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Asset Class Total returns for 2014

By: Keillen Ndlovu - Head of Listed Property Funds - Stanlib

  • Listed Property 26.64%
    • Capital 18.59% and Income 8.05% *
  • Equities 10.88%
    • Capital 7.60% and Income 3.28%*
  • Bonds 10.15%
  • Cash 5.90%

*Please note that income from Equities (dividends) is after tax whereas income from Listed Property is before tax. However, listed property income still beats (income from) equities even after tax.

Source: I-Net Bridge Jan 2015

Reasons for listed property outperformance:

  • Better than expected results (i.e. income growth largely boosted by listed property companies with some offshore earnings and the benefit of a weaker rand). Local property fundamentals (vacancies, rental growth, arrears and bad debts) remained fairly good despite a weaker South African economy.
  • Lower than predicted bond yields i.e. when bond yields fall, listed property prices go up
  • Increased appetite for listed property including balanced funds and other non-traditional property funds.

Equity raisings

  • 2014 was an exceptional year. We estimate that about R40bn of equity was raised in the SA listed property sector. This compares to about R18bn in 2013. This was through a combination of new listings, dividend re-investments, private placements, book builds and rights issues. Virtually all equity raisings were oversubscribed. This indicates the huge appetite for listed property stocks.

Corporate action

  • 2014 was the busiest year. We believe that the amount of equity raised will slow down and so will the number of new listings and take-overs/mergers.
  • There's not much lower hanging fruit. 2015 will be a year of closing some of the pending deals i.e. take-overs/mergers - Growthpoint/Acucap, Vukile/Synergy, Rebosis/Ascension, Redefine/Fountainhead. There are a few smaller funds that remain take-over targets like Dipula and some transactions that remain uncertain such as Redefine buying a stake in Emira.
  • We believe that the residential market will gain more traction. Arrowhead is looking to list a pure residential fund. A few other REITs are exploring this space.

Separate asset class

  • After years of doubt and lack of conviction, the generalists (as compared to us, the "specialists" )have started to recognise listed property as a separate asset class. We have said this before and we shall say it again. What makes listed property stand out is the stable and defensive nature of the income. It is easier to predict compared to equities. It is less volatile compared to equities. For example, since 1994 the average income growth from the listed property sector has never been negative. As a result, listed property has a weaker relationship compared to equities. Listed property has a stronger relationship with bonds (mainly due to the stable nature of the income). However, listed property will outperform bonds over time because listed property provides growing income whereas bonds do not (e.g. 10-year bonds pay out the same coupon over the 10 years).

The offshore and Africa story

  • This is likely to continue given limited opportunities locally.

Listed Property Outlook

  • We believe that income will be a bigger component of total returns in 2015 (as compared to capital in 2014 i.e. Capital 18.59% and Income 8.05%).
  • Looking ahead, we are expecting income growth of around 8.5% over the next 12 months. This results in a forward yield of 6.9% for listed property, which is below 10 year bond yields (7.6%) and cash (7.1%). Listed property however, provides the benefit of a growing income stream in comparison to cash and bonds. Over the next 12 months, we expect listed property to deliver a total return in the region of +5% to + 11.5% in our base and bull case assumptions respectively. Based on our bear case, this may however deteriorate to -1% if bond yields weaken to over 8.5% from the current 7.6% levels.


  • Global markets volatility particularly emerging markets, South Africa's credit rating concerns, Eskom power shortages could slow down trading in shopping centres and increase operating costs (installation of generators), slowing economy, oversupply in the office space and increased competition in the retail space.

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