Housing in Southern Africa April 2016

News

SA listed property At face value, South Africa’s listed property sector appears to have lost some of its lustre in recent months.

H owever, when one digs deeper into the performance of most of the assets underlying the companies and funds in the sector, they have been doing relatively well and continue to deliver on their prom- ises to investors. That’s according to Ken Reynolds, Gauteng Regional Executive for Property Finance at Nedbank Corporate and Investment Banking. Reynolds contends that, while one cannot ignore the immensely challenging macroeconomic back- drop against which companies in the listed property sector are currently operating, there are still opportuni- ties to maintain some momentum and growth. “Rising interest rates are pushing up the cost of borrowing and making it increasingly difficult for listed prop- erty participants to domore business.” He explains, “While concerns about the possibility of a downgrade of the SA economy to junk status by global rating agencies is certainly compound- ing the challenges facing the sector.” The knock-on effect of these eco- nomic challenges has materialised primarily as share price deteriorations, making it difficult for undervalued

companies to raise capital and is exerting downward pressure on their overall growth opportunities. However, Reynolds points out that it’s not all doom and gloom for listed property. “Locally, the opportunity still exists for smart players to either acquire or develop quality assets at reasonable prices, or to embark in cor- porate activity in order to strengthen their positions.” He furthermore sug- gests prospects particularly for those companies that are willing and able, to diversify internationally. He explains, “For a number of sec- tor participants, expansion into Africa is presenting a real opportunity to maintain that all-important growth momentum.” Reynolds offers a word of caution for listed property compa- nies seeking prospects internationally though. “Successful global property diver- sification requires a wider view than just the property being targeted,” he explains, “and companies or funds considering offshore markets need to fully understand the economic funda- mentals and drivers of the countries in which they are considering investing.” On the subject of whether delisting is a viable option for struggling listed

Ken Reynolds

property entities, Reynolds says that this course of action may have some merit. “For listed entities that are al- ready highly geared and are struggling to raise capital, delisting may be a viable approach,” he explains, “how- ever, this will only be the case if such delisting presents a real opportunity for the business to attract a strong backer and achieve better gearing.” Irrespective of the approach taken, Reynolds emphasises that partici- pants in SA’s listed property sector cannot afford to simply tread water. “Stagnation is not an option, and it is vital that participants in the sector quickly develop strategies that allow them to achieve some growth going forward,” he concludes, “that’s the only way the sector will successfully weather the current economic storms and still enjoy its historical position of market strengthwhen the SA economy gets back on a solid footing.” ■

April 2016