Listed property June 2016

Transcription

1 Listed property June 2016 Equity sales note by SBG Securities (Proprietary) Limited Greg Brady 30 June 2016 Please refer to the disclaimer at the end of this document This document is not investment research. It therefore constitutes a marketing communication as those terms are defined by the UK FCA Handbook as it has not been prepared in accordance with the EU legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Neither should this document be considered a Research Report under SEC rules. NOT FOR DISTRIBUTION IN THE UNITED STATES, CANADA, AUSTRALIA, BANGLADESH, INDIA, INDONESIA, JAPAN, KOREA, PHILIPPINES, SINGAPORE OR TAIWAN OR IN ANY OTHER JURISDICTION WHERE TO DO SO WOULD BE UNLAWFUL.

2 1 Page 1. SA listed property sector performance 2 2. SA property share 3 3. Foreign property share

3 2 SA listed property index delivered a negative return in the last three months Indexed total returns last 12 months (Rands) Indexed total returns last decade (Rands) Mar-15 Jun-15 Sep-15 Dec-15 SAPY All Bond All Share Sources: I-Net, SBG Securities (Pty) Ltd 100 Sep-05 Apr-07 Nov-08 Jun-10 Jan-12 Aug-13 Mar-15 SAPY All Share All Bond Sources: I-Net, SBG Securities (Pty) Ltd SAPY return was -3.3% over last 3 months versus -2.3% for ALSI and -5.7% for financial equities Long-term property sector performance lead over ALSI has maintained Biggest positive 3m total returns (%) of local shares: EQU (18.0), HPA (10.0), PIV (6.4), SSS (5.4), HYP (4.3), LDO (3.9), DLT (3.7), SAC (2.6), VKE (2.6) Negative 3m returns: EMI (-10.6), REB (-9.2), OCT (-6.6), TEX (-6.6), TWR (-5.0), ATT (-4.7) Foreign/dual-listed 3-month rand returns: SRE (21.4), IAP (2.4), SCD (-2.0), TDH (-4.0), ROC (-5.8), MSP (-10.8), NEP (-11.3), STP (-12.1), RPL (-12.8), CRP (-18.7), ITU (-19.6), CCO (-19.7),

4 DLT TEX HPA&B TWR REB AWA ILU EMI OCT APF SSS VKE IPF SAC LDO RDF EQU GRT FFA&B HYP RES 3 SA REITs 2-yr forward distributable EPS yields compared % Sources: Factset, SBG Securities (Pty) Ltd >12% 2-yr clean forward yields forecast for DLT, TEX, Hospitality, TWR, REB and AWA. Lowest 2-yr yield is RES, followed by HYP, then Fortress Resilient and Fortress have highest estimated net foreign exposure of roughly 35% and 50% Corresponding 2-yr yields for NEP and ROC average at circa 5.0% Redefine and Growthpoint also benefit from effective foreign exposure near 20% level

5 Price to book ratio 4 Price-to-book versus forecast total ROE of SA property stocks RES HYP 1.30 SAC FORT 1.20 RDF 1.10 EQU LDO 1.00 SSS GRT ILU VKE 0.90 AWA 0.80 ATT IPF APF TWR TEX EMI PIV OCT 0.70 REB 0.60 DLT HOSP 5% 10% 15% 20% 25% 12m forward total ROE Sources: Company data, SBG Securities (Pty) Ltd estimates Average SAPY P/B ratio still below parity - e.g. GRT adjusted P/B at 0.94 Our ROE measure includes expected 12m increases in NAV in addition to cash ROE our proxy for forecast equity capital gains of REITs is 24m forward average annualised EPS growth Counters that lie furthest under the value-line remain Hospitality and Delta Most expensive is RES followed by HYP but the chart would not fully take account of longerterm relative growth or quality of underlying physical portfolio

6 5 Mark-to-market NAV s for significant listed property holdings Investor Listed investees Curr. equity Prop. of NAV NAV NAV value Rm mark. cap. last adj. MTM change Investec Property Investec Australia Property (12.3%) % % Attacq MAS Real Estate (48.6%) % % MAS (EUR) Sirius (12.1%) % % Resilient FFA (2.8%), FFB (15.8%), NEPI (9.3%), ROC (20.1%), Hammerson (2.3%) % % Lodestone Greenbay (21.4%) % % Fortress NEPI (17.3%), Resilient (9.9%), ROC (36.5%), Hammerson (2.0%) % % Growthpoint Growthpoint Australia (65.0%) % % Emira Growthpoint Australia (4.9%) % % Vukile Fairvest (31.2%), Atlantic Leaf (20.5%) % % Arrowhead Dipula B (23%), Rebosis (11.3%) % % Delta Delta International (26.34%) % % Redefine RPL (30.1%), IHL (27.9%), Cromwell (25.5%), EMI (11.5%), AWA (12.3%) % % Sources: Factset, Company data, SBG Securities (Pty) Ltd estimates We have updated NAV s in previous chart for value movements in underlying listed assets since the companies last reports Highest value contributions from listed property assets ( > 20% of equity value) for: Attacq, Resilient, Fortress, Growthpoint and Redefine We do not track holdings of SA listed subsidiaries Ascension, Synergy, Indluplace Market value movements of listed investments have been highly positive for Resilient and Fortress but moderately negative for Redefine since last reports

7 HPA&B ILU DLT LDO TEX SSS AWA REB IPF OCT EQU SAC TWR VKE EMI FFA&B RDF APF HYP GRT RES 6 PEG ratios for SA REITs Sources: SBG Securities (Pty) Ltd estimates Our PEG ratio uses forecast EPS growth in second rolling year as proxy for long-term sustainable growth. LT growth and 12m forward yield are effectively weighted equally Best value REITs by this measure (lowest PEG): HPA&B, ILU, DLT, LDO, TEX, SSS Most expensive PEGs are Resilient, followed by Growthpoint then Hyprop

8 7 SBG Securities Research SA REIT coverage and ratings Vacancy DY P/B CAAG Loan/ Price Target 12m 24m Value price fwd fwd Implied total return Rating Growthpoint 4.9% 8.0% % 32.4% % Hold Redefine 5.7% 8.5% % 43.0% % Hold Hyprop 1.5% 5.9% % 28.5% % Hold Resilient 1.7% 4.5% % 21.0% % Sell Emira 4.7% 11.3% % 33.7% % Sell SA Corporate 2.3% 9.2% % 28.9% % Buy Rebosis 2.4% 12.4% % 33.7% % Hold Accelerate 7.1% 10.6% % 35.6% % Hold Sources: Company data, SBG Securities Research SBG Securities Research downgraded Rebosis to Hold in the last quarter after reducing forecast EPS for the expected dilutive effects in FY17 from its proposed acquisition of recently developed shopping centres Emira was also downgraded to Sell owing to doubts about its ability to bounce back from its guided 2% decline in FY17 distributable EPS SBG Securities Research currently favours SA Corporate and Hyprop

9 8 Forward clean distributable earnings yields two years out for foreign REITs 10 8 % SRE RPL STP IAP CRP MSP ITU ROC NEP SCD Sources: Factset, company reports, SBG Securities (Pty) Ltd The highest 2-yr forward distributable earnings yields are measured for Sirius Real Estate (SRE) at 9.0%, Redefine International (RPL) at 8.6%, followed by Investec Australia (IAP) and Stenprop (STP) both at 8.3% We continue to believe that RPL has potential to re-rate towards Capital & Regional (CRP) s lower yield, especially in view of its 36% exposure to UK hotels plus Germany

10 9 Price to book value ratios of foreign counters ITU CCO CRP STP MSP SRE RPL SCD IAP ROC TDH NEP Sources: Company reports, SBG Securities (Pty) Ltd The vote for Brexit has pushed share price discounts to NAV to new lows for pure UK or high UK exposure property companies Future reported NAV per share measures for pure UK companies like CCO, CRP and ITU are likely to fall if the UK falls into recession

11 10 Price-to-book versus forecast total ROE of foreign property stocks NEP TDH ROC 1.25 IAP 1.05 MSPRPL SRE 0.85 ITU CCO STP CRP % 7% 9% 11% 13% 15% 17% 19% 21% Sources: Factset, company reports, SBG Securities (Pty) Ltd Best value according to this chart are Sirius and Investec Australia (IAP) Priciest by these measures are NEPI and Tradehold (TDH) The Brexit effect makes current NAV measures and forecast ROE for UK companies less reliable

12 11 Australian REITs have become relatively more attractive versus Europe and SA The tale of two Investec REIT prices in rands SA versus Australia IPF-JSE IAP-JSE Sources: Factset Investec Australia Property (IAP) listed at a price far below Investec Property Fund (IPF) but has now caught its stable-mate s price, as Australia s economy and currency outperforms SA Estimated clean 12m forward yield of IAP is 7.9% in AUD versus 9.4% for IPF in ZAR, but Australian CPI was last reported at just 1.3% versus 6.1% in SA IAP s 12m forward yield of 7.9% also compares favourably to Growthpoint Australia s (GOZ) corresponding yield estimated at 6.7%

13 12 Tax treatment of listed property securities for SA individuals Withholding tax on distributions SA normal income tax SA-REIT no yes UK-REIT (ITU, RPL, CRP) A-REITs (GOZ, IAP) REIT domiciled in IOM, Mauritius (NEPI, ROC) UK and other public companies (CCO, TDH, MSP, SRE, STP, SCD) Sources: Company data, SBG Securities (Pty) Limited 20% at UK source, can be rebated to a net 15% in SA 15% at Australian source, effectively reduced to +6% after depreciation allowance no yes 15% foreign dividend tax payable in SA no 15% foreign dividend tax payable in SA no

14 13 value comparisons Developed market interest rate expectations are dramatically lower post-brexit, braking the initial rise in the USD, allowing the R186 SA government bond yield to fall to 8.7% and the SAPY sector to bounce back Our estimated clean 12m forward yield of 8.0% for Growthpoint (as a proxy for SA REITs) is little higher than the 6.7% of its GOZ Australian subsidiary, although Australia has much lower inflation and interest rates. Growthpoint currently trades at a 6% discount to its adjusted book value, reflective of likely SA property value stagnation We favour SA Corporate and Hyprop as solid bets among the large SA REITs. While undeniably cheap, we are wary of the secondary office exposure within Delta and Tower as well as the 40% UK content within Texton. An important mitigation of SA REIT asset exposure to UK is that a large portion is effectively hedged through funding Hospitality (assuming proposed Tsogo Sun deal goes through), Lodestone, Stor-age and Arrowhead look most attractive of the smaller SA REITs Of the foreign / dual-listed counters, German industrial and mixed-use property specialist Sirius still screens surprisingly well, despite its strong recent price rise. We forecast both strong dividend and capital (NAV) growth for Sirius which operates solely in the most robust of the EU economies. We avoid companies with high UK exposure at present, although RPL may have the best re-rating potential within this set Australian REITs have become relatively more attractive, being more distant from the troubles in Europe and SA. Notwithstanding its commodities-dependence, the economy has been one of the best performers in the G10. Investec Australia (IAP) offers an attractive yield of 7.9% with comparatively low gearing of 29%

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