Listed property investors rake in returns in 2014

Investors unlikely to amass the same returns as in 2014 – analysts.

Value chaser investors in the FTSE/JSE South African property index (Sapy) coined it last year, as its returns grew over 20%, firmly entrenching the property sector’s status as a popular asset class.

The Sapy for the year ended December 31 delivered a 26.6% return (including dividends), surpassing the All Share Index, which only returned 10.9% in 2014.

The Sapy’s rally has been aided by strong bond yield performance, strong growth in earnings, listings on the JSE, as well as merger and acquisition activity.

The property sector has come of age, despite the tepid macro-economic picture characterised by slow economic growth, rising interest rates and spiralling business confidence. In a research note Sesfikile Capital states that the sheer weight of capital chasing by investors in the asset class may persist and push property stock prices higher.

“We can somewhat justify this as the core valuations of property are stacking up quite well against other asset classes, despite short-term macro-headwinds,” it adds.

Biggest gainers

Fund Returns (%)
Fortress Income Fund B- linked units 100%
Rockcastle Global Real Estate  82%
New Europe Property Investments (Nepi) 47%
Resilient Property Income Fund  61%

Biggest laggards 

Redefine International PLC 2%
Hospitality Property Fund (A-link units) -58%
Hospitality Property Fund (B-link units) -8%
Safari Investment -1%

Source: Meago Asset Managers

The best performing stocks for 2014 are largely from the mall owner Resilient Property Income Fund’s listed property counter stable (Fortress Income Fund, Rockcastle Global Real Estate and New Europe Property Investments), says ‎investment analyst at Meago Asset Managers Tsana Ramatswi.

“These companies’ strong distribution growth profiles, diversified currency cash flows and fixed debt positions favoured them in 2014 when the South African Reserve Bank started the interest rate hiking cycle,” Ramatswi adds.

Retail centre-focussed Fortress Income Fund’s B unit retuned 100%. “The star performer, Fortress Income Fund’s B unit, has shown distribution growth well ahead of its peers and also got a late boost from the inclusion in the Sapy index in December 2014,” she adds.

Rand hedge stocks Rockcastle Global Real Estate and Romania-focused New Europe Property Investments (Nepi) returned 82% and 47% respectively.

Resilient Property Income Fund amassed a 61% return for investors.

However, not all stocks recorded impressive returns – the sector has a number of laggards, chiefly the Hospitality Property Fund. The fund, which invests solely in the hospitality and leisure sector, returned -58% and -8% for its A and B units respectively.

Newly-listed township mall owner Safari Investment was also a poor performer, returning -1% largely due to lack of liquidity, says Ramatswi. Redefine International PLC went from being the best performer in 2013 to one of the worst performers in 2014.

“The 2013 performance of 118% has now been diluted by the 2014 flat performance of 2%. This rand hedge stock lacked a catalyst this year and partly disappointed many SA investors by not being included in the Sapy index during the course of 2014,” she says.

The gains made by the sector have also firmly distinguished it as a separate asset class compared with an addition to an equity portfolio. This, Sesfikile Capital says, has in turn led to the high demand for the sector, as evidenced by “several new entrants into the sector.”

Over the last two years there have been 12 new listings taking up over R10 billion of capital from the market. Recent counters which have made their debut on the local bourse include development fund Pivotal Property Fund, retail sector player Acsion Limited and Germany-focused Sirius Real Estate Limited.

“The sector’s liquidity and size has grown exponentially and can no longer be overlooked by balanced fund managers and, while historic performance is by no means guaranteed to replicate itself in the future, the market has noticed the potential that the sector offers,” says Sesfikile Capital.

Ramatswi agrees: “Listed property continues to display its defensive nature. The 2015 calendar year is likely to produce considerably lower single digit total returns than 2014. However, there are several global drivers which could significantly impact capital values.”

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