The latest results season has shown that listed property stocks achieved 8.5% on average in the second six months 2014 but headwinds are on the horizon, SA Commercial Prop News has learned.
Economic growth is set to be tepid this year. This does not bode well for companies that own office properties which need activity from businesses in order to fill them, reports Ortneil Kutama, SA Commercial Property News Media Director.
Finance Minister Nhlanhla Nene and treasury recently revised down their forecasts for SA’s economic growth from 2.5% to 2%. It is no secret that the property industry needs economic growth to perform especially for its offices to increase groups’ incomes.
The best performer over the reporting period in terms of distribution growth was Fortress Income Fund. It was indeed the JSE’s best-performing property stock for 2014. The retail focused company, reported 19.64% to 92.96c for the six months to December compared with the same period in the previous year.
Fortress has a split A and B unit structure to cater for peoples’ different risk appetites. Investors in its A units have a preferential claim to earnings and received 61.75c per share, which constituted a usual 5% increase in distributions. The rest of the distribution was attributable to B unit investors and was 31.21c per share, representing an increase of 65.22% over the prior comparable six-month period.
The next good performer was Resilient Property Income Fund. Resilient declared distribution growth of 16.3% over the six month period to December, significantly ahead of forecasts of around 12% and well ahead of the sector average of 8.5%.
Resilient was helped by making accretive acquisitions of lower LSM (Living Standards Measure) regional malls and strong returns from its investments in property funds. These include investments in Rockcastle Global Real Estate and Capital Property Fund.
The acquisitions included Resilient taking ownership of Jubilee Mall and Irene Village Mall in September and December last year respectively. These transactions were announced in the previous financial year.
Resilient also agreed to raise its interests in I’langa Mall 15% to 85% at a cost of R140m and Brits Mall by 2% to 95% at a cost of R11m. Resilient managed to acquire a 50% interest in the proposed Mams Mall in Mamelodi at a price of R220m.
Capital Property Fund itself achieved 10.4% growth over the half year to December.
Another real estate investment trust (Reit) which has performed well is Arrowhead Properties. Arrowhead A and B both achieved 14.9% distribution growth. This company has been able to raise capital at yields which have boosted its overall distribution income.
Shopping mall success Hyprop Investments’ dividend rose 13.7% for the six months to December compared with the same period the previous year. This outdid the market consensus of 11% and was well ahead of a sector average of 8%. Including share price appreciation, the total return for Hyprop between June and December was 25.9%.
Despite being mostly an office play, and with offices performing worst of the sub-sectors of the South African listed property, Texton Property Fund still achieved double-digit growth of 10.6% in income payouts for the year to June. It also managed 11.4% for the six months to December.
Former laggard SA Corporate Real Estate Fund meanwhile for the second half of last year, achieved distributions 9.4% higher than for the second half of 2013. Old Mutual Investment Group portfolio manager Evan Robins has said the performance of the fund’s retail portfolio was very impressive.
“The strong performance of the retail portfolio, which in the past really held the entire fund back, was really impressive,” he said.
Emira Property Fund managed 9% over the reporting period. This was largely thanks to decreasing vacancies. Over the past year, Emira’s share price has risen about 42%, beating the JSE South African property index’s 34% gain.
Another notable distribution pay out came from Growthpoint Properties, the largest locally based property group in SA. Growthpoint managed 7.5% distribution growth. Much of the growth came from its stake in the Victoria and Alfred Waterfront. Growthpoint should be boosted by malls under the Acucap Properties’ portfolio which it recently acquired. There are concerns however that Growthpoint’s office assets; even its top quality ones will come under tremendous strain during the second half of this year.
The clear underperformer was Hospitality Property Fund whose B units had negative 52.6% growth. This fund plans to sell 14 of its 26 hotel properties and has said that it expects to start disposing of these mostly smaller hotels in the near future after not managing to do this for a few years.