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SA-focused property stocks emerge as best performers

Investors betting on offshore property stocks saw pain in 2016.

Stock selection in SA’s listed property sector is increasingly becoming important but also difficult given the sustained swings and roundabouts in share prices.

SA’s listed property sector has been on a rollercoaster ride in 2016 with the sustained market volatility sending the sector on the back foot.

The SA Listed Property Index (Sapy), which comprises of the JSE’s 20 largest real estate stocks, delivered total returns of 10.2% in 2016, figures from Anchor Securities Stockbrokers show. This is above the 8% delivered in 2015 and well below the 26.6% posted in 2014.  

The stellar performance of the sector over the past ten years appears to be moderating, as long-term SA government bonds were the best performing asset class in 2016 – delivering total returns of 15.45% (see asset class total returns below).

screen-shot-2017-01-09-at-4-20-30-pm

 Source: Anchor Securities Stockbrokers

Higher bond yields, which generally trend together with listed property over the long-term, have negatively impacted the sector. You don’t have to look far for reasons behind the ructions in the domestic bond market in 2016: increased political uncertainty, jitters over the possible downgrade of SA’s sovereign credit rating, the Brexit vote, and the possibility that US interest rates might rise.

 Grindrod Asset Management chief investment officer Ian Anderson says the fact that bonds have outperformed listed property in SA is hardly surprising. Anderson says another reason for the volatility in the property index appears to be the sector’s growing exposure to offshore markets and earnings.

Latest figures from Stanlib show that about 40% of SA’s listed property sector’s earnings derive from offshore markets (mainly Central and Eastern Europe), while the sector had no offshore exposure ten years ago. More than nine offshore property companies have listed on the local bourse in the past 12 months.

Winners and losers

 A look at the performance of individual property stocks shows a wide divergence between the winners and losers in 2016. The best performing stocks, which are largely SA-focused include SA Corporate Real Estate Fund, which delivered total returns of 32.2%, Rebosis Property Fund (30.4%), Accelerate Property Fund (28.8%), and Redefine Properties (24.9%).  

The biggest losers are offshore property stocks which include UK-focused Capital & Counties Properties (-51.40%), Capital and Regional (-40.77%), Intu Properties (-32.67%), Stenprop Limited (-32.1%) and Poland-focused Echo Polska Properties (-14.3%) (See table graph below). These counters have weighed on the total returns of the Sapy index.

Property stock performance

 

Best performers

Year to December 2016 (%)

SA Corporate Real Estate Fund

32.2

Rebosis Property Fund

30.4

Accelerate Property Fund

28.8

Redefine Properties

24.9

Growthpoint Properties

20.2

Hyprop Investments

19.4

   

Worst performers

 

Capital & Counties Properties

(51.4)

Capital and Regional

(40.7)

Intu Properties

(32.6)

Stenprop Limited

(32.1)

Echo Polska Properties

(14.3)

   
   

Source: Anchor Securities Stockbrokers and Moneyweb

 

Offshore property stocks have been impacted by jitters brought by the pending exit of the UK from the European Union and recent rand strength. The local unit has strengthened by 9.7% and 24.9% over the past year against the dollar and pound respectively. Offshore property companies are more sensitive to rand exchange movements than SA-focused counterparts.

 Stock picks

Anderson says throughout last year, Grindrod Asset Management has been reducing its exposure to offshore companies and SA companies that have large offshore exposure. “We expect that the non-SA companies and SA companies with significant offshore exposure will continue to face significant headwinds in 2017 as global interest rates and bond yields rise,” he says.

Anderson expects SA-focused property companies to outperform again this year.  Grindrod Asset Management’s stock picks are SA-focused retail, industrial and office property owners including Accelerate Property Fund, Arrowhead Properties, Delta Property Fund, Equites Property Fund, Fairvest Property Holdings, Safari Investments and Tower Property Fund.

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Except Intu and Capco are NOT in the SAPY Index, so couldn’t have an effect on that index.

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