Junked SA spooks property stocks

Stock picking is becoming increasingly important.

Investors who have enjoyed attractive returns from property stocks may have been disappointed with the lackluster performance of the sector, thanks to the volatile rand and bond market.

The SA listed property index (Sapy), which makes up the JSE’s 20 largest real estate stocks, has been on the back foot since February. The index has shed 1% in total returns delivered in the year to April 7, emerging as the worst performing asset class compared with equities, cash and ten-year government bonds.

Latest figures from Stanlib show that equities delivered total returns of 5.5% and 2% for both cash and bonds.

Stanlib’s head of listed property funds Keillen Ndlovu said at some point this year, the sector was up almost 6% but all gains were eroded by higher bond yields. The property sector generally has a relationship with bond yields – when bond yields fall property prices rise and vice-versa.

Bond yields have risen on the back of a weak rand, which has been negatively affected in recent weeks by political uncertainty and last week’s double ratings downgrade to junk status by S&P Global Ratings and Fitch.

The rand has weakened by 3% and bond yields have risen as high as 8.9% since president Jacob Zuma’s politically-charged cabinet reshuffle.

Nesi Chetty, head of property at MMI Investments & Savings, said despite the big swings in the Sapy index, property stocks are trading at an attractive forward yield of 7% to 9%. Heightening the attractiveness of valuations in the sector is that SA-focused JSE-listed property companies are still posting inflation-beating dividend growth of 8%.

Stock selection in SA’s listed property sector is increasingly important but also difficult given the sustained volatility in share prices. “You want to be invested in companies with high dividend growth and don’t have to do a lot to get growth over the next 24 months,” said Chetty.

A look at the performance of individual property stocks shows a wide divergence between the winners and losers in the first three months of 2017 (see below).

Best performing property stocks in the year to March 31
Company Total returns  Share price movement 
Ingenuity Property Investments 17.78% 17.78%
Dipula Property Fund-B 16.67% 30%
Ascension Properties- A 14.56% 5.49%
Gemgrow Properties-B 14.24% 7.69%
Texton Property Fund Limited 14.18% 3.54%
Worst performing stocks    
Tradehold Limited  (18.56%) (20.21%)
Acsion Limited (17.58%) 5.49%
New Europe Property Investments (12.45%) (8.32%)
Redefine International  (7.27%) 2.61%
Mara Delta  (6.78%) (10.81%)

Source: Catalyst Fund Managers, Moneyweb.

SA-focused property companies have emerged as the best-performing stocks and the biggest losers are offshore property stocks, which are still recovering from the recent rand strength.

Even the share prices of liquid sector heavyweights including Growthpoint Properties, Redefine Properties and Hyprop Investments have been volatile in recent weeks as they have a large number of foreign shareholders, who have sold down their stock as political uncertainty heightened.

Ndlovu said Stanlib has been selectively increasing its offshore exposure, taking advantage of discounted prices. It has recently increased its allocations to Romania-focused New Europe Property Investments (Nepi) and Europe-focused MAS Real Estate. Both companies raised new capital (R1 billion each) in March.

“The call to gradually increase offshore exposure (like Nepi and MAS) is based on fundamentals and valuations and not on currency speculation or movements,” he said.

MMI Investments & Savings also currently finds value in MAS and Poland-focused Echo Polska Properties (EPP), whose share price has been sold down by 2% in the past three months. MMI’s property analyst Pelo Manyeneng said given the sell-off in EPP’s share price, a strong recovery is expected as the company’s pending acquisitions “have significant yield enhancing asset management opportunities”.

Cape-based Catalyst Fund Managers believes that property fundamentals of companies will drive long-term property returns. “But in the short-term foreign exchange volatility is a feature we need to contend with in the SA’s listed property sector,” the company said in a note.


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just remember what I said – stay away from these!!!!

Please explain why…just invested in Listed property shares…?


I wouldn’t stay away, but a change in both the outlook and factors which might favour one listing over another has to be considered. In present circumstances it is unlikely the growth will be anything like before, most likely very similar to the second half of 2015 and last year. It is never good when yield goes negative as happened with Emira, and it offers an example of what could be in stall for others. Attaq is a similar example what happens when developing doesn’t pay and the cranes go into hibernation. Both are touted as buys because of their low valuations, I’d suggest the valuation is low for a reason and is likely to go lower still unless something very major changes in their favour.

There are quite a number of factors, principle is the extended period in which an over abundance of listings has been then compounded with an even greater over abundance of foreign prop listings, and all together there are now too many pots for the amounts invested in the sector/instrument.
Second, and together with the first, this looks likely to be another poor year for growth. It’s starting to catch up and yield growth is slipping.

Depending on why you invested in property. Is it for growth or income. Individual stocks might grow, but I wouldn’t be surprised if they are few and far between, most especially given almost all are already off their lows, even if not back to or above their highs. So, both growth and yield is slowing and the, overly optimistic, view that interest rates would fall mid 2017 and general economic activity plus earnings improve, now looks unlikely to maybe 2020.

The over supply of listings will dilute too much and the further slowdown accompanied by interest rates remaining at or above present levels means there is little to cause much change in valuations. This will likely hurt the short to medium term prospects of the sector as a whole. The prop stocks which are more equity than income will get harshly punished if their growth slows, as is happening with Attaq. The stocks with high yield and are traded for income purposes will find it difficult to increase rentals in these economic conditions and with high borrowing costs they will find few opportunities to grow the assets at such a rate their yield growth stays within their norm. It might very well be a slow time for most if not all.

It really depends if the investment is for capital growth or income. Whilst both are listed as property, they actually have little in common from an investment perspective and even less in common when it comes to which one might outperform. Yield is comparable to bonds/pref shares, while those offering little by way of dividends are really much like general equities. This is not the best market for trying to combine growth and yield, but that has certain advantages, those with stable income from present projects should do a lot better than those needing to grow, and this is why SA Corp has outperformed.

What seems to be happening now is investment interest shifted to those offering high yield and high yield growth because 2017 seemed a rosy possibility. Then came junk status and valuations have fallen. The smaller high yield stocks have attracted greater volumes, Rebosis, Arrowhead, etc. Valuations have almost frozen for SACorp, Redefine, Growthpoint, Hyprop etc, and only SAC got to and went above, and stayed above the 2015 highs. There is a reluctance to go offshore both because it turned out to be the wrong direction last year, and the experience last year will have shown investors just how low and slow things are and move offshore. The increased interest in bonds, pref shares, fixed income, cash, that tends to favour the high yielding stocks rather than growth stocks, but keep a close watch on yield growth forecasts. Check if the growth came from sale of assets, from present projects or new ones. Since the principle reason for listing is to lower the debt and cost of debt/new borrowings, an environment of slow growth and high cost of borrowing, well obviously not the best for property. The better managed ones will shine through, might not grow as much, but shouldn’t loose from where they are today.

I have a small holding in an equity stock and otherwise only invest in property stocks and only for income purposes. Even if gold were to be the better investment, it isn’t the same thing, gold will likely be a small holding and they really have so little in common it’s a pointless compare. All the best, hope the investment does well, always to be well…

Just remember what we all said – p off. Go make some me friends with a flock somewhere.

robertinsydney – Why?

He emigrated to Sydney so he had to post quickly because he had to go to sleep – no time for reasons. He only has time for the punch-line before he passes out.

End of comments.




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