Property share prices, which came under increased pressure in 2019 from weaker-than-expected earnings, have recovered about 3.5% since September 11 when the SA Listed Property Index (Sapy) hit a seven-year low.
Analysts say there has been somewhat of a rebound in investor appetite for property stocks over the past week or so following the release of financial results for the June reporting period.
Craig Smith, head of research at Anchor Stockbrokers, said while some counters recently reported below-guidance dividend growth numbers and others revised their 12-month forecasts downwards, investors now had greater clarity on the sector’s earnings outlook. “Most of the bad news has been priced in,’’ Smith said.
Most property counters have seen dividend growth slow to low single digits for the June results period amid a lacklustre economy that has put a dampener on demand for retail, office and industrial space. That compares to 5% average dividend growth achieved by the sector in 2018 and is significantly below the 9%-12% of the preceding four years.
Some companies, most notably Hyprop Investments and SA Corporate Real Estate, have reported a drop in dividends as higher vacancies and lower rentals started to eat into profits and property valuations.
Smith said the good news is that property companies have now largely rebased their dividend growth numbers to lower levels from which sustainable growth can be more easily achieved once the economy improves.
Less probability of a credit downgrade by Moody’s Investors Service and lower interest rates globally have also provided some support for the SA listed property sector, Smith said. He said in a global environment where interest rates are likely to be lower for longer, SA listed property offered attractive entry yields for income investors. The sector is trading at a record high dividend yield of close to 10%.
Keillen Ndlovu, head of listed property funds at Stanlib, said while dividends from property stocks are likely to increase by no more than 1% on average over the next year, the sector is likely to return to inflation-linked growth from 2021 onwards.
“We foresee a meaningful recovery beyond 2020. The potential for improved economic growth and business confidence as well as a reduction in interest rates could be major boosts for the sector.’’
Ndlovu said another positive is that most SA-focused property companies are looking to strengthen their balance sheets by selling weaker assets and reducing loan-to-value ratios, which will stand them in good stead when the economy turns.
The fact that most SA-focused property companies continue to increase their offshore exposure will provide a further buffer against a weak SA economy. “Companies such as Resilient, Emira and Growthpoint are all looking for further growth opportunities outside SA,” said Ndlovu.
“This continues to be a big saviour for the local property sector as over 40% of the assets in our market already sit in offshore markets.’’
Growthpoint Properties, the JSE’s largest SA-focused real estate counter with a market cap of R70.6bn, earlier in September announced it is in talks to buy a majority share in UK mall owner Capital & Regional. If approved, the deal, which has a market cap of about R2.5bn, will push Growthpoint’s offshore interests to more than 30% of total assets.
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