2019 definitely a lot more promising than 2018, Property Analysts say

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Listed property still had safe haven qualities, says Andrea Taverna-Turisan, SA Reit Association marketing committee chair. Listed property still had safe haven qualities, says Andrea Taverna-Turisan, SA Reit Association marketing committee chair.

The prospects for 2019 SA's listed property sector are definitely a lot more promising than 2018, industry analysts told SA Commercial Prop News.

South Africa's REIT sector is expected to produce double-digit total returns to investors this year.

Analysts are confident that the listed property sector will make a sharp recovery in 2019, saying the sector’s offshore exposure, as well what looks like the start of a recovery of consumer confidence in SA, could support it.

They are forecasting that the FTSE/JSE SA Listed Property Index (Sapy) should deliver double-digit total returns in 2019.  The index  includes the top 20 liquid real estate companies by market capitalisation with a primary listing on the JSE and has lost close to 26% in 2018 so far. 

Fund managers said the recovery should take place barring any severe shocks to economic growth such as any potential fallout at struggling national retailer Edcon, which occupies significant space in most shopping centres.  

Catalyst Fund Managers expects performance from REITs in 2019 to be marked by positive total returns from the REIT sector, largely driven by its current forward income yield and capital returns based on growth in income. 

Commenting on the 2019 outlook, Mvula Seroto, an investment analyst at Catalyst Fund Managers, said his group expects the REIT sector to deliver total returns in line with the historical annualised 10-year total return of 14%.

The Sapy includes mostly real estate investment trusts (Reits) which have to by definition pay out the majority of their income as dividends on a regular basis.

Wynand Smit, a real estate analyst said while economic conditions were not expected to improve rapidly in the short term, there a number of factors which would make listed property a worthy investment compared with other equities as well as bonds.

The South African economy officially exited the recession after reporting 2.2% GDP  growth for the third quarter of 2018. A survey of economists by Bloomberg forecast growth of 0.7% total growth in 2018 and 1.5% in 2019.  

“We expect listed property to deliver a total return, made up of share price movement plus distributions, of roughly 13% to 14% per year over the long term,” said Smit.

One event which would wreak havoc for property would be if the Edcon group was forced to shut all its stores and retrench thousands of workers.

Garreth Elston, of Reitway Global, said the closure of Edcon would “be extremely negative for Reits that have exposure to the company”.

Howard Penny, of Capricorn Fund Managers,  said 2019 “had to be a better year”  in terms of listed property’s total returns.  Many property stocks were trading at high dividend yields which suggested their share prices were set to rally as the companies continued with their everyday business, he said.

SA Reit Association marketing committee chair, Andrea Taverna-Turisan, said listed property still had safe haven qualities. Investors and analysts should know with reasonable certainty what to expect from an investment in the Reit sector in 2019 because South African property funds had “relatively predictable earnings”, he said.

“SA Reits are exposed to the best commercial properties in SA and, in some instances, offshore. Their property income is underpinned by lease agreements with tenants in these property assets. Rentals are contracted and most escalate at a predetermined rate annually, around 6.5% to 8% in the current domestic market,” he said.

The last time the SA Listed Property Index (Sapy) suffered a negative return was during the subprime crisis in 2008, when the sector lost about 4.47%.

The fall in the Sapy was triggered by allegations of insider trading and share price manipulation against the Resilient stable of companies, which includes Resilient, Fortress, Greenbay and Nepi Rockcastle. 

The SA REIT Association represents South Africa’s R330 billion listed REIT sector. Its members comprise all the country’s listed REITs.

Since its inception in 2013, when REIT legislation was introduced in South Africa, one of SA REIT’s goals has been driving transparent, clear and comparable financial reporting for the sector. The SA REIT Best Practice Recommendations (BPR) was first published in 2016. The association is currently updating the document in a move that builds on the sector’s track record of driving best practice for investors.

It expects to share its progress with the market early in 2019. 

Read more on:

Listed Property / REITs  |  SA REIT Association  |  Andrea Taverna-Turisan  |  Garreth Elston  |  Edcon Limited  |  Mvula Seroto  |  Howard Penny  |  Wynand Smit
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