Metope In The News

The real estate sector may have only 4% of the assets of the collective investment schemes industry, but it is still a substantial R81.4bn. Part of the success of the property sector over the past 15 years can be explained by the increased demand for retailer investors. They made the right call by favouring property over bonds. Even though bonds represent a larger, more liquid pool of funds, there is just R61.7bn in bond funds (now called variable term funds).  All the large fund houses run property funds, with the exception of Foord and Allan Gray. These businesses have taken a conscious decision to keep their ranges tight.

There’s a measure of negativity around listed retail space. But JSE-listed Vukile Property Fund’s performance illustrates that even in a weak macroeconomic environment impressive operating metrics can be achieved with a stable, defensive retail portfolio.

A number of SA-focused property stocks have fallen sharply in recent weeks while investor appetite for the JSE’s rand hedge offerings appears to be stronger than ever. Despite concerns that offshore counters are starting to look expensive, the likes of Greenbay Properties, Sirius Real Estate, MAS Real Estate and Nepi Rockcastle continue to test new highs. The trend has no doubt been supported by the recent spate of less-than-impressive results reported by SA real estate investment trusts (Reits).

Stor-Age Property Reit, the only specialised owner of personal storage assets on the JSE, has tripled its market capitalisation to about R3.5bn over the past two years. Stor-Age grew its dividend per share 9.25% to 47.02c in the six months to September, financial results showed, one of the strongest performances from listed property funds invested primarily in SA. The group is expecting to achieve double-digit dividend growth of between 11% and 12% for its March 2018 financial year, having expanded into the UK personal storage market, said CEO Gavin Lucas.

Delta Property Fund, which owns a big portfolio of government-tenanted buildings, has been hit by delays in the implementation of the new Department of Public Works leasing policy. The company declared a disappointing set of results on for the six months to August, with dividend payouts up only 1% year on year.  The department’s new policy framework was expected to be finalised in April, but in President Jacob Zuma’s cabinet reshuffle in March, former public works minister Thulas Nxesi was replaced with Nathi Nhleko, delaying the process.

THE world’s financial markets, including the JSE, showed a welcome uptick in the third quarter of this year. In August, the FTSE/JSE All Share Index, after remaining virtually flat for two years (but with considerable volatility), broke free of its record of just above 55 000 points set in April 2015, and it has climbed significantly since then. So what have the collective investment scheme companies made of the improved environment?  

SA Corporate Real Estate, the diversified owner of industrial, retail, commercial and residential buildings located primarily in the big metropolitan areas of SA, with a secondary node in Zambia, grew its dividends 4.4% in the six months to June. The six-month performance was affected by nonrecurring income, resulting mainly from a recovery of written-off bad debt and increased vacancies in the company’s residential portfolio. Historically, SA Corporate has been weighted towards retail and industrial nodes, but it has invested in residential real estate in recent years.

The pendulum has swung decidedly in favour of investment into Central and Eastern Europe (CEE) in recent years. One company aggressively targeting that region’s growth prospects is JSE-listed MAS Real Estate Inc. MAS, also listed on the Luxembourg bourse, has a portfolio valued in excess of €500m made up of 53 properties spread across the UK, Germany, Switzerland and the CEE. But an immense pipeline around twice the current asset value looks to grow that mostly retail portfolio value to one that exceeds €1bn in the next three to five years.

Exposure to international markets through JSE-listed property funds has increased significantly for local investors.  Much of that exposure is to the prime and developed markets of Western Europe, which, according to Nedbank CIB, is around 42% of the rand value of the listed property sector’s physical assets. Western Europe is more often than not seen as the go-to region to create sustainable long-term returns for shareholders.

Listed property, a front-runner asset class on the JSE in recent years, has emerged as a laggard on the back of growing volatility in share prices. The SA Listed Property Index, which makes up the JSE’s 20 largest real estate stocks, has barely kept up with the total returns posted by ten-year government bonds, the JSE All Share index and cash over the past six and 12 months. The sell down in property stocks is not entirely surprising given the large swings in the rand exchange rate and bond yields, which have been impacted by the worrying state of the economy and increasing political uncertainty.