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Real estate stock prices and earnings showing signs of recovery

Wednesday, May 12, 2021

Following the steep fall-off in prices since March 2020, most real estate stocks have rallied to pre-COVID-19 levels or have improved year on year.

The roll-out of vaccination programmes globally and the ease of strict lockdown measures, as well as improvements in reported earnings have helped to boost investor sentiment. In addition, the local residential market has been thriving despite the economic downturn.

NCB Capital Market reports that, “although the sector as a whole was impacted, some companies felt the effects more than others. Companies such as Kingston Properties saw their bottom line plummet 72.1 per cent , despite an improvement in their topline.”

This contraction was a result of increased financed costs due to the devaluation of the local currency. PanJam Investment Limited also reported a 4.1 per cent decline in its property income at the end of 2020, due to a reduction in fair value gains on property valuation.

Stanley Motta Limited last

Companies like Sagicor Real Estate X Fund Limited saw an increase in losses, due in part to its connection with the tourism sector. However, Stanley Motta Limited was the stand out last year, as it reported record earnings for 2020 aided by the devaluation of the Jamaican dollar as well as its customers' ability to meet rental obligations.

The real estate company would also have benefited from the fact that the business process outsourcing (BPO) sector, which is a major tenant, was allowed to continue operations for most of the pandemic. However, the listed real estate companies have seen a change in fortunes since the start of the year.

Notably, a few companies have successfully acquired properties, which the Business Observer has been tracking and reported on. These acquisitions have resulted in a positive movement in their stock performance.

KPREIT acquired a property on 7 Dumfries Road in New Kingston and several more during last year. These acquisitions are expected to boost the company's earnings, once development is complete.

Consequently, the stock price is trading at a new high of $8.40 as of Monday, May 10, 2021. Eppley Caribbean Property Fund Limited (ECPF) was also able to acquire two office buildings, one in Trinidad and Tobago last week.

These recent acquisitions are directly in line with ECPF's strategy to scale and diversify by geography and asset type.

First Rock also announced the start of its premier, exclusive, luxury residential development 'Hambani Estates' set for Bamboo Avenue in upper St Andrew.

Hambani Estates is a multi-family development, consisting of 12 single-family residences, each on its own subdivided quarter acre lot. Hambani Estates is an over $1 billion development, which is slated to be completed by April 2022.

Positive outlook

NCB Cap Markets has given a positive outlook for listed real estate stocks for this year and beyond, declaring that, “The economic recovery and low interest rate environment should be favourable for real estate investments in 2021, although COVID-19 and changes in behaviour, including the likely permanent shift to work-from-home for some companies, create uncertainties and risks for some market segments.”

For companies that have exposure to the tourism sector, there is still a level of uncertainty surrounding recovery in the sector and as such, expected outcomes for stock performance and earnings are difficult to predict. As it relates to residential and commercial real estate segments, residential seems to be leading the pack in terms of recovery.

The housing market has been thriving due to record-low mortgage rates, and an increase in persons working from home ignited by the pandemic.

There are currently several residential development projects that are underway for companies like Proven Investment Limited and with the growing demand for residential spaces, these companies are likely to see a boost in revenues.

The outlook for commercial real estate, however, is still uncertain given that sentiment for the sector is influenced by the rise of working from home policies as companies seek to make cost savings realised during the pandemic permanent. However, there may yet be pockets of demand for commercial real estate.

Real estate for logistic services and other services requiring large configurable spaces such as BPO could be in high demand due to the surge in e-commerce and government policy to encourage foreign direct investment. Having said that, stocks that have exposure to commercial office spaces and the tourism sector could continue to face challenges in 2021.