Listed property sector outpaces equities, bonds during September

During the week, the Rand depreciated by 19c to the US dollar, while longer-dated South African government bond yields increased by 10 basis points. There is growing concern that the Democrats and Republicans will not reach an agreement to raise the debt ceiling in the United States, effectively shutting down the US government from midnight on 30 September. This has resulted in higher levels of volatility and increased selling pressure on emerging market currencies like the Rand.

In company-specific news, Dipula Income Fund announced the cancellation of the Tembisa Mall acquisition. In terms of the agreement concluded by Dipula to acquire Tembisa Mall on its completion, the purchase was subject to the parties reaching agreement on all components of the development plan and the Mall being developed in accordance with that plan. The vendors have sought to cancel the agreement on the basis that certain conditions have not been fulfilled. Although Dipula disagrees, it has accepted the cancellation on the basis that they would be unable to agree to a satisfactory development plan for the completion of the Mall.

The current one-year forward yield on South Africa’s listed property sector is 7.1%, approximately 50 basis points below the yield on longer-dated SA government bonds. Given that distribution growth from the listed property sector is likely to average more than 7% per annum over the next three years, this level of yield-premium is more than justified and listed property continues to look more attractive than bonds at current levels.”