Managing interest rate risk for listed property companies high on the agenda

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Managing interest rate risk for listed property companies high on the agenda

Despite property fundamentals remaining challenging, South African listed real estate companies are expected to continue to deliver inflation type income distribution growth over the next 12 months.

Catalyst Fund Manager’ monthly report for September warns that capital markets remain volatile and managing interest rate risk for listed property companies will be high on the agenda.

The SA listed property sector trades at a historic yield of 6.97%. Assuming 12 months distribution growth of 7%, the sector offers a forward yield of 7.46%. This remains an attractive proposition relative to the other fixed income investments.

SA listed property recorded the highest total return (1.91%) of the four traditional asset classes for July 2014. SA Bonds (1.02%) and Equities (0.93%) were the next best performing asset classes.

But for the last 12 months SA equity remains the asset class that has recorded the highest total return (28.31%), followed by SA listed property (8%), SA bonds (7.22%) and SA cash (5.49%).

Redefine announced an equity raise and raised an aggregate of R1.5bn in its accelerated book build at a price of R9.30 per linked unit. Emira Property Fund also raised equity amounting to R310mn during the month at a price of R13.95.

During the month, two offshore property funds released interim results, namely Intu Plc and New Europe Property Investment Plc. Intu Plc achieved a net asset value per share of 372 pence, representing like for like growth of 7.6% for the six months ended June this year.

Intu declared a distribution per share of 4.6 pence, which represents a flat nominal growth compared to the six months ended June 2013.

Nepi announced a distribution of 14.16 euro cents per share for the period ended June, which represented a 15% distribution growth when compared to the previous period.

Capital Property Fund released its interim financial results for the period ended June. The company announced a distribution of 39.22 cents per share, representing an increase of 10.23% to the prior comparable period.

Tower Property Fund released its maiden results for the year ending May. The company reported a distribution for the year of 74.6 cents per share.

August is normally busy time for the SA listed property sector in terms of reporting results. A total of 10 companies reported either full year or interim results in the month. These company results and commentary gave investors good insight into how the direct property fundamentals are likely to impact the outlook for income distribution growth.

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