The yield to maturity (YTM) on the Long Term Government Bond Index weakened during the month to end the month at 8.28% (8.16% - 31st May 2015). The listed property historic yield for the 38 property companies, Catalyst Fund Managers report data on, ended the month at 5.8%. Excluding non-income distributors (Pivotal, Attacq) and 100% offshore earnings focused companies (New European Property Fund, Rockcastle, Redefine International and Investec Australia) the market cap weighted historic yield of the remaining companies is 6.6%.  

SA Cash recorded the highest total return (0.55%) for the second consecutive month, having achieved a return of 0.46% in May 2015. SA Bonds (-0.15%), SA Listed Property (-0.36%) and SA Equities (-0.76%) were the next best performing asset classes. For the last 12 months SA Listed Property has recorded the highest total return (26.98%), followed by SA Bonds (8.21%), SA Cash (6.27%) and SA Equities (4.79%). During the month of June, we were hosted on an Investor tour by two JSE listed offshore real estate companies namely, New Europe Investments and Rockcastle.   

The NEPI tour was of existing assets, potential acquisitions and current developments in Romania and Slovakia.  We remain impressed with the quality of assets built by the development team, with most of their assets being more modern than competitors. Management remains focused on the acquisition and development of yield enhancing retail assets, and to a less extend office assets, in Romania and surrounding areas in Central Europe. The Rockcastle tour included a visit to two assets owned by them, a development site and a pipeline of potential acquisitions across Poland. The company’s strategy remains the recycling of low yielding listed property securities into high yielding direct assets.  

IndluPlace Properties (ILU) listed on the JSE Stock Exchange on Friday 19th of June 2015, following a successful capital raise of R400 million. IndluPlace was previously Arrowhead Residential Limited, Arrowhead’s wholly owned subsidiary owning a portfolio of residential properties. The company listed on the main board of the JSE under the “Real Estate – Residential REITs” sector, at a listing price of R10 a share. Indlu has a portfolio of 3 690 residential units valued at an aggregate total of R1.6 billion.  

Delta International Property Fund announced a private placement of 2,645,556 new ordinary shares at an issue price of ZAR18.00 per share to raise ZAR47,620,008 (equivalent to approximately US$3,868,400). Investec Property raised R561 million through an accelerated bookbuild by placing an aggregate of 35.8 million shares at a price of R15.70 per share. Sirius Real Estate issued 108,695,652 new ordinary shares, raising €50 million by way of an accelerated bookbuild at a price of 46 Euro cents per share.  

Accelarate property fund released its financial results for the period ended 31 March 2015. The company announced a distribution per share of 49.2 cents, which was in line with guidance as at the time of listing.  

Redefine and Fountainhead advised shareholders regarding the conclusion of an agreement between the companies. Under the agreement, Fountainhead unitholders will receive 85 Redefine consideration shares for every 100 Fountainhead units in issue on the record date directly from Redefine.  

The month of June saw a number of corporate governance announcements in the sector. Hospitality property fund dismissed its Chief Executive Officer, Andrew Rodgers with immediate effect, on the back of the announcement relating to the resignation of its current financial director, Ridwaan Asmal, in the previous month. Emira property Fund announced the resignation of its Chief Executive Officer, James Templeton with effect 31 August 2015. Texton Property Fund advised shareholders that both Rob Kane and Marelisa de Lange have resigned as CEO and the CFO respectively.  

For some time now we have been commenting that Real Estate fundamentals in South Africa remain challenging, but strong capital markets and lower yields for longer have been supportive of listed real estate pricing. Local listed property players have been diversifying their portfolios offshore in an effort to access stronger real estate fundamentals and attractive yield versus interest cost spreads. In the short term, listed real estate pricing is likely to take its direction from capital markets rather than real estate fundamentals, earnings and earnings growth. Over the long term, real estate fundamentals, earnings and earnings growth will drive performance.