Though the SA listed property index has clawed back a hefty 35% of its losses since the end of October, the share prices of individual counters continue to seesaw — so much so that it’s no longer unusual for the same stock to shed 15% one day and gain 20% the next.
What’s more, most SA-based real estate investment trusts (Reits) — even those that managed to grow earnings despite lockdown-related trading restrictions — have either slashed or postponed dividend payouts this year.
The result is that it’s become tricky for analysts to make accurate total return forecasts.
So with short-term performance comparisons and predictions near impossible, it’s probably an opportune time for investors to review longer-term trends.
Performance figures released by the SA Reit Association last week provide interesting insight into which property stocks have managed to stay the distance (despite short-term volatility) and which ones haven’t lived up to expectations.
Among the JSE’s universe of 28 SA-based Reits there are two counters that shine particularly brightly over both the short and the longer term: Stor-Age and Fairvest. Both are regarded as specialist niche property plays.
Stor-Age, the JSE’s only self-storage landlord, is the top performer over three and five years with a total annualised return of 10.1% and 13.3% respectively. To put this year’s carnage into real perspective, Stor-Age counts among the sector’s three highest-growth counters over one year with a total return of — wait for it — minus 0.1%.
Fairvest, which owns a portfolio of smaller and midsized retail centres that cater mostly for lower-income shoppers in rural areas and townships, delivered a total return of 1.6% over one year, 6.1% over three years, 10.7% over five years and 14.5% over 10 years.
Arrowhead A also makes an appearance among the one-and three-year winners. This was no doubt driven by its predictable dividend payout policy. It virtually guarantees dividends to grow annually by the lesser of 5% or the consumer price index.
Another dual-share counter with a similar dividend policy, Fortress A, is the second-best performer over 10 years, with a total annualised return of 9.9%. It is followed by nonmetropolitan mall owner Resilient at 9%. Resilient owns one of the largest such shopping centre portfolios in SA.
The SA Reit Association’s performance figures exclude popular rand hedge counters such as German business park owner Sirius, Eastern European mall owner Nepi Rockcastle and UK multilet industrial business Stenprop.
And while the total returns delivered by the best-performing SA Reits over three years may appear rather muted, they have to be compared with the overall performance of the sector, which has had a dismal time, to say the least, over this period.
In the year to date alone (January to November), SA-based property stocks delivered an average total return of –44%. This follows 2018 and 2019’s respective –20.8% and –2.6%.
So it’s little wonder that only four out of 28 SA Reits notched up a positive total annualised return to shareholders over three years: Stor-Age, Arrowhead A, Fairvest and specialist logistics firm Equites (2.6%).
The outperformance of these stocks becomes more noteworthy when compared with the magnitude of losses suffered by the sector’s worst performers over three years. These include heavily indebted Rebosis B; Delta, whose portfolio includes mostly government-tenanted offices (and which is now being rocked by fraud allegations); and Fortress B.
All three counters recorded a total annualised loss of more than 50% over three years. The fact that two dual-share counters (albeit the higher-risk B class shares this time) count among the sector’s top three losers is indicative of investors’ diminished risk appetite in recent times.
B shares are highly geared and typically targeted at higher risk-higher reward-type investors who will benefit when the going is good but stand to lose out during tough times.
Redefine — formerly the JSE’s second-largest diversified Reit — is the worst performer over one year with a total return of –68.7%.
However, the stock also disappointed over the longer term, with a 10-year annualised return of –3.9%.
Hospitality, which owns a portfolio of hotels, is the sector’s worst performer over 10 years at –20.4%. Fourways Mall owner Accelerate also didn’t live up to expectations, with a total return of –27.2% over five years.
But back to the winning stocks. The surprising chart topper is Stor-Age. The company, which was listed on the JSE five years ago and was built from scratch in their garage by brothers Gavin and Stephen Lucas (later joined by fellow University of Cape Town accounting graduate Steven Horton), initially had little support from institutional investors.
At the time, the general view was that it would battle to build scale in an industry known for its fragmented ownership. But the naysayers have been roundly silenced. In only five years, Stor-Age has grown the value of its portfolio more than fivefold, from R1.4bn to more than R7bn, and has become a major self-storage player, not only in SA but also in the UK through its Storage King subsidiary.
CEO Gavin Lucas attributes the company’s outperformance to its specialist focus. He says: "Everything we do is solely geared towards self-storage in its entirety — not residential, not office, not retail and not industrial." He believes the trio’s entrepreneurial approach and "highly strategic" growth strategy, which is implemented in five-year tranches, further underpins the company’s success.
As the three men are chartered accountants, the company’s emphasis is also firmly on balance sheet management. As Lucas puts it: "Knowing full well that a seismic negative economic event is always just around the corner, we have a very conservative outlook on the debt profile of the business. As a result, when we entered the pandemic, Stor-Age was well positioned to weather the storm."
Lucas says Covid-induced life changes such as moving house, divorce and death inadvertently also created increased demand for Stor-Age’s products this year.
Looking ahead, he says the future growth of Stor-Age’s business will ultimately depend on how quickly SA’s economy can bounce back. "We need to see the return of real economic growth to allow for fixed capital and new household formation," he says.
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