Keillen Ndlovu on listed property being ‘out of favour’

‘The sector, in terms of sentiment, I would say has probably hit a low. Even looking at valuations, the discounts to net asset value are at the highest levels we’ve seen – at 40%-plus. So take out the Covid era or lockdown days, and this sector is probably at its cheapest levels,’ says the independent property boffin.

You can also listen to this podcast on here.

Welcome to the latest episode of The Property Pod, South Africa’s premier property investor podcast. On this weekly podcast show we gain insider insights from leading executives, analysts, developers and entrepreneurs in South Africa’s expansive property sector.

We’ve got a heavyweight listed property guest on the show this week, none other than Keillen Ndlovu, who is back commenting on the sector as an independent property analyst. Those property hotshots that attended the Sapoa (SA Property Owners Association) Convention at Sun City recently would have been glad to see Ndlovu back in the thick of things, even being part of a panel at the conference, talking about the listed property sector.

That’s our topic on the podcast this week. The performance of the sector, and Ndlovu shares his latest insights.

Industry professionals may also remember Ndlovu used to be the big boss of listed property at Stanlib a couple of years ago. After a long stint there, he resigned in 2021, and Nesi Chetty now heads that part of the business.

Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts. 

Sandton CBD, Sandton Central, listed property, real estate investment trusts, sa property sector, Keillen Ndlovu, Sapoa Convention

The Sandton Central CBD still has double-digit office vacancies, which has added pressure to the SA listed property sector. Image: Supplied


Before we dive deep into the listed property conversation, tell us what you have been up to, Keillen, since leaving Stanlib? Did you have a sabbatical of sorts?

“Yes, I took a break for about a year and a half. Did nothing, took time to do other things that I had never had a chance to – gardening, cooking, spending time with family. And I’ve also travelled. Did a couple of road trips locally and then travelled internationally. So I’ve been back in this space over the last probably six months or so to start to look at the sector again.”

“I guess it’s nice that you get to switch off, because I switched off from the markets completely. I hadn’t taken a break from 2004 when I joined Stanlib in the property space.”

“So that has been my first break – from the end of 2021. And it’s been good, refreshing. It felt good. You look at things from a different perspective because you’ve been out of the market. At times I probably did miss the markets because they’ve been volatile, up and down. So I’ve been watching them from the sidelines.”

You were part of the listed property debate at the Sapoa Convention that took place a couple of weeks ago at Sun City. What were some of the general sentiments on the panel and the hot discussion points? 

“The sentiment, judging from the delegates who were there, [was] better than last year. Last year was probably downbeat but there’s more hope this year, despite everyone you talk to saying ‘Things are tough; when are things going to turn around?’

“But the mood was a lot a lot better, and there was lots of stuff that we discussed: the bigger picture around valuations, a pretty big one; interest rates and then rising rates and taxes, all about the local authorities, everyone just having a go at them … And then load shedding has been one of the most topical issues, together with low economic growth and high unemployment rates.”

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What was the sentiment around the listed property sector – performance-wise? It’s not exactly a booming market?

“The tough [issue] is that it’s been difficult to raise new equity or capital. So the sector has been out of favour. And the big question is when we will we see the interest come back – mostly from the generalists. So it’s mostly driven by the specialists and there haven’t been flows coming into the sector …”

“I also mentioned earlier around valuations, where the sector’s trading at a huge discount to net asset values. So that’s one thing that’s been confusing everybody. If you look at the physical market or the direct property market, there have been deals happening, and the deals are happening at around book values. So you’re able to sell your assets [at] around book value. But then if you look at your share price, your share price is 50% below net asset value.”

“So there’s that big disconnect between the direct property market and the listed property market …”

“It’s tough for the sector because most of the issues are actually outside of the sector’s control. But what the sector has been doing is, you’ll find, let’s say with buildings, almost every building now has backup power – be it generators or inverters and solar panels – almost in every roof.”

“So that’s probably [something] the sector’s done quite a lot [of] over the last two years, three years, as well as with the challenges in terms of raising capital.”

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“The first avenue probably is to reduce payout ratios. You’ve seen ratios come down from the typical 100% levels that we’ve been used to, down to 75%, which is the minimum according to the Reit [real estate investment trust] legislation … So they’re retaining some of the money and they’re also selling assets to help to reduce debt, and therefore reduce the interest expense with rising interest rates.”

“And then around water issues, I was listening to Attacq’s presentation [at the Sapoa Convention]. That’s one of their biggest priorities – just to focus on how they can actually save water or have backup water as well, be it rainwater collection or underground water. So big investment coming from most of the listed [players].”

Reits in South Africa are down year to date, according to your presentation, which we covered a month or two ago with Naeem Tilly of Sesfikile Capital, who was another participant on that panel … But on a year basis, your presentation showed a 10% increase, the second-best performer after equities. What was your message around this as, certainly, savvy investors who took advantage of the post-Covid recovery have benefitted? 

“Yes, sure, there’s lots of opportunities. There is huge divergence in terms of performance of the listed property stocks. So it’s a stock-picker environment. And that return of 10%-plus was mainly off a lower base, and the sector had started to turn around and we saw numbers coming from mostly retail centres, [with] the foot count and sales or turnover back to pre-Covid levels.”

“So we showed that the sector has actually been through the worst in terms of Covid, and also that most of the rent-relief programmes have been actually eliminated by most of the companies, and that the tenants are trading well. They don’t need any support from the landlords.”

Keillen Ndlovu, SA Reits, Listed property, Sapoa Convention, property sector, real estate investment trusts, property pod, direct property, Stanlib

Asset class on a total returns basis for YTD and over one, five and 10 years to 31 August 2023 (annualised for five and 10 years). Source: Bloomberg, ASB

Has the sector hit a low, outside of the Covid fallout? You have mentioned before that property or listed properties are a long-term play. What are the prospects for the sector over the medium term, would you say? 

“Yes. The sector, in terms of sentiment, I would say has probably hit that low. And even looking at valuations as well, the discounts to NAV [net asset values] – the highest levels that we’ve seen at 40%-plus. So take out the Covid era or lockdown days, this sector is probably at its cheapest levels.”

“But in terms of focusing [on] returns, it’s quite tough, given that, one, we don’t know when interest rates are going to end up, locally and internationally. So that’s one of the biggest challenges – as well as load shedding.”

“Coming to interest rates, even if the rates are flat, they’re going to be high for longer. So most of the debt that’s being renewed is renewed at high levels. That’s where we’ve seen Reits like Growthpoint and Hyprop having outlooks where earnings are going to be down 10% to 15%, mostly due to high interest rates.”

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“So we’ll see some other Reits as well with these kinds of numbers going forward. But that said, as I mentioned earlier, it’s a stock-picker environment. Reits like Attacq and Vukile are still forecasting higher earnings growth – 7% to 9%, if not 10%.”

“So if you choose the right stocks and want income growth, there are still opportunities in the sector; you probably just have to dig deeper to look for those opportunities.”

“And then if you look at the other big issues as well, what will drive the sector basically is economic growth. It needs better growth; it needs rates to fall – rates and taxes as well. They’re still going to increase, but probably at reasonable levels because now they’re probably increasing at higher rate levels than the sector is expecting, and it’s difficult to pass almost everything on to tenants.”

“And then load shedding is actually a big thing as well. So those are the kind of effects that you have to consider when you’re focusing on returns and there are lots of unknowns as well.”

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You talked about the big discounts to net asset value. The sector and most counters are trading on massive discounts to NAV. Just over five years ago, from your presentation it seems like the sector was trading at a premium around 2017. And if you go five years earlier than that, around 2012, 2013, there was a massive premium. So do you think the property sector will turn around or see any of that in the medium- to longer-term?

“It’s a very interesting question … If you look at the valuations, physical property values are fairly holding up, but the market doesn’t seem to believe those kinds of valuations; that’s why the sector is trading at bigger discounts to NAV. So over time, with high interest rates and higher bond yields, it won’t be surprising to see physical property values probably fall. But the market has more than priced that in with these huge discounts to NAV.”

“Also, we need to have a look at even the disposal pipelines of some of the listed funds. From about June 2022 the sector sold about R6/7 billion worth of assets; that was at or around book value – 5% plus or 5% minus. But then there’s a pipeline of up to R10 billion, R11 billion, asked ahead for sale or under negotiation. So that’s what to watch out for as well and that will give guidance in terms of the market – where do we see the physical property values? So watch out for the disposals and see what price they’re selling at.”

You talked about stock picks, but where do you see the opportunities in listed or in the property space, not necessarily just listed?

“So in the property space, the office market is still out of favour. That’s one of the least preferred sectors, and we’ve seen stocks with office exposure suffer a lot and they’re trading at even bigger discounts.”

“Retail, surprisingly – be it urban retail or township or rural retail – has done well, but the sentiment actually favours more township and rural retail. I guess that’s where the population is; that’s where the growth is in general. That sector is one of the most preferred in the [overall] sector.”

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“And we’ve seen Reits without [office] exposure. Most of them are paying out 100% of their earnings to investors as distributions, whereas the industrial sector is fairly stable as well with online shopping and growth in the logistics market.”

“So in terms of order, I would say probably township retail, industrial assets, and then office being last.”

Keillen, there was a slide in your presentation headlined ‘Sapi [SA Property Index) been going nowhere since the end of lockdown’. I thought that was quite a provocative headline. Can you explain it a bit? 

“Sure. But on the new listings, it’s difficult to do a listing when the sector is trading at 40% below NAV. You can’t list your assets at that level, so we are unlikely to see new listings. And then equity being raised – it’s not easy to raise equity at discounts to NAV. So what you’ll see more, as I mentioned earlier, is lower payout ratios – not 100% – as well as dividend reinvestment plans.”

“We’ve seen Hyprop, for example, their payout ratio is 75%, and they’re also looking to do a dividend reinvestment plan as a way to raise cash. And then on the value traded for the sector – so let me touch on that one, where it’s been going nowhere, it’s just the index.”

“So in the SA Property Index you can see the trend that’s been flattish at around 300 points. That’s the J253. So that’s been going nowhere since lockdown. So it’s more like when it goes above 300 to 310 people start selling, then it falls back to 290. So it’s been playing that range between 290 and 310 for the last two, three years.

“That’s why I say it’s been basically going nowhere. And most of the returns we’ve seen will be more income returns than capital returns. That’s the challenge for the sector.”

Listen to the full episode here.

You can also listen to previous episodes of The Property Pod here



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I had a look at one of the REIT, and it is not a simple case to understand their true results.

The AFS I had a look at had very nice reported earnings, but when you go scratch in the notes, some things become apparent.

The most obvious is the non-cashflow impact of management’s upward valuation of properties. So bang goes part of ‘profit.

Less obvious is in additions. They merrily capitalize own organization expenses, so finance costs, overheads and even management time into the ‘cost’ of the project. Effectively, a chunk of ordinary expenses disappear – boosting ‘profits’

I am sure it is all IFRS compliant and nothing untoward, but it makes it a struggle to understand what the property portfolio’s actual operating results are.

On the rest of cashflow there is usually big movements of distributions, finance raised, finance repaid, new units issued, revaluation of hedging instruments, etc etc. Basically a juggling act with live snoek and flaming torches.

Why bother? Well, to understand how much a REIT can distribute I need to understand real income and expenses without journal entries, add back depreciation I have operating cashflow. Then subtract debt service and I have what the business can put toward investment and unit holders? Sure, can raise debt for major projects, but it sometimes looks to me like they raise finance to service unit holders. I could be mistaken.

Did they also include “goodwill”? Always a great buffer in balance sheets. But the various accounting methods benefit only one entity, the company. I think a certain Mr Jooste was quite adept here.

End of comments.



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