The yield to maturity (YTM) on the Long Term Government Bond Index weakended 119 bps to end the month at 9.77% (8.58% - 30 November 2015).
The listed property historic yield for the 38 property companies, Catalyst Fund Managers report data on, ended the month at 6.06%. Excluding non-income distributors (Pivotal, Attacq) and 100% offshore earnings focused companies (New European Property Investments (NEPI), Rockcastle, New Frontier, Capco, IntuProp, Mas, Sirius, StenProp, Redefine International and Investec Australia) the market cap weighted historic yield of the remaining companies is 7.06%.
SA Cash recorded the highest total return of 0.55% for the month. SA Equities (-1.72%), SA listed property (-6.12%) and SA Bonds (-6.67%) were the next best performing asset classes. For the last 12 months SA Listed Property recorded the highest total return (7.99%), followed by SA Cash (6.46%), SA Equites (5.13%) and SA Bonds (-3.93%).
In SA December Financial markets were rocked by SA President Jacob Zuma’s shock announcement to replace SA Finance Minister, Nhlanhla Nene, with David Van Rooyen.
Capital markets were unforgiving in their reaction to the news by punishing SA Banks, SA Listed Property and SA Bonds. SA listed property stocks were down approximately of 10% over the two days following the announcement. Rand hedge stocks like NEPI, Rockcastle and Capital & Counties however weathered the storm by posting positive gains over the same period. President Zuma subsequently appointed Pravin Gordhan as the new SA Finance Minister to replace David Van Rooyen and this action brought some calm to capital markets with the SA Banking, SA Listed property and SA Bonds sector recovering some of the losses after Zuma’s intial decision. Despite the pull back in December the SA Listed Property sector recorded a total return of 8% for the year.
This year was largely characterised by corporate activity in which Growthpoint, Redefine and Fortress made significant acquisitions of long standing property counters Acucap, Fountainhead and Capital respectively.
The other significant theme that emerged during the year was the listing of offshore counters on the JSE and the inclusion of some of these counters in the SA Property Index (SAPY) namely Stenprop, MAS and Tradehold which were included towards the end of the year. The top 10 property performers for year are listed below:
Company Total Return for the year
1 Fortress B 103%
2 NEPI 62%
3 Capital and Counties 56%
4 Capital* 53%
5 Hospitality B 50%
6 Rockcastle 49%
7 Sirius 47%
8 Lodestone 44%
9 Resilient 43%
10 Tradehold 42%
*Capital Property Fund delisted after it was acquired by Fortress
The top 10 performers were largely dominated by rand hedge stocks barring small cap players such as Lodestone and Hospitality B. The composition of the SA Listed property index has seen quite a significant change from a geographical perspective with a number of property companies with offshore assets listing their portfolios in South Africa.
Local Listed Property players continue to diversify their portfolios offshore in an effort to access stronger real estate fundamentals and attractive yield versus interest cost spreads. We however caution investors to focus on the long term prospects of the assets acquired and their ability to deliver sustainable growth.
We continue to maintain that in the short term, listed real estate pricing is likely to take its direction from capital markets rather than real estate fundamentals, earnings and earnings growth. Over the long term, real estate fundamentals, earnings and earnings growth will drive performance.
