The property sector has been a disaster zone, but an analyst believes these companies are looking 'interesting'

Business Insider SA
A Stor-Age facility in Cape Town. Photo: Stor-Age
  • For the first time in a decade, the dividend yield offered by JSE-listed property shares is similar to that of the SA government bond yield.
  • This means that property is showing value relative to bonds - but the weak economy and oversupply of office and mall space will weigh on the sector for some time.
  • Still, two property companies - Vukile and Stor-Age - are looking interesting, says a Sanlam Private Wealth analyst.
  • For more, go to Business Insider SA.

It has been a hard 18 months for investors in property companies.

The sector has lost a third of its value after a shock R100 billion sell-off hit the Resilient group of companies amid allegations of suspect deals and price manipulation – subsequently rejected by the SA financial authorities.

The impact of the weak economy and an oversupply of offices and malls contributed to a downturn in the listed property sector. 

Things are very tough out there, as recent results from Investec Property Fund and Redefine showed.

The sector’s recent woes ended an impressive run: property stocks delivered almost 23% a year from 2003 to 2017, outperforming both the All Bond Index (10.1%) and the All Share Total Return Index (14.5%).

JSE listed property index. Source: Sharenet
JSE listed property index. Source: Sharenet

Now, for the first time in ten years, the dividend yield offered by JSE-listed property shares is similar to that of the SA government bond yield, says Richard Colburn, equity analyst at Sanlam Private Wealth.

“From a ‘top-down’ or macroeconomic view, listed property is therefore now starting to show value relative to bonds.”

Source: INet/Sanlam Private Wealth
Source: INet/Sanlam Private Wealth

“Property is a cyclical business and price weakness often provides opportunities to invest at attractive yields," says Colburn. "We’re starting to see value, but remain cautious about the overall sector given the deteriorating fundamentals, which aren’t likely to improve over the short term.””


Still, Colburn believes two property companies look "interesting":


Vukile-owned Los Arcos shopping centre in Seville,
The Vukile-owned Los Arcos shopping centre in Seville, Spain.

The company has retail properties in Southern Africa as well as in Spain and the UK. In South Africa it owns East Rand Mall, Randburg Square and others.

“Locally, Vukile has differentiated itself through astute, value-adding capital allocation and active management initiatives. Trading on a forward yield of 8.8%, the counter looks attractive to us.”


Stor-age owns self-storage operators in South Africa and the UK.

“Its assets are located in prime locations within dense nodes, and management has sustainably grown rentals through improved operational performance and the expansion of existing assets. A large and diverse tenant base, coupled with a strong operating system and a needs-based product, will allow Stor-age to trade well through different economic cycles.

“(Stor-age) is trading on a forward yield of 7.7%, we’re happy to be investors," says Colburn.

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