subject to anticipated amendments to the Income Tax Act, the timing of which remains uncertain. The proposed changes are positive, as they would align the interests of management and shareholders and ultimately reduce the costs of running Capital.

Growthpoint Properties announced the acquisition of the entire issued share capital of Abseq Properties, as well as the property administration business of Abseq Properties from Equity Estates. The portfolio comprises 17 properties, the majority of which are A-grade offices. The purchase consideration of R1.33 billion equates to an average forward yield of 8.74% and should be moderately accretive to Growthpoint’s 2014 distribution.

Redefine Properties has proposed to acquire an additional 250 million Fountainhead Property Trust units. Fountainhead unitholders holding more than 135 000 units can receive 110 Hyprop Investments units for every 1 000 Fountainhead units they own. Redefine has reserved the right to withdraw, amend or modify the proposal at any time.

The current forward yield on South Africa’s listed property sector has risen to 7.2% after last week’s marginal price losses and some upward revisions to 2014 distribution forecasts. The yield is approximately 50 basis points below the yield on a 10-year government bond, which is attractive given the 7% to 8% per annum distribution growth forecast for the next three years.