Double-digit growth intact

Posted On Tuesday, 26 February 2008 02:00 Published by eProp Commercial Property News
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Every listed property fund that has reported results so far this year has managed to raise income payouts by more than 10%. That suggests that the commercial property market - unlike its residential counterpart - still has some steam left

Andre StadlerJittery investors will no doubt be pleased that the sector's double-digit growth momentum appears to be intact, despite volatile share prices. The SA Listed Property index was down 20% in the two months to 21 January. It has bounced back 12% since, indicating that the spate of good results reported since late January has perhaps helped to mend negative investor sentiment.

Among the companies that have already released results to end-December 2007, Marc Wainer and Wolf Cesman's Madison Property Fund Managers is the top performer, declaring 30% distribution growth in 2007. Resilient Property Income Fund and Capital Property Fund in Des De Beer's Resilient stable raised distributions by 19,7% and 12,7% respectively. ApexHi Properties reported 15% distribution growth for the six months to end 2007, while Emira Property Fund's distributions were up 10,6% over the same period. Hyprop Investments said in a trading update last week that it anticipates distributable earnings for 2007 to be between 18% and 20% higher than 2006. The company will announce results on 3 March.

Strong rental growth seems to be the key driver of the sector's impressive earnings growth performance. Most funds are reporting that vacant space in their buildings is at an all-time low.

Investec Property Investments analyst Anton de Goede says it seems that a growing shortage of space, particularly in the office and industrial sectors, is leading to higher than expected rental reversions.

De Goede expects the listed property sector to continue on its double-digit distribution growth path for the next two to three years. However, De Goede notes that share prices could remain volatile, which is likely to see a shift to quality stocks that offer sustainable income growth.

It appears that this is already happening. Catalyst Fund Managers MD André Stadler says stocks that are considered more risky have come under the most pressure in recent months.

Catalyst figures show that the share price of asset manager Madison, which generates the majority of its revenue from the enterprise values of ApexHi, Redefine Income Fund and Hyprop, has taken a 31% knock in the three months to end-January. ApexHi C and Hospitality B, which are highly geared and are part of a tiered unit structure, were down 30% and 20% respectively over the same period. Interestingly, these three funds were the sector's top performers in 2007.

Despite the rocky start to the equity markets in 2008, Old Mutual Investment Group (OMIGSA) listed property analyst Len van Niekerk expects total returns of between 15% and 20% (26,5% in 2007) for listed property over the next 12 months, slowing somewhat thereafter to 15%/annum until 2011. Of this total return, about 9% will come from income yields (from rental contracts) and the balance from capital growth.

Says Van Niekerk: "Market volatility makes it difficult to precisely predict share price growth over the short term. However, we see these forecasts as being conservative due to the de-rating listed property has experienced recently."

Van Niekerk notes that listed property's distribution growth rate is holding up well at an average 13%. Although Van Niekerk expects a small and gradual slowdown in the rate of growth, he says the sector should still see at least 11% growth in distributions to end-2009. Key factors underpinning listed property returns over the next few years include higher lease escalations, very low vacancies, continuing tight supply conditions, new offshore and local investor demand, and new REIT legislation.

Last modified on Tuesday, 22 April 2014 11:09

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