SA listed property sector still 'fairly priced' despite weak economy

Although yields to date in the South African Real Estate Investment Trust sector reflect the underlying weakness of the economy and pressure on consumers, the sector is still fairly priced on a 12-month view, according to Bandile Zondo, executive head of financial sector equity research at Standard Bank Group Securities.

Although there are opportunities for mergers and acquisitions in the sector, it is likely to remain muted as investors are waiting for policy clarity, he told delegates at the annual conference of the SA Property Owners’ Association (SAPOA) in Cape Town on Wednesday.

He noted that about a third of the SA REIT sector is invested in Eastern Europe, where there has been solid growth, which will likely "cushion" the SA REITS. One of the strong points of the local REIT sector for him is its strong governance record and self-regulation.

Green shoots

According to Estienne de Klerk, South African CEO of Growthpoint Properties, the sector "has seen better times", but at the same time there are still "some green shoots".

"The reality is, however, that we are facing the most difficult economy we have ever faced in our careers, especially in SA, and there are aspects in the sector that can be improved on," he commented.

"We are trying to provide predictable returns and with many companies on the JSE not growing due to the current economic environment, predictable returns are not such a bad thing."

In his view, quality health care and urban storage space are two areas which offer opportunities in SA.

"The current environment has created some potential for consolidation. You need one or two companies with strong balance sheets to make sure they can take the knocks," commented De Klerk.

For Sandile Nomvete, CEO of Delta Property Fund, political risk is a big challenge for the SA REIT sector.

Banks becoming 'shrewd'

In his view, banks have also become "extremely shrewd" in providing debt financing.

In Nomvete’s view, one area which could offer opportunities could be to look at how inner city buildings can be used to provide in the estimated 80 000 "beds" needed for the tertiary education sector.

In the view of Anton de Goede, fund manager at Coronation Fund Managers, lacklustre growth will likely continue in the SA REIT sector with vacancies likely to create pressure if there is no economic growth.

"In the past it was the expected dividends growth that always made listed property attractive. Without that dividend growth investors will not look at the sector," said De Goede.

He added that in SA a lot of people are also shying away from investing in the rental space at the moment.

Evan Robins, portfolio manager at Old Mutual Investments, said the risk profile in the listed property sector is changing, with the market becoming skeptical of figures.

"It has become a far more complicated sector than it has been before," said Robins.

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