Property

Income-chasers: Property will beat bonds, cash

Listed property will give you steady income, capital growth – analysts. Denise Mhlanga / 21 August 2009 08:06

http://www.moneyweb.co.za/archive/incomechasers-property-will-beat-bonds-cash-2/

Investors who need a source of income and capital growth over time are better off choosing listed property, is the message from analysts.

Keillen Ndlovu, from Stanlib Property, says the listed property sector is currently at an attractive yield of 9.8% – higher than bonds at 8.7% and cash at 7.8%.

“We are looking at income growth of between 7-8% over the next 12 months,” says Ndlovu.

The South African listed property sector is currently trading at an historic yield of 9.1%, according to the Catalyst Fund Managers August listed property sector overview.

The report says listed property offers an initial forward yield of approximately 9.9%.

Eight listed property companies will announce annual results this month, including Emira Property Fund which releases its annual results next week.

Writing in the report, the Catalyst Fund Managers reckon the market consensus is that growth on distributions is expected to slow from the double-digit average growth achieved over the past two to three years to more moderate high single digit growth over the medium term.

Emira Property Fund (JSE:EMI) told Realestateweb.co.za ahead of its annual results’ announcement, it expects a distribution of about 10% per participatory interest as reported in February this year.

CEO James Templeton says the current property market is both good and bad. Many tenants are under strain, there is a lot of bad debt and vacancies are rising.

He says, it’s better to focus on growing existing assets instead of incurring more debt as the cost of borrowing is high.

Asked how the company has fared in light of the economic conditions, he says it has lost more tenants than those coming in, yet deals are still being done. In some cases, rentals are being negotiated to keep good tenants and move space.

For example, he says a space which fetched R120/m2 has an asking price of R110/m2.

Emira listed on the Johannesburg Stock Exchange five and half years ago with assets valued at just over R1bn. Today Emira’s assets are valued at R8bn. It has a portfolio of 165 properties and a market capitalisation of R5bn.

Asked what Emira has done to minimise expenditure and ensure shareholders get good returns on their money in this economy, Templeton says Emira has renegotiated its property management agreement with Eris Property Group and this will see a reduction in property management expenses.

The majority of its properties can be found in Johannesburg and Pretoria as most existing tenants are in this area. Pretoria has been experiencing good growth in residential property in the eastern suburbs, government departments and CBDs and this creates potential opportunities for commercial property growth as well, says Templeton.

Emira’s property portfolio consists of 45% office, 35% retail and 20% industrial. It is looking to grow its retail portfolio. Among some of its retail: WorldWear Fashion Mall in Fairlands, The Tramshed in Pretoria and Home Centre in Durban.

Last year, Emira made property acquisitions of R120m in Centurion, Pretoria and spent R80m on renovations of existing properties. It is ploughing cash into Randpark Ridge Mall.

Stanlib expects Emira to deliver 10% income growth for the full year 2009 and 7% full year 2010.

Ndlovu says Stanlib likes the office portfolio which lies largely in B-grade space and still seeing decent growth in rentals. B-grade offices are currently better positioned now than A-grade offices, given the cost-cutting drive by most tenants and the supply coming through of A-grade space.

He adds that the company’s refurbishment plans bodes well for the long term and it is also taking advantage of its cash resources to buy properties at attractive yields. -denise@realestateweb.co.za

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