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10 Feb 2012

The South African Listed Property Index recorded a total return of 4.75 percent in January 2012, according to the Catalyst Fund Managers.

For the last 12 months South African Listed Property as an asset class recorded the highest total return (19.08 percent), followed by SA Bonds (13.49 percent), Equities (10.83 percent) and SA Cash (5.70 percent).

The Property Loan Stock Index and Property Unit Trust Index recorded returns of 5.36 percent and 3.14 percent respectively over the same period.

The managers say the historic 12 month rolled yield of the South African listed property sector ended the month at 7.56 percent (7.93 percent as at 31 December 2011).

For the last 12 months South African Listed Property as an asset class recorded the highest total return (19.08 percent), followed by SA Bonds (13.49 percent), Equities (10.83 percent) and SA Cash (5.70 percent).

They say the traditional drivers for total property returns remain intact with expectations that the current income yield plus prospect of income growth will drive the total return over the long term.

As at the 31 January 2012 the historic rolled income yield of South African listed property was 7.56 percent.

“The outlook for distribution growth in 2012 remains reasonable and the sector is likely to deliver growth in income distributions of approximately 5 percent”.

Assuming distribution growth of 5 percent the forward yield from listed property at 31 January 2012 is 7.94 percent.

The risk to total returns in the short term is a weakening in capital markets and/ or deterioration in the income growth outlook, explain the managers.

“Listed property is a long term investment and over the long term the total return from listed property will be driven by the income yield plus growth in that income.”

Meanwhile Dipula Income Fund A-units which listed on the Johannesburg Stock Exchange (JSE) in August 2011 is tipped as a top prospect in the new seven property sector listings since November 2010.

The company owns a diversified property portfolio, located throughout South Africa and enjoys a retail bias to low income households.

According to Keillen Ndlovu, Stanlib head of property funds, Dipula A-units offer investors looking for secure, predictable income streams an attractive initial yield of 9.5 percent.

 “Dipula A-units also provide almost guaranteed income growth of 5 percent per annum and is in line with the market, but is more certain than other single-unit property stocks,” he says.

Izak Petersen, chief executive officer of Dipula Income Fund explains that it will continue to seek portfolio and income strengthening opportunities for its investors.

The income protection that Dipula A-units offer is similar to bonds, says Ndlovu.

Dipula features an acquisitive growth strategy, excellent BEE credentials thanks to a black-owned asset manager and a sizable stake in the fund by management.

Izak Petersen, chief executive officer of Dipula Income Fund explains that it will continue to seek portfolio and income strengthening opportunities for its investors.

“It is important to acquire assets that will show resilience in all market conditions” says Petersen.

Petersen says they always do a thorough fundamental analysis of the growth potential of each asset they acquire at the same time ensuring that all is done not to compromise income in the short term.

“Of course the key is to ensure that our portfolio can stand the test of time in terms of capital and income growth and we need to therefore balance these key considerations at all times”.

He notes that the B units are excellent value at a forward yield of approximately 11.3 percent at the current trading levels.

Dipula’s value proposition is solid and while they have A and B units investors should rest assured that Dipula is building a good enterprise that should deliver for both unit holders.

He believes that both units offer good value to investors and B unit holders should be handsomely rewarded while the A units will continue to enjoy the added security though also having potential upside on capital growth.

The company announced a R247.8 million purchase of three retail properties in late December 2011 and these acquisitions remain subject to several approvals.

Once final, they will grow Dipula’s portfolio to 178 properties valued over R2.3 billion, covering 463 000 square metres.

“We continue to build a portfolio that will deliver growth in distributions and capital for our investors, increasing critical mass, asset quality and diversification will drive performance.”

Ndlovu also identified Vividend Income Fund, Synergy A-units and Rebosis as currently offering good buying opportunities.

However, it is important to note that most of the new listings are not very liquid.

Liquidity is likely to improve over time as they do property acquisitions partially funded with equity”, he says.

Although not tipped as a hot buy, Emira Property Fund has been disposing various non-core properties in its portfolio with a view to improving the quality of the portfolio to enhance returns for its investors.

Chief executive officer James Templeton explains that the disposal campaign commenced three years ago when a strategic review of the portfolio identified a number of properties from across the portfolio for sale.

Most of these properties were subsequently disposed of and in 2011, 16 properties were identified for disposal, of which nine have already been sold at prices on or near their asking prices.

Emira has raised in excess of R260 million since the commencement of its 2012 financial year on 1 July 2011 through the sale of eleven non-core properties in its portfolio. Included in the disposals was the 16 159 square metre B-Grade, Hurlingham Office Park off the William Nicol Highway in Sandton, for R113 million and the 8 982 square metre Gift Acres shopping centre in Lynwood, Pretoria, which fetched R40 million.

“Largely through legacy reasons, Emira’s portfolio was heavily weighted towards B-Grade offices where office vacancies are high, so we took the opportunity to diminish our weighting in this property category.”

Time was spent by the Emira property management team on managing certain small office assets, which have been subsequently sold.

In future, he says, their time will be more productively spent on managing the fund’s higher value property assets.

Emira has raised in excess of R260 million since the commencement of its 2012 financial year on 1 July 2011 through the sale of eleven, non-core, properties in its portfolio.

Included in the disposals was the 16 159 square metre B-Grade, Hurlingham Office Park off the William Nicol Highway in Sandton, for R113 million and the 8 982 square metre Gift Acres shopping centre in Lynwood, Pretoria, which fetched R40 million.

Emira says the proceeds from the sale of the properties will be used to fund new developments including the Corobay and Podium office developments in Menlyn, Pretoria.

Some of the money may also be deployed to the Fund’s participatory interest (PI’s) repurchase programme which commenced late in 2011.

The Fund seeks to buy back its JSE-listed PI’s up to a total value of R75 million in a move which is expected to be earnings enhancing for existing Emira PI holders.

Other properties disposed of by Emira in the most recent round of property disposals include the 2 450 square metre C-Grade industrial property, Starsky House in Kramerville (R7 million), Dresdner House in North Road, Dunkeld West which at 834  square metres was Emira’s smallest office building and it sold for R11.2 million,  the 1 524  square metre Linkview office development in Kent Avenue, Randburg (R7.3 million) and the 1 803 square metre Ciros House off Homestead Road in Rivonia (R9.7 million).

He adds that the balance of the for-sale assets are being currently actively marketed. – Denise Mhlanga

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