Listed property’s hazy outlook

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Grindrod Asset Management Chief investment officer, Ian Anderson says most of the excessive returns enjoyed over the past 12 months were a direct result of numerous South African listed property companies entering global equity indices. Grindrod Asset Management Chief investment officer, Ian Anderson says most of the excessive returns enjoyed over the past 12 months were a direct result of numerous South African listed property companies entering global equity indices.

South African listed property is unlikely to outperform general equities by as big a margin as in previous years but there are still attractive opportunities in the sector.

Weak economic growth, the threat of rising interest rates and less corporate activity attracting new investors meant the sector was under new pressure.

In fact, by 4pm yesterday, for the first time this year, the JSE all share index beat the South African Property index with a total return of 6.4% for the year to date. The latter delivered a total return of 5.4% for the year to date.

The South African Property index achieved a 26.6% return, including dividends, last year, outshining the all share at a 10.9% return.

Chief investment officer at Grindrod Asset Management Ian Anderson said much of the abnormal returns enjoyed by listed property last year had come from corporate activity, which included a slew of listings and also included property funds joining global indices, which brought in foreign investors.

“Most of the excessive returns enjoyed over the past 12 months were a direct result of numerous South African listed property companies entering global equity indices, resulting in a significant and market-moving influx of new foreign investors into the sector.”

This boost from new shareholders was experienced by funds large enough to join global indices. These included Growthpoint Properties, Redefine Properties and Hyprop Investments.

“With that tailwind now behind the sector, the share prices of those companies that went into those global equity indices are expected to come under significant pressure throughout the remainder of this year,” Mr Anderson said. The larger funds could also be hit by weak economic growth and a struggling consumer as many of them had invested in large shopping centre assets, because they had a recent strong record of outperforming office and industrial property. Mr Anderson suggested investors look to property funds that are smaller but offer better yields.

But Evan Robins, listed property manager for Old Mutual Investment Group’s MacroSolutions boutique, said yesterday he still expected listed property to perform well, even if it had run hard and might be seen as expensive.

“Listed property should manage to deliver a double return as long as bond yields do not increase from where they are,” he said.

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Listed Property / REITs  |  Growthpoint Properties  |  Redefine Properties  |  Hyprop Investments  |  Real Estate Investment Trusts (REITs)  |  Ian Anderson  |  Evan Robins