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Johannesburg - Growth in rental income payouts (also known as distributions) should continue to be the main performance driver of JSE-listed property stocks over 2008, with most funds likely to see strong rental growth in their underlying portfolios.
This is the view of Catalyst Fund Managers MD André Stadler who says the lack of supply in all three sectors of the commercial property market - retail, offices and industrial - combined with rising building costs and a shortage of suitable zoned land is making it increasingly difficult to add new property stock to the market.
Stadler's comments follow the release of Catalyst Fund Managers' SA Listed Property index, which shows that JSE property stocks last year pipped general equities to the post.
The index recorded total annual returns of 26.52% for 2007, comfortably outperforming the Alsi's total return of 19.2%. That follows total returns for listed property of 28.37% in 2006, 50.04% in 2005 and 40.73% in 2004.
Performance gap widened
But not all property stocks had a good run last year. In fact, the performance gap between the sector's winners and losers has widened noticeably. In 2006, the worst-performing property fund was still up 30%.
However, in 2007 returns varied from a low of 2% (Ambit Properties) to a high of 63% (ApexHi C).
Other top performers include hotel niche fund Hospitality B, which delivered 60% to investors in 2007, asset managers Madison Property Fund Managers with 54% and sister funds Diversified and Resilient with 54% and 48% respectively. Apart from Ambit, last year's losers include Hospitality A (6%), ApexHi A (12.5%), ApexHi B (13%) and iFour (16%).
Stadler says income growth expectation was the main performance driver in 2007.
Income payout growth rate up
The rate at which the income payouts of property funds has grown is clearly underlined by Stadler's calculations, which shows that the weighted average growth in distributions declared by 10 of the sectors biggest funds in 2004 was 5.02%.
Average distribution growth for the same 10 funds surged to 16.34% in 2007.
Corporate activity, with the sector's big guns staging a number of take-overs and mergers last year, also supported share price growth.
Large institutions and pension fund managers such as the PIC who aggressively upped its exposure to property further underpinned the market.
Riskier, highly geared funds with complex capital structures fared best in 2007. Both ApexHi C and Hospitality B have a tiered share structure. They also have the highest effective gearing levels in the sector. Says Stadler: "The market appears to be favouring growth over value."
- Fin24