Johannesburg - Investors may well have made plenty more moolah on general equities last year than on listed property, but bricks and mortar remained the best performing asset class over a five-year period.
Catalyst Fund Managers' listed property overview for January 2010, released on Wednesday, showed that the JSE's Listed Property Index delivered a total return (income and capital growth) of 14.1% for 2009, compared to 32.1% for the All-share Index (Alsi). Cash and bonds trailed behind with a total return of 10.3% and -1% respectively.
However, property stocks managed to pip general equities to the post over five years with a total annualised return of 21.6% compared to the Alsi's 20.3%. Regarding the individual performance of the 18 counters that make up the R103bn listed property sector, Vukile Property Fund was the top performer for 2009 with a total return of 30.73%.
That was followed by Capital Property Fund (29.75%), Premium Properties (28.9%), Pangbourne Properties (26.92%) and Redefine Income Fund (24.15%).
The worst performers for 2009 were hotel niche fund Hospitality B, with a negative total return of -31.46%. The latter's hotel occupancies and revenues were hit by a massive slump in local and overseas tourism.
Growthpoint Properties (1.66%) and Octodec Investments (9.53%) were also in the bottom three.
Looking ahead, analysts warned investors should not expect property stocks to shoot the lights out in 2010. Catalyst Fund Managers managing director André Stadler said property fundamentals have weakened in recent months on the back of rising vacancies in shopping centres, office blocks and factories.
Rental growth on expiring leases (a big driver of income growth in previous years) is also likely to be lower this year, with some risk of negative reversions. Stadler said electricity and municipal rate hikes could place further pressure on the earnings of real estate companies in the year ahead.
Stanlib's top picks
Stanlib, one of the biggest investors in the listed property sector, expects core distributions (the income paid out to shareholders on a quarterly or biannual basis) to slow to an average 6.5% in 2010, down from about 8% in 2009.
Stanlib's total return forecast for the listed property sector for 2010 is a moderate 9.4% (9.3% income and 0.1% capital growth). Although general equities could again outperform property stocks in 2010, property's forecast return compares well with the 9.1% and 8.1% expected for 10-year bonds and one-year cash deposits respectively.
Stanlib Property Franchise co-heads Evan Jankelowitz and Keillen Ndlovu said: "We are comfortable with the level of certainty in our attractive yield forecasts, despite a muted capital growth outlook."
Stanlib's top picks for 2010 include Fountainhead Property Trust, Capital, Resilient Property Income Fund, Vukile and Redefine.
"Fountainhead offers relatively attractive pricing for a stock that makes it easy to sleep soundly at night. The accounting practices are also extremely prudent, which fares well in these uncertain times.
"Although Capital does not look that cheap any more, we struggle to find a better-run fund in the market. Resilient is another stock that has run nicely over the years, but again the price is justified as we expect this stock to show the best earnings growth in 2010.
"Vukile possibly offers the best entry point into the sector at current prices. While it is not one of the household names, it manages to keep up with sector growth and shows no reason why it should trade at the discount that it does.
"Redefine has disappointed in recent years; however, we feel that the market has perhaps been too harsh and with distribution growth of around 24% forecast for this year, the stock is beginning to offer value."
- Fin24.com