Picture: ISTOCK
Picture: ISTOCK

The JSE's real-estate sector, which has lost more than R120bn of its value so far in 2018, could be in for an even more difficult 2019, warns the CEO of the second-largest South African listed property company. 

Redefine Properties’ Andrew Konig said property would remain under pressure because there were no signs economic conditions would improve in the next year and it was also unclear what effect the results of the national election would have on SA’s private sector. 

Listed property share prices have been battered in 2018 due to the selloff in the Resilient group of companies, the trading in the securities of which is being investigated for price manipulation,  while a weak economy has constrained income growth. 

Many counters have slashed their dividend growth forecasts, having been forced to reduce rentals. The total return for the All Property Index which includes all the listed real estate stocks on the JSE is down about 19% year to date.

Despite a number of fund managers saying in recent weeks that they were confident both dividend and share price growth would gain some momentum in 2019 , Konig said he expected economic weakness to persist for at least another year. He said this would negatively affect Redefine's performance.

Redefine forecast that its dividend growth would be 4%-5% in its 2019 financial year,  no better than prevailing consumer price inflation of 4.9%.

Konig said even though Redefine was pleased with its latest set of financial results, general weakness in the economy had reverberated across numerous industries and the majority of the company's tenants were under pressure.

“We thought 2017 was difficult but 2018 has proved to be even harder. Every tenant is under distress in SA. We are happy with what we have achieved this year and believe the positives outweigh the negatives,” he said

The overall vacancy of Redefine’s local portfolio was flat at 4.5%  compared with 4.6% in the 2017 financial year. But retail vacancies climbed strongly from 3.3% to 4.5%. 

Leases for 497,491m² of space were renewed at an average rental reduction of 1.5% compared with growth of 2.9% in 2017 . Net arrears also increased to 10.9% of gross monthly rentals compared with 9.4% in 2017 .

As much as 79% of  Redefine’s R91.3bn asset base was in SA while 21% sat in directly held international properties and listed securities.

The company, whose assets include the retail buildings Centurion Mall and East Rand Mall and offices such as 90 Grayston and Alice Lane, reported 5.5% dividend growth for the year to August 2018, as it declared a dividend of 97.10c.

Market commentators said the company had taken commendable steps which boded well for the future.

“Redefine has done well to keep up with the trends; securing new tenants like hardware group Leroy Merlin in retail, [share office group] Wework,” said Keillen Ndlovu, the head of listed property at Stanlib.

“The dividend growth outlook is in line with the market trend where we have seen earnings growth being revised downwards. We are in a very tough environment due to lower economic growth as well as the fact that most markets — retail, office, industrial and residential — are generally in oversupply territory,” Ndlovu said.

A portfolio manager at Old Mutual Investment Group, Evan Robins, said Redefine had delivered pleasing results.

“The overall performance was pleasing considering the environment. Net asset value increased and like-on-like domestic income growth was pleasing. But nonrecurring income remains a drag on overall distribution growth,” Robins said.