Listed property share prices rally about 5% over the past two weeks, on better than expected results reported by real estate counters this month.
A number of property stocks such as Resilient Property Income Fund, Fortress Income Fund, New Europe Property Investments (Nepi) and Capital Property Fund have declared double-digit growth in income payouts for the June reporting period.
Emira Property Fund also surprised on the upside with a distribution increase of 7.5% for the year ending June, the highest growth achieved by the fund in five years. Stanlib’s head of listed property funds, Keillen Ndlovu, said yesterday that investor appetite for property stocks had been boosted by the “brilliant” results reported by the sector this month, coupled with a slight strengthening of bondyields.
Mr Ndlovu said the recent rally in property share prices meant the sector’s total return of 11.8% for the year to date had exceeded forecasts. Most analysts expected a total return of no more than 8%10% for the year as a whole. “The sector’s performance is now nearly on a par with the 12.7% total return delivered by general equities, and ahead of the 5% and 3.5% achieved by bonds and cash respectively over the same time.”
Mr Ndlovu said apart from the sector benefiting from rand weakness due to increased offshore exposure, most stocks had also reported lower vacancies. Stanlib’s figures show the top performer for the year to date among the 38 counters in the R300bn listed property sector are offshore-focused Rockcastle Global Real Estate Company, with a total return medicine20 of 42%. That was followed by Romania-based Nepi with 31%, Resilient with 30%, UK mall owner Intu Properties (formerly Liberty International) with 26% and Arrowhead Properties (B units) with 21%.
Despite some stocks already running hard this year, Mr Ndlovu believes the sector still offers buying opportunities. His top picks on a relative value basis are Delta Property Fund, Rebosis Property Fund and Redefine Properties. Rebosis and Delta had lagged the market after the collapse of the tripartite merger talks earlier this year with Ascension Properties. Delta’s share price has also been affected by the stock’s increased gearing levels, with the market seemingly thinking management may be casting its net too wide. However, Mr Ndlovu said both Delta and Rebosis had probably been oversold.
“We also like Redefine as it has lagged the market and is now trading at attractive levels.” Mr Ndlovu cited the fund’s speculative office developments, now appearing to be sorted given the recent big lettings; the recent large equity raise; and the announcement that it will acquire the MacSteel portfolio for nearly R3bn as among the key reasons for its underperformance.