- Portfolio managers say despite the attractive valuations and fantastic dividend yields the listed property sector offers, they remain cautious about its prospects.
- They foresee "a lot of pain" in the coming months as consumer spending at malls depends on the pace of recovery of the local economy, which remains uncertain given the delays in the Covid-19 vaccination programme and predictions of a third wave.
- Analysts forecast that rentals and property valuations will fall further in 2021, forcing more landlords to raise capital.
The bruising is not over for South Africa's landlords. In fact, analysts expect more severe pain is still on the way for the listed property sector as more retail tenants are buckling under pressure and some office leases would be up for renewal.
Some of the country's big asset managers - including Kagiso, Fairtree and Laurium Capital - spoke at a conference hosted by global video research and learning platform for investment professionals, Asset TV, where they said they were reducing their exposure to listed property.
This is not because their share prices are not attractive; in fact, the listed property sector is trading at almost 50% below net asset value towards the end of 2020, the highest discount that the sector ever recorded, said Keillen Ndlovu, head of listed property funds at Stanlib.
On Wednesday, Chantelle Baptiste, equity analyst at Fairtree Asset Management, added that the sector has a fantastic dividend yield.
"It is a sector that has so much leverage if the local economy does turn, we're seeing a proper upside coming through in the property sector," said Baptiste.
However, the problem that landlords such as Liberty2Degrees and Hyprop face is their dependence on people returning to malls to save struggling retail tenants. The future of those with heavy exposure to office space like Redefine also depends on companies keeping their office space in a world where many are certain that most staff will work on an office and home hybrid model and some will permanently work from home.
So, if the South African economy doesn't take a turn for the better, this upside Fairtree envisages won't come through, save for landlords that have more exposure to warehouses and logistics and fewer retail and office assets.
More pain to come
"I still think that there is further pain to come in the property sector. That's one sector where we probably remain more cautious on than the rest of SA Inc," said Baptiste.
Gavin Wood, chief investment officer at Kagiso Asset Management, said while landlords such as Equites Property Fund are better positioned to benefit from the increase in online shopping, retail landlords were in for more tough times, especially those who own super-regional malls like Liberty2Degrees and Hyprop.
"I think some of the super-regional malls were particularly Covid-hit and they were particularly over-traded. There are too many of them and I think there's a lot of pain to come there. Rentals are going to come down in a material fashion there," he said.
Murray Winckler, cofounder and portfolio manager at Laurium Capital, said he was still optimistic about companies like The Waterfront owner, Growthpoint, which decided to raise capital last year and those less exposed to office assets and big-destination malls.
Mohammed Mayet, CEO and portfolio manager at investment technology company, Sentio, said Growthpoint, which also owns a lot of smaller regional malls like Greenacres, Fourways Crossing and N1 City, had a better financial structure. Still, he was expecting SA property prices across Growthpoint's portfolio to fall by between 10% to 15% in 2021.
As for the other landlords, Mayet said he thought there were "one or two" that will be forced to raise capital in the next six to 12 months.