Offshore exposure helps property firms meet targets

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MOST listed property companies met or beat market expectations in the latest financial reporting season, despite a weak economy and a volatile JSE.

Many of them managed to deliver inflation-beating distribution growth, often in the double digits.

A major contributing factor to this performance has been the movement of property funds into stronger investment markets.

Various South African funds had increased their exposure to offshore markets aggressively over the past year. This hedged their performance against a weak rand and tough economic conditions in SA, said Keillen Ndlovu, head of listed property funds at Stanlib.

This geographic diversification had became a trend.

“Increasing offshore property exposure or diversifying portfolios into offshore property markets has become a theme in SA’s listed property sector. Offshore property exposure now makes up about 25% of the SA Listed Property index. We expect this number to get close to, or go above, 30% in the next six to 12 months. Ten years ago, our sector had no offshore exposure at all.”

The listed property firms, which are real estate investment trusts (Reits), have their total returns split into two parts. These include capital share price increases and distribution growth. All Reits must pay out at least 90% of their annual taxable income in distributions.

Much of the strong distribution growth in the sector was achieved between January and the end of June. Consumer price inflation averaged 4.35% over this period.

Ian Anderson, chief investment officer at Grindrod Asset Management, said that the sector had provided strong returns for investors.

In terms of top performers, Fortress Income Fund, which focuses on commuter shopping centres, beat other funds in terms of distribution growth. Its B-unit recorded 60.7% growth, he said.

Fortress is in the process of taking over Capital Property Fund. If successful, Fortress would be valued at close to R50bn, making it the third-biggest local property fund by market capitalisation.

Another strong performer was New Europe Property Investments, which managed distribution growth of 30.2% for the six months to June compared with the same period a year ago.

Resilient Property Income Fund delivered 21.8% income growth and Capital Property Fund reported 9.1% growth.

Another strong performer was Hyprop Investments with 16.3% distribution for the second half of its financial year.

Rebosis Property Fund, Texton Property Fund and Arrowhead Properties all managed distribution growth of around 10%. Emira Property Fund and SA Corporate Real Estate Fund achieved 9% and 9.4% respectively. The largest South African-based Reit, Growthpoint Properties realised 7.5% growth.

The worst performer over the reporting season was takeover target Hospitality Property Fund, the B-units of which saw their distribution plummet 71.6%.

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