Xcede Property comment - Sep 10 - Fund Manager Comment09 Nov 2010
The SA Listed Property Index (J253) recorded a total return of 3.53% in September 2010. The PLS Index (J256) and PUT Index (J255) recorded total returns of 3.81% and 2.73% respectively over the same period. Capital Markets firmed slightly during the month with the yield to maturity on the Long Term Government Bond Index ending the month at 7.90% (7.94% - 30th August 2010). The historic 12- month rolled yield of the SA Listed property sector also firmed during September and ended the month at 7.72% (7.87% - 30th August 2010).
Equities was the best performing asset class in September, recording a total return of 8.74%, followed by SA Listed Property (3.53%), Bonds (0.76%) and Cash (0.54%) SA Listed Property is the best performing asset class year to date (25.68%) and over the past 12 months (30.77%).
During the month the South African Reserve Bank Monetary Policy Committee (MPC) decided to cut the repo rate by 0.5% ti 6.0%. The MPC has cut the repo rate by 600 bps since December 2008. The final MPC meeting for 2010 will be held on the 17th and 18th November.
The MPC has committed that although it takes info consideration rand movements when making its rates decision, the rand has moved to stronger levels on the back of portfolio inflows into the country as a result of the increase in the popularity of emerging markets and increase in global risk appetite. According to Moody's, the average CPI for 2010 and 2011 is forecast to be 4.9% and 5.5% respectively. Considering this and analyzing the forward rate agreements (FRA) the market appears to be pricing in approximate a 20% probability of a 50bps cut to the repo rate at the November meeting.
Xcede Property comment - Jun 10 - Fund Manager Comment31 Aug 2010
After a dismal performance in May, global equity markets tried to stage a promising bounce during the first half of June, but things once again turned for the worse during the last two weeks of the month. The MSCI World Index ended the month down 3,6%. Emerging markets weathered the storm somewhat better, but the MSCI Emerging Markets Index still ended the month down 0,9%. Of the major stock market indices, the Nasdaq (-6,6%), the S&P500 (-5,4%) and the London FTSE (- 5,2%) took the biggest beating, while the Hang Seng (+1,8%) and the German Dax (+0,0%) ended in positive territory.
There has been a very clear change in sentiment, the economy and technical indicators over the past two months that cannot be ignored.
Actions being implemented to contain Europe’s growing budget deficits do not bode well for the global economic recovery, and on top of this China’s strong growth is in question after the latest data releases. The escalation in euro zone sovereign debt fears and financial market volatility has increased the risk of a double-dip recession, resulting in continued demand for safe-haven investments. Global bonds (JP Morgan Global Bond Index) increased by 2,1% and US 30-year Treasuries by 3,5%.
The local equity market declined by more than most emerging markets, with the FTSE/JSE All Share Index yielding a total return of -3,2%. This can be ascribed to the poor performance of mining (-4,5%) and resources shares (-4,2%), most likely due to China’s second month of slower growth in manufacturing. The FTSE/JSE Financial Index yielded a return of -3,1% and the SA Industrial Index -2,2%. Despite a 2,3% increase in the rand gold price, the Gold Index only managed to eke out a small positive return of 0,1%, while Real Estate yielded a return of 1,1%.
SA bonds were relatively flat for the month of June, with the All Bond Index yielding a return of 0,3%. Cash yielded 0,6% for the month.
While global stock markets are oversold in the short term, most markets have also broken below their longer-term trend indicator (i.e. the 200-day moving average). This warrants a continued cautious investment strategy of below-benchmark equity exposure for now, which has been implemented in our portfolios.
Xcede Property comment - Mar 10 - Fund Manager Comment22 Jun 2010
The S A Listed Property Index (J253) recorded a total return of 5.75% in February 2010. The PLS Index (J256) and PUT Index (J255) recorded total returns of 5.97% and 3.95% respectively over the same period. The historic yield of the SA listed property sector ended the month at 8.6%. SA listed property recorded the highest total return for the month followed by Bonds (2.02%, - represented by the ALBI). Cash (0.55%) and Equities (0.37%, represented by the ALSI). On a 12 - month rolling basis equities (ALSI) have recorded a total return of 48.30%, followed by SA Listed Property (25.19%) Cash (8.43%) and Bonds (6.78%).
In February, 9 companies (11 stocks) reported results for the period ended 31st December 2010.
Information provided in the discussion with the respective management teams and other industry participants provides good insight into the major themes driving the outlook for
Income distribution growth.
1)Escalation Rates on existing leases
On average escalation rates on existing lease contracts are between 8-10% p.a.
2) Rental growth/decline on expiring leases
The listed property companies that reported, on average achieved rental growth on expiring leases.
3)Increase/Decrease in occupancy levels.
The theme over the past 12 months has been occupancy decline (and retention at best). This has been a major driver contributing to the lower growth in income distributions. Tenant retention will be a major focus of property companies in the coming 12 months. Anecdotal evidence of increasing leasing enquiries coupled with a decline in building plans passed and an improving economic outlook appears to have contributed to listed property management consensus that, although vacancy levels may deteriorate slightly in the short term, 2010 may see the peak in portfolio vacancy levels.
4) Increase/Decrease in property related expenses.
On average property expense ratios have increased.
5) Increase/Decrease in debt funding costs.
The underlying base or swap rate is currently favourable for listed property companies; however, margin negotiation is becoming difficult.
Tenant retention and property cost containment will be the major focus of management teams. There are strong indications that the economic environment is improving but the property market tends to lag the general economic recovery by 6- 12 months. Despite this, distribution growth will continue, driven primarily by contractual rental escalations of approximately 8%-10% on the majority of portfolio leases, and fixed interest rate costs.
Listed property is a long-term investment. It provides an attractive yield with the prospect of growth in income in excess of expected inflation.
Xcede Property comment - Dec 09 - Fund Manager Comment18 Feb 2010
International
Global economic and investor sentiment gained further traction in the fourth quarter of 2009 as global liquidity concerns faded fast. The risk appetite of global investors, as measured by the bond yield spread between emerging-market bonds and US bonds, continues to shrink. Evidence of sustained global economic recovery is increasingly visible, especially in increasing demand and the resultant rising commodity prices (see graph of CRB Index below).
The improved economic data and investor sentiment have obviously also filtered through to global equity markets, resulting in another good quarter for developed markets and especially emerging markets. Given the extreme financial, banking and credit market concerns that prevailed at the beginning of the year, the recovery in global equity markets since the March 2009 lows and the returns for the calendar year can only be described as spectacular.
Two concerns regarding the recovery are the lack of job creation and the fact that heavily indebted consumers remain reluctant to spend. Global stock markets have already discounted a significant improvement in corporate earnings for the next year, and without job creation and an improvement in consumer spending it is extremely difficult to see any positive surprises that would boost share prices significantly in the short term.
A potential headwind for stock markets is the strong rise in global bond yields, which has resulted in a significant decline in capital value. Although rising long-term interest rates are an indication of expectations of improved economic activity, they also signify the potential for higher inflation and ultimately the necessity for higher short-term interest rates.
South Africa
The SA rand proved to be one of the world's strongest currencies in 2009, gaining 28,7% against the US dollar, 25,4% against the euro and 15,7% against the pound. A significant amount of rand strength can be ascribed to the strength in commodity prices and significant foreign inflows into South African financial markets. Total net inflows for 2009 came to R99,5 billion - the highest net annual inflow since 2000
.
Foreign inflows into the local equity market also boosted returns last year, with the FTSE/JSE All Share Index gaining 11,4% for the quarter and 32,1% for the year.
The BESA All Bond Index has been in a rising trend since the middle of 2009, mainly on the back of lower inflation. The All Bond Index outperformed cash over the six months and one month ended 31 December 2009, yielding 4,1% and 1,2% versus 3,9% and 0,6% for the STEFI Composite Index.
Xcede Property comment - Sep 09 - Fund Manager Comment08 Jan 2010
The SA Listed Property Index (J253) recorded a total return of 2.05% for October 2009.
The historic yield of the SA listed property sector strengthened and ended the month at 8.67% (8.73% - 31st August 2009). SA listed property was the best performing asset class in September recording a total return of 2.05%, following by Cash (0.62%), Equities (All Share Index, 0.25%) and Bonds (All Bond Index, 0.08%).
For the year to date, the SA listed property sector has recorded a total return of 9.63%
The ability of property companies to maintain sustainable and high quality income distribution growth will be a key differentiator in terms of property company ratings and total return performance. The prospect of property income growth from the SA listed property sector appears relatively intact. Income distribution growth will continue to be driven by contractual rental escalations and positive rental reversions. The risks to distribution growth will be an increase in vacancy levels and higher borrowing margins.
As at the 30 September 2009 the historic rolled income yield of SA listed property was 8.67%. Assuming that the income distribution from the SA listed property sector will deliver growth of approximately 8% over the next twelve rolling months, the forward yield from the SA listed property sector is approximately 9.63%. This compares favourably to a 12-month retail bank fixed deposit rate of 5.95% and to the yield to maturity on the R157 long term government bond of 8.29% (as at 30 September 2009). Assuming no de-rating of the asset class, listed property remains an attractive alternative to cash and bonds over the long term.