The FTSE/JSE SA Listed Property Index (SAPY) achieved a total return of -2.2% in Q2’18, again underperforming other domestic asset classes such as cash and equities, as measured by the FTSE/JSE Shareholder Weighted Index (SWIX), which returned 2.08% for the quarter. Year to date (YTD), the SAPY has materially underperformed with a return of -21.4% versus -4.8% for general equities.
The best performing shares in the SAPY for the quarter included the likes of Greenbay, Fortress B and Resilient, with this grouping returning a total of 25-35% for the quarter, albeit from very depressed levels. Therefore, YTD, for example, this grouping is actually still the three worst performing SAPY shares – down 45-60%, even after their second-quarter rebound. The only other two shares that had a positive total return over the last three months were Sirius Real Estate and NEPI Rockcastle, which returned 10% and 6% respectively.
The worst performing shares in the quarter included Arrowhead, Attacq and SA Corporate, which returned a negative 10-15%.
Performance and portfolio changes
The current quarter was again very quiet on the corporate action front.
With the June 2018 FTSE/JSE SAPY rebalance, there were no additions or deletions to the index, but the weightings of Growthpoint and Redefine increased while Resilient and Fortress A decreased in the SAPY Index. The one-way turnover was somewhat higher than before at 3.2%.
Your fund performed in line with the SAPY benchmark. The fund experienced some positive cash drag due to the index being in the red over the last three months.
Outlook
Following the weak H1’18 returns, the SAPY has derated from a 6.8% clean forward yield at end Q4’17, to an attractive 8.1% trailing income yield, and about an 8.6% clean forward yield. The forward yield is a slight premium to the SA long-bond yield of 8.7%, which itself derated in Q2’18 as Ramaphoria faded, and amid general emerging market weakness on account of an impending trade war.
We consider these levels to be more attractive again, in absolute terms, and certainly relative to SA bonds and SA cash. With the SAPY, where investors achieve growth in dividends (unlike cash and bonds) of at least CPI in the long run (4-6% p.a.), the current price levels and entry level make for a total medium to long-term expected return of 12.5-14.5% p.a.