Rosebank Mall. Picture: SUPPLIED

Rosebank Mall. Picture: SUPPLIED

Related Articles

Mall of Africa. Picture: SUNDAY TIMES

Property: Malls begin to pall

Kundayi Munzara. Picture: SUPPLIED

Listed property: A world of choice

Rand hedge offerings broaden
Resilient CEO Des de Beer. Picture: RUSSELL ROBERTS

Resilient Reit: Well-run and rewarding

Dundrum Town Centre in Dublin. Picture: SUPPLIED

Property: Overseas attraction and caution

All three counters should appeal to hard currency income chasers

Mentioned in this Article

FM Edition:

Stock picking is becoming increasingly difficult in the property sector on the back of growing volatility in share prices.

The SA listed property index (Sapy), which makes up the JSE’s 20 largest real estate stocks, has been on somewhat of a roller coaster since April.

Property stocks are still up 8% in the year to date, but the index has shed 7% since the end of July. Over a 12-month period, the sector is down 3%.

Nesi Chetty, head of property at MMI Investments & Savings, says softer property prices are in line with higher bond yields, which have been negatively affected in recent weeks by political uncertainty, the decision by some local fixed-income asset managers to stop lending to state-owned enterprises, and the possibility that US interest rates may rise.

Another reason for the big swings in the property index appears to be the sector’s growing exposure to offshore earnings. Offshore counters are, of course, more sensitive to rand exchange rate movements and global geopolitical events than their SA-focused counterparts.

A closer look at the performance of individual companies reveals the wide disparity between the sector’s winners and losers in the year to date.

In fact, there’s a 73% difference in return between the best-performing stocks and those that performed worst. Hotel owner Hospitality A notched up a return of 23% for the year to October 3 while London-focused Capital & Counties Properties (Capco) shed a hefty 50% over the same time, according to the latest figures from Absa Wealth & Investment Management (see table).

Capco’s losses are linked to lingering uncertainty about how Britain’s decision to exit the EU will play out and the way London’s status as a global real estate investment hub will be affected.

The other stocks that join Capco at the bottom of the pile are all UK-focused companies, including Redefine International, Capital & Regional and Atlantic Leaf Properties.

In contrast, the top-performing stocks in the year to date are all SA-based companies that derive the bulk of their earnings from local retail, office and industrial building portfolios.

They are SA Corporate Real Estate Fund, which has over the past two years built a sizeable rental housing portfolio in the Johannesburg CBD, and Fairvest Properties, which owns a portfolio of shopping centres that cater mainly for lower-income households.

Blue-chip mall owner Hyprop Investments, with, among others, the Rosebank Mall in Johannesburg and Canal Walk in Cape Town in its stable, ranks as the sector’s third-best performer in the year to date, with a return of 17%.

But even perennial outperformer Hyprop has been exposed to marked ups and downs in its share price in recent weeks. The counter is trading 14% below its mid-August peak of R141.

Chetty says big, liquid counters such as Hyprop have a large number of foreign shareholders who may have sold the stock down in recent weeks due to political and economic concerns about SA. There’s also been a sell-off of development plays such as Mall of Africa owner Attacq, which Chetty ascribes to a slowdown in net asset values and development margins coming under pressure.

It is interesting to note that three rand hedge offerings count among the sector’s top performers over a 12-month period: Investec Australia Property Fund (up 23%), Rockcastle (up 22%) and New Europe Property Investments (up 10%).

The only SA-based stock to feature among the top four over 12 months is niche industrial-focused company Equites. It recently released a positive trading update, with dividends expected to rise by between 16.7% and 20% for the six months ending in August.