Investors in listed property, which barely eked out a return in 2019, are set for more pain in 2020 as the sector is expected to show no dividend growth for the first time in 17 years.
Fund managers have forecast that while the income of offshore-invested property groups will rise about 5%, those with an SA focus are expected to fall by a similar amount. Overall, analysts expect the FTSE/JSE SA listed property index (Sapy), which consists of offshore and local investments, to deliver no dividend growth.
This is concerning for pensioners who invest in the R570bn listed property sector for regular growing income returns.
Keillen Ndlovu, head of listed property funds at Stanlib, said the last time the sector delivered similarly disappointing dividend growth was in 2003, with 0.1% — a period when none of the listed property companies had exposure to offshore investments.
Real estate companies have battled to perform while the economy trudges along amid weak consumer spending and power blackouts.
While the sector’s dividend growth will be flat, there may be a rebound in share price growth, Ndlovu said.
Nesi Chetty, senior fund manager for listed property at Stanlib, said dividend growth is forecast to gain some momentum in 2021 with a 1% increase forecast for the sector. He said listed property should improve further in 2022 with dividend growth of 1.5% and even more in 2023 with 4%.
Underperforming cash
Dividend growth has averaged 7.33% since 1995. But the glory years of listed property in the 2010s, when it delivered double-digit dividend growth, are in the past with the asset class underperforming cash, bonds and equities for the second consecutive year.
Sapy’s 1.93% return was a strong improvement on losses of 25.26% in 2018, its worst year in more than two decades, but well short of the 12.05% achieved by the JSE all share and the 10.32% by the JSE all bond index in the same period.
Jay Padayatchi, executive director at Meago Asset Management, said expectations about listed property will remain low as long as the country’s economic growth is weak.
“While 2018 certainly was painful for anyone invested in the listed property sector, last year was never really expected to shoot the lights out. Given that the bulk of earnings within the sector is a function of the SA economy, the GDP growth outlook was never inspiring and continues to be bleak,” he said.
Investors are better placed buying individual stocks than the entire index because of the wide range of returns between each counter.
“There is a greater disparity between listed property companies now more so than ever before when one considers management savvy, balance sheet health, quality of assets and underlying earnings,” he said.
Waning spending
Ndlovu said property stocks were battered in 2019.
Some retailers battled to meet their rental commitments, with customer spending waning and bricks-and-mortar department stores losing shoppers to online trade.
National retailer Edcon, which employs 40,000 people, had to close stores and negotiate reduced rentals to save jobs.
The national office vacancy rate remained stubbornly high at 11% at end-September, according to the latest data from the SA Property Owners Association (Sapoa).
A healthy vacancy rate is 6%-7%, Will Harris, CEO of property data provider Gmaven, said.
The risk of more power blackouts is not helping, because retailers and restaurants lose out on trading, Ndlovu said. He said offshore exposure of more than 45% would continue to help support the listed property sector.
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