Listed Property wades through hard times

The South African listed property sector has started to experience tougher conditions especially weaker economic growth, says Ortneil Kutama, SA Commercial Prop News Media Director.

It’s getting harder for listed property companies to repeat their former successes in the current South African landscape, according to Ortneil Kutama, SA Commercial Prop News Media Director.

The South African listed property sector has started to experience tougher conditions especially weaker economic growth. The South African economy is expected to grow at most 1% this year.

Retail sales are weak and some malls are set to struggle. The large super regionals may be able to manage difficult economic conditions and an underspending consumer but many malls and convenience centres are under pressure.

A number of Property Funds have released results so far and while they may have generally met market expectations, the results have not been strong. Stanlib’s head of listed property funds, Keillen Ndlovu says he expects dividend pay-outs to ease which has already begun.

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So far companies like Redefine Properties and Dipula Income Fund have achieved steady but not necessarily staggering income pay-out growth. Double digit growth is something of the past.
Stanlib’s listed property team expects average income growth to be about 7.5% for 2017 overall.

Nevertheless, the likes of Equites Property Fund have impressed with its 14% dividend growth in its recent financial results. This is a specialised industrial property fund which has benefitted from owning assets in SA and the UK with blue chip tenants signed to long term leases.

Fayyaz Mottiar, the head of listed property at Absa Asset Management says investing well in property stocks in 2017 requires very careful stock picking. This is as opposed to buying the actual South African Listed Property Index (Sapy). The Sapy has struggled so far this year.

ALSO READ: SA Listed Property Growth Has Taken a Dive

Catalyst Fund Managers say that the Sapy has achieved a 1.88% return in the first four months of 2017. Meanwhile equities achieved a return of 7.56%. Cash also outdid listed property, managing a 2.44%. Bonds achieved a 3.94% return.

Investors need to pick stocks that are focussed on a market with a strong presence on the ground and who understand their markets.

Many of the stocks which are set to soar may be offshore based. This is because SA’s economy is currently fundamentally weak. The rand remains volatile and weak and investors may be better suited to funds which can bring them euro or us dollar returns, even if these returns are around 1% and 2%.

Investec Australia Property Fund (IAPF) also offers an interesting proposition, paying returns in Australian dollars.

IAPF has been a consistent performer since listing on the JSE about three-and-a-half years ago, benefiting from the Investec group’s asset management structures in the country.

IAPF grew its dividends 6.2% in Australian dollars during its financial year to March, according to its latest financial results.

"The fund’s performance is driven by the successful implementation of the strategy of acquiring properties with strong underlying fundamentals while also identifying opportunities to enhance yield and add value through active asset management," CEO Graeme Katz says.

Katz believes it is difficult to replicate IAPF’s success.

"The fund has built a valuable platform that would be very difficult to replicate given the continued flow of offshore capital into Australia and the current levels of direct asset pricing," he says.
Ron Klipin of Cratos Wealth agrees that IAPF is an exciting investment prospect.

He says the company is expanding in the best growing parts of Australia.

Investec Property Fund itself (IPF) seems to be set for a better future than its recent past now that it has bedded down major acquisitions that were made in the past two years.

The company announced a final dividend of 66.74c per share for the six months ended March, taking the full-year dividend to 127.65c per share. This represented full-year growth of 2.4% in its dividend payout for the year to March, slightly ahead of expectations.

In difficult economic times for SA, it appears that focussed, reliable dividend payers stand out in SA. Also, property companies with a strong focus on one market abroad and scale are set to shine more than the funds which are trying to make their mark in too many geographies without strong enough teams on the ground, concludes Kutama.