Weathering the storm

Posted On Tuesday, 20 November 2007 02:00 Published by eProp Commercial Property News
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Despite higher interest rates and global credit fears, 2007 is turning out to be yet another bumper year for listed property investors - both in terms of income and capital growth

Angelique de RauvilleNot only have investors seen double-digit growth in income payouts (distributions are up an average 13% so far in 2007) but share prices have also surged ahead. Latest figures from Catalyst Fund Managers show that the SA listed property index delivered a total return of 27% for the year to date (January to September).

That suggests that the sector is expected to match or even outperform last year's returns; the SA listed property index delivered total returns of 28,6% in 2006. Catalyst figures for the 12 months to end-September 2007 look even more impressive, with total returns of 51,29% recorded over that period.

There's a wide spread between the best and worst performing individual property stocks. Top performer ApexHi C delivered total returns of a staggering 280%, while Sycom Property Fund was at the bottom of the pile with total returns of a rather pedestrian 20,7% (see table). Madison Property Fund Managers was the sector's second best performer with a not too shabby return of 135,4% in the 12 months to end-September, followed by hotel-focused fund Hospitality B (101,1%), Diversified Property Fund (75,3%) and Octodec Investments (71,7%). Those five stocks have also retained their lead in the year to date (January to September).

The five worst performers in the 12 months to end-September are Sycom (at 20,7%), followed by Hospitality A (25,3%), Moneytla (26,3%), iFour Properties (30,2%) and ApexHi A (31,6%). Although listed property share prices dipped slightly immediately following October's interest rate increase, most stocks recovered those losses within weeks. Some have even been testing new highs in recent weeks.

Catalyst Fund Managers MD André Stadler says listed property prices have over the past few months been buoyed to a large extent by corporate activity. But demand for property stocks is also being driven by the sector's strong earnings growth performance. The sector has this year reported average growth in distributions of around 12% to 13%. Some funds, including Madison-managed Redefine Income fund and Octodec Investments and Premium Properties in the Wapnick family stable, have in recent weeks reported growth in payouts of a hefty 20%.

Angelique de Rauville, CEO of Investec Listed Property Investments, says the sector's continued strength indicates that most speculators have been flushed out of the market. She says those who remain invested in listed property are clearly buying into a three- to five-year growth story and are prepared to sit out any short-term volatility.

Macquarie First South Securities property analyst Leon Allison says the relative strength in the market could also be underpinned by a growing number of offshore fund managers starting to place SA listed property on their buying lists. Allison says recent rate increases should have a minimal effect on the sector's short-term earnings growth outlook. He expects the sector to report distribution growth of an average 11,6%/year over the next two years, suggesting that listed property remains an attractive income play.

Allison forecasts total returns of 12% for the sector over the next 12 months. His current top pick is Hospitality B, which is expected to deliver total returns of 20% over the next 12 months. Other funds expected to outperform the market include Redefine (17%), Emira Property Fund (15%), Acucap Properties (15%) and Resilient Property Income Fund (15%). The stocks that Allison rates as underperformers include Sycom, Pangbourne Properties, Hospitality A and ApexHi C - all expected to deliver returns of less than 10% over the next 12 months.

Last modified on Tuesday, 22 April 2014 17:33

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