Listed property sector rallies 5% during the week ended 13 Sept

The sector rallied in response to a stronger Rand and lower bond yields, both globally and in South Africa, according tp Ian Anderson, chief investment officer of Grindrod Asset Management.

South Africa’s listed property sector soared 5% during the week ending 13 September 2013, significantly outperforming both the equity and bond markets.

The sector rallied in response to a stronger Rand and lower bond yields, both globally and in South Africa. Among the heavyweights, Capital, Hyprop, Redefine and Resilient gained more than 6% last week, said Ian Anderson, chief investment officer of Grindrod Asset Management.

During the week, New Europe Property Investments (NEPI) raised R594.9 million which will be used primarily to assist with the funding of a 70% stake in the development known as Mega Mall, land for the development of the Vulcan Value Centre and the shares of the joint venture partner of the Vulcan Value Centre. The equity raise was implemented through an accelerated book build and was substantially oversubscribed, highlighting investor confidence in the management team at NEPI.

Fortress Income Fund also raised R250 million by way of an accelerated book build. Management did not indicate the purpose of the equity raise, but it is assumed it will be used to fund further acquisitions.

Sycom Property Fund announced the disposal of the Discovery Building to Zenprop for an amount of R413.9 million. The current tenant, Discovery Health, is expected to vacate the property in 2016 due to increased requirements for space and because it was not feasible for Sycom to enter into a joint venture with Zenprop to redevelop the property, along with certain adjoining buildings, to meet Discovery Health’s increased requirement. Sycom intends using the proceeds from the sale to fund future developments and acquisitions.

The current forward yield on the sector has declined to 7.1%, which is approximately 70 basis points below the yield on longer-dated South African government bonds. Distribution growth is expected to average more than 7% per annum over the next three years. This should support medium-term capital growth, although the risks associated with rising global bond yields are likely to persist in the short-term.