Global and SA Reit sectors also facing market volatility

Ahmed Motara, portfolio manager for listed property at Stanlib, speaks about the performance of the real estate investment trust (Reit) sector locally and internationally in the first half of 2022, with the global listed property market down some 20%, while SA’s All Property Index is down around 10%.

On this latest episode of The Property Pod we delve into how local and key international Reit markets are doing in the context of volatility caused by concerns around the prospects of a global recession. This is off the back of spiking inflation and oil prices in the wake of the Russia/Ukraine conflict, and now increasing interest rates to bring inflation under control. 

Ahmed Motara, portfolio manager for listed property at Stanlib, speaks about the performance of the sector in the first half of 2022 and expectations going forward.

Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts. 

listed property, Ahmed Motara, Stanlib, SA Reits

Ahmed Motara, portfolio manager for listed property at Stanlib. Image: Supplied


“I think what’s important to realise is year-to-date the [SA Reit] sector is down about 10/11%, whether you’re looking at the Sapi [SA Property Index] or Alpi [All Property Index] … But the sector fell around 10.5% in the month of June itself.

“That [June] was a month in which we saw the heightened volatility, interest rates going up more, the inflation prints, all of these type of dynamics coming to the fore and not being positive for the sector. Also what you tend to find in property is it needs a bit of a stable outlook, a bit of certainty, a bit of comfort, and then the property funds start reasserting the underlying fundamentals very strongly.”

“And if you look at the mix of the returns year-to-date, the names that are down the most are Hammerson down 44%, Sirius down 40% year to date, Multi-Let Industrials or Industrials Reit down 29%. I mean, these are all stocks that are 100% offshore [with] exposure to markets like Germany or the UK in logistics, in retail [and] in smart space.

“It’s very much a function of where interest rates are going in these markets and the concerns around that and what it means for asset values.”

“So only three to four companies year-to-date in the [local listed] property sector have been able to post positive returns. We think that a lot of the bad news is in the price now. The second half will be hopefully more stable, but it’s all dependent on global interest rates and where reserve banks decide to take these things …”

“Vukile is up year-to-date. Again, [its portfolio] is about 50% Spain, 50% South Africa. Emira and other companies are up … [These funds] are exposed to convenience shopping centres, grocery retail, anchor shopping centres in the US and with a very strong SA portfolio, commuter-facing type of retail …”

“Resilient is slightly up year-to-date. Again, [offshore] exposure to French retail through a JV there, and also its shopping centres in SA are tending to perform quite well, showing positive reversions in what is quite a negative market.

“Companies [with] defensive type of exposure, and all three of those ones I mentioned that are up are stocks which have offshore exposure as well.”

Read: Emira wants full control of Transcend for R525m

What are your expectations from a SA-Reit perspective for the rest of the year? Is it a case of probably finding SA Reits having the unenviable position of being the worst-performing asset class again this year?

“I don’t think that will happen. The reason I say that is it’s not like what we’ve seen year-to-date is only linked to the property sector. If I’m not mistaken all these [sectors] probably now are down about 8% to 9% year to date also. Other indexes or bonds have also had a torrid half-year; cash is probably the only thing that’s up year-to-date if I check the numbers.”

“But I think what you’ll find is the sector is sold off to the point where it’s offering quite a high dividend yield now. And if you look at the results that came through in June … no one was really forecasting a very tough outlook. [Property counters] reiterated their guidance, they showed operational performance, good trading, densities picking up, footfall getting better, vacancies under control.

“So the fundamentals of the sector suggest that it’s just a lot of noise right now that’s really hampering the sector’s performance, and hopefully in the second half of the year the sector can start reasserting some of its fundamentals a bit.”

“So I think SA Reits can do a bit better. Look, again, we’re not expecting massive returns from the sector. We think on a 12-month view the sector can deliver about 10 to 11%, but it’s largely income return. We’re not factoring any big capital return from the sector over the next 12 months.”

How badly are the key international listed property markets like the UK, US and Eurozone doing?

“What you have to factor in is the fact that, you know, in SA, we’ve had an instance where the bond yields have moved from around 8% to 9% to 11% and back down a little bit, whereas in markets like Spain, et cetera, or the UK, we’ve had interest rates go from zero to 3% to 4% – it’s the quantum of that movement and the concerns on what it means for asset values in future on development pipelines, on interest costs on the balance sheet, that’s really hampering those markets.

“I have to give a bit of sense of where companies are invested [offshore]. You know, about 30% of it is in CE [central and Eastern] Europe. That’s your Nepi’s and your MAS’s in Poland and Romania. You know, it’s fascinating because those markets have seen bonds spike materially to about 8% to 9%.”

“And yet the property stocks like Nepi and MAS haven’t sold off to the extent you’d anticipate, which means the market is seeing more of the underpinning fundamentals of the assets.”

“The UK is interesting, you know, with what’s going on there politically as well … Is it a hard landing? Do they go into recession? Again, it’s a market where if you’re in logistics, which is what Equites [Property Fund] is in, or if you’re in storage … you’re kind of very defensively positioned. So again, you know, you can be in a market, but if your sub-sector exposure is right you can be quite safe and some property companies in SA have taken the right exposure to these markets.”

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“So, what’s happened with interest rates moving the way they have is that particularly companies with very long weighted average lease expiries – like data centres, cellphone towers, or logistics [property funds] – tend to take a knock.”

“The companies that are able to reprice leases quite quickly, like self-storage, residential, gaming and leisure, lodging and resorts – those sectors tend to be able to weather the rising interest rates and rising inflation a lot easier, [because] they can price their much shorter-term leases back to where [the] market is.”

“So yeah, I mean it’s a bit of a separation or divergence between the various [property] sectors …”

“Retail is also quite a fascinating sector because within that sector, if you are exposed to community shopping centres, with a large food element of the tenant base, you tend to be inflation protected to some extent.”

“But if you are a large, super-regional shopping centre with a lot of apparel and discretionary spend, you tend to be negatively affected. So it really comes down to the sector, but I’ve given a bit of a sense of what’s doing well …”

* Download the full episode of the latest Property Pod here.



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