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Listed property sector - view

Posted On Wednesday, 31 May 2006 02:00 Published by eProp Commercial Property News
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Classic Business Day gets Andre Stadler from the Catalyst Property Equity Fund in Cape Town on the line for an overview of the property sector

Andre Stadler LINDSAY WILLIAMS: Andre, the whole listed property sector does not seem to be slowing down at all - in fact it’s expanding, which I like. I’m not so much talking about the numbers now, but I like new properties coming to the market - I think we’ve got a new one coming up soon, Madison or something?

ANDRE STADLER: Yes, there’s a slight difference there - it’s rather more of a fund management business rather than a property company, with their fee generation effectively based on asset management fees on the portfolios they manage.

LINDSAY WILLIAMS: We’ve had some good numbers out from the companies already established on the JSE - Metboard and Vukile - what’s your view?

ANDRE STADLER: In general I think the actual fundamentals in the sector at the moment are stronger than they’ve been pretty much forever - I think certainly in the last ten years - and with a number of features all driving together to produce the type of growth that we’re getting out of the sector. We’ve got effectively declining vacancies across the board - which obviously just means more income going into your portfolio as you occupy buildings more fully, and that’s now reached a point where you’re starting to see market rentals growing fairly dramatically as you get the sort of supply constraint side of things. With building costs growing it becomes more costly to build - therefore rental levels need to move up - and then on the other side we’ve got savings on the debt side. Those two together drive this level of distribution growth that’s coming out of the sector.

LINDSAY WILLIAMS: The listed property sector would never of course be immune to bigger market moves, and we are seeing a good deal of volatility - today is no exception to that on the JSE, and also on the international markets - but on the other hand what I hear from fund managers consistently is that because of the supply and demand situation, in other words less supply than demand, the sector should be cushioned from any falls. Would you agree with that?

ANDRE STADLER: Yes, obviously we’re never immune to what’s happening in terms of capital pricing broadly - but to the extent that property tends to also have a fairly high proportion of its total return in the form of income, that gives some form of stability to the return profile. So while the capital may move, the investors still receive their income component - and that’s usually around 70% of the return, so it does tend to be more defensive. At the moment yields are relatively low on a historic basis - so that defensive nature might not be as high as it has been in the past, but it’s still there.

LINDSAY WILLIAMS: Catalyst always produces a great monthly report. I don’t know if you’re allowed to say what particular stocks you favour, but is there any particular sector - commercial, retail or industrial - that you like?

ANDRE STADLER: At the moment in terms of the cycle the retail sector has been the strongest over the past five, six years and even longer, and industrial has come through over the last three years. The one coming through last is really the office sector - where we’ve now seen vacancies reduced to a level where we’ll see growth coming through as you get supply constraints. You’ve got to build new, and to build new is a lot more expensive today than the current rental levels…

LINDSAY WILLIAMS: So there are no office vacancies - which company should we be looking at to take advantage of this?

ANDRE STADLER: There’s a number of issues you’ve got to be looking at. That’s whether the pricing reflects it already, or not - so while offices may be attractive some of the funds with office exposure are already pricing some of that in. I think a safe bet right now generically is Growthpoint - as a large capital fund with a broad diversified and good quality portfolio. It’s been under some pressure with the sell-off in the markets - reacting to what’s happened in the broader market - and is now currently well-priced relative to the rest of the sector. We’ve seen Metboard’s results come out - Metboard obviously going into Growthpoint - and I think that’s a great acquisition for Growthpoint.

LINDSAY WILLIAMS: So Growthpoint is one that because it’s so big - it’s probably part of index funds, etcetera - is going to suffer when the overall market goes down, but on the other hand that should be used as a buying opportunity?

ANDRE STADLER: Currently that’s certainly the case. Obviously because of its size it gets treated almost as a proxy for property, and when the market moves it will take some pain - but right now it’s a buying opportunity.

LINDSAY WILLIAMS: We spoke to Maria Ramos last night about the Transnet Victoria & Alfred Waterfront disposal - what do you reckon is the asking price?

ANDRE STADLER: I wouldn’t know about a number - I think certainly there will be a lot of interest. The ultimate issue is how it gets packaged - whether they are able to put together a deal that’s appealing to a broad enough basis of investors - because within that package there a number of components that different people would have appetite for. The key is really to ensure the investors are matched with the portions that they like. It’s a bit tricky because you want it to go as a complete package, but a clever structure that matches investor returns those parts of the package that they enjoy will keep it as a holistic vehicle - I think that’s how it’ll end up.


Last modified on Tuesday, 06 May 2014 12:37

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