High Payouts as SA Property counters record growth
An increase in revenue from offshore investments, fixed property portfolio and containment of expenses were some of the factors that helped well-established property counters record solid annual results over the past six weeks.
An increase in revenue from offshore investments, fixed property portfolio and containment of expenses were some of the factors that helped well-established property counters record solid annual results over the past six weeks.
Weighted average distribution growth of 12.6% was recorded for the year to June compared with the year to last June, based on calculations by Meago Asset Managers — well ahead of the average 8% growth expected by most analysts.
Real estate investment trusts (Reits) have benefited from having rand hedge investments in offshore property companies and from careful management of their assets, including malls.
The JSE’s fifth-biggest listed Reit, Resilient Property Income Fund, reported an increase in its distribution payout to investors of 20.94%.
Resilient has stakes in funds paying dividends in euros and dollars. One of these is Rockcastle Global Real Estate, which invests in property stocks globally and is pursuing property investments in Poland and Zambia. Resilient also has a stake in Romanian mall owner New Europe Property Investments (Nepi). Both companies helped Resilient benefit from a depreciating rand.
SA’s third-biggest Reit, Hyprop Investments, grew its distributions per unit 11.3%. Hyprop was boosted by strong performances at the large regional and super-regional malls it owns including Canal Walk in Cape Town and Clearwater Mall on the West Rand.
Hyprop’s net asset value per unit rose 11.1% to R76 during the reporting period. Hyprop has maintained strong earnings.
“Despite some pressure on consumers, trading densities have been high. I believe middleto upper-income shoppers have shown resilience and been careful with their spending,” Hyprop CEO Pieter Prinsloo says.
The largest SA-based Reit, Growthpoint Properties, posted 8.3% distribution growth, outperforming guidance of 7.2%. Growthpoint lauded its stake in Growthpoint Australia for contributing to the performance, but added that its results were also boosted by various acquisitions.
During the year, Growthpoint acquired two portfolios in Gauteng with property assets worth some R7bn. It bought Abseq for R1.3bn at an 8.7% forward yield and Tiber for R5.7bn at a 7.7% forward yield. It also acquired interests in Acucap and Sycom in April for R4.5bn. These deals gave Growthpoint indirect exposure to R18.4bn worth of office and retail properties.
Nepi achieved 15% distribution growth in its year. Nepi is a dominant player in Romania’s retail property market and is looking at expanding to other parts of Eastern Europe.
Smaller funds also impressed this year. Hospitality Property Fund achieved 14.5% growth in income payouts. Texton Property Fund managed 10.6% distribution growth.
Stanlib head of listed property funds Keillen Ndlovu says that investor appetite for property stocks has increased because of strong results across the sector and a slight strengthening of bond yields.
Old Mutual Investment senior portfolio manager Evan Robins says property firms surprised many investors who thought property stocks would be hurt over the past financial year by a steady raising of interest rates.
The South African Reserve Bank raised the repo rate 25 basis points in July to 5.75%. In January the repo rate was raised 50 basis points to 5.5%.
The strong Reit performances were driven by a spread of positive factors.
“It has not just been from offshore. Even those funds with little offshore exposure showed pleasing results. Offshore provided the icing on some results but the cake itself was tasty.”
Looking to next year, Mr Robins says the guidance firms have provided in their results suggest near-term distribution growth will remain at similarly good levels, but will slow down.
“I think that dividend growth headwinds are growing with slowing consumer spending, concerns around some tenants, possibly higher interest rates and higher office vacancies, but overall property group growth should remain at acceptable levels.”
Despite their fears of slow gross domestic product growth for SA next year, other analysts are optimistic too.
“The income growth outlook over the next 12 months for listed property is healthy.
“We are forecasting income growth of around 8.5% over that period,” Stanlib portfolio manager Craig Smith says.
