Listed property roundup

Posted On Wednesday, 21 December 2005 02:00 Published by eProp Commercial Property News
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Listed property roundup.

Angelique de Rauville

The listed property sector in South Africa may have produced returns as high as 45% in terms of it’s combined share price appreciation, and distributions. Angelique de Rauville from Investec listed property company Provest looks at the performance of this sector in 2005, and what to expect in 2006

STEPHEN GUNNION: Angelique, do you expect listed property to be a good bet for investors in 2006?

ANGELIQUE DE RAUVILLE: Our view is that listed property has had a formidable year from a performance point of view - returns in excess of 45% including capital and distributions - so for any investor to expect similar returns in 2006 is over-confident. Listed property is re-rated - it’s trading more or less where it should be, and now the key driver for performance is going to be distribution growth.

STEPHEN GUNNION: What sort of distribution growth would you expect from the listed property sector in 2006?

ANGELIQUE DE RAUVILLE: Most of the external analysts are forecasting in the region of 8% earnings growth from the sector next year. Having said that, we’re expecting a handful of stocks to produce returns in excess of 10% - those are going to be the stocks that out-perform the sector in 2006.

STEPHEN GUNNION: Which are those stocks?

ANGELIQUE DE RAUVILLE: Of the property unit trusts we would imagine that Capital, Emira and Grayprop are all well positioned to deliver 10% or more in earnings growth. Of the property loan stocks it’s a good handful that includes stocks such as Acucap, ApexHi B-class debentures, Freestone is coming out of having been a relative under-performer and we’re expecting robust earnings growth from that stock. Pretoria-based Octodec and Premium have been good earnings growth performers, and we expect that to continue well into 2006 and 2007. Redefine, Spearhead with it’s trading stock, and Hyprop with its predominant retail property portfolio are also expected to deliver good returns.

STEPHEN GUNNION: It sounds like you think everything is going to do well next year!

ANGELIQUE DE RAUVILLE: That’s about 50% of the sector - so we are expecting good earnings growth, and we think the external analysts are a little conservative at 8%.

STEPHEN GUNNION: So there is still some value to be had for investors in the listed property sector?

ANGELIQUE DE RAUVILLE: We think with the kind of earnings growth we’re seeing from those stocks that a 20% total return - share price appreciation and distribution - is quite possible in 2006.

STEPHEN GUNNION: Is any of this dependent on how interest rates move next year?

ANGELIQUE DE RAUVILLE: Entirely, because there is a strong correlation that exists between property unit trusts, property loan stocks, and interest rates. Given the nature of property unit trusts, and loan stocks - being interest income generating. Having said that, with the big earnings growth we are expecting out of the listed property sector there is enough cushion for at least 1% in increase in interest rates - so if investors are wanting to enter listed property stocks and they are hesitant, given the recent performance of listed property stocks, they need to look at the potential earnings growth. If the view is that interest rates aren’t going to increase more than 1% then it would be prudent to enter into the stocks at current prices.

STEPHEN GUNNION: When we’re talking about listed property - and the growth you are expecting from it - are we talking broadly, are we looking at industrial property, office property, or residential property?

ANGELIQUE DE RAUVILLE: The listed property sector comprises mostly commercial properties - so that’s office, industrial and retail. Historically retail has certainly been the top-performing listed property stock - having said that, we’re seeing a major take-up in vacancies in the industrial sector because there is a short supply of space for industrial tenants. We expect the gap to close between predominantly retail and predominantly industrial stocks.

STEPHEN GUNNION: How about office space?

ANGELIQUE DE RAUVILLE: There has been a reduction in vacancies across office portfolios - we’re expecting the office sector to slightly lag predominantly retail and predominantly industrial funds.

STEPHEN GUNNION: We have also seen some consolidation in the sector this year - would you expect more consolidation next year?

ANGELIQUE DE RAUVILLE: We’re certainly in favour of consolidation - there are huge advantages because it increases liquidity, and changes the risk profile as diversity is increased, and mostly it attracts international investors once that critical mass critical for international investors is attained.

STEPHEN GUNNION: So you would expect more of that as we go forward?

ANGELIQUE DE RAUVILLE: We would like to see more of that in 2006.

Last modified on Thursday, 08 May 2014 18:29

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