There has been renewed investor appetite for rand hedge property stocks, with a number of counters notching up share price gains of between 4% and 8% last week.
Analysts say increased appetite for offshore property stocks comes in the wake of renewed rand weakness. Last week alone SA’s currency lost 3.66% against the euro, 3.22% against the British pound and 2.76% against the US dollar, according to figures from Anchor Stockbrokers.
The rebound among rand hedge property counters has supported a tentative recovery in the SA Property Index (Sapy), which has clawed back 5% of its losses since May 28, when it hit a seven-year low of 453 points. Despite the recent uptick in offshore property stocks, the Sapy is still down a hefty 30% from its December 2017 peak of 695 points.
The biggest winners among the JSE’s 20-odd real estate counters that generate 100% of their earnings offshore were Investec Australia Property Fund, German business park owner Sirius Real Estate, Schroder European Reit, Polish play EPP, Eastern and Central European-focused Nepi Rockcastle and MAS Real Estate, and UK-based Capital & Counties Properties, Stenprop and Hammerson.
Old Mutual Investment Group portfolio manager Evan Robins said the Sapy’s slump was initially triggered early in 2018 by a sell-down of the Resilient stable of companies including Resilient Reit, Fortress Reit and Nepi Rockcastle following allegations of insider-related trading and share manipulation. While most of those allegations have since been refuted, the sector has lost further ground due to weaker company earnings, he said.
Most property counters have seen dividend growth slow to the low single digits over the past 12 months, while some have even reported a drop in income payouts. Robins said lower dividend growth comes on the back of depressed demand for retail, industrial and office space, which has forced landlords to lower their rentals in a bid to keep tenants.
Craig Smith, head of research at Anchor Stockbrokers, said the outlook for SA-focused property stocks will only improve once the economy returns to sustained, annual GDP growth of at least 2.5%. Real estate developers will also have to pull back on new projects to allow demand to catch-up to supply, he noted.
However, the upside of continued pressure on property share prices is that local counters are now trading at 10-year high dividend yields, with many offering between 10% and 20%. “That offers an attractive entry point for income-focused investors,” said Smith.
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