A world of choice
More and more investors are pouring money into listed property, judging by the way the universe of collective investment schemes keeps growing.
The number of unit trust funds that SA property investors can choose from has nearly doubled over the past three years, from 39 to 72, figures from the Association for Savings & Investment SA (Asisa) show. Assets under management in Asisa’s real estate sector have simultaneously ballooned from R52bn to R80bn.
This year alone, six new property-focused unit trust funds have made their debut, of which three are rand-hedge offerings. In fact, SA investors now have access to 15 unit trust funds that are exclusively exposed to global real estate investment trusts (Reits), up from only six three years ago.
Kundayi Munzara, director of listed property asset manager Sesfikile Capital, believes there’s still plenty of demand from local investors for hardcurrency earnings. “SA investors are starting to realise that global Reits offer attractive and growing income returns in a world void of yield. Capital appreciation will also follow over time.”
Sesfikile Capital last month launched the Sesfikile BCI Global Property Fund, an offshore collective investment scheme aimed at retail investors. It requires a minimum lump sum investment of R10,000 or minimum monthly debit order of R1,000 — and has already lured inflows of R325m.
Munzara stresses that the value proposition of the fund is not to offer a way to “run away from the rand” (because of the currency’s deprecia- tion) but rather an opportunity to invest in some of the best property companies in the world, with assets in prime locations.
He notes that SA investors have access to only 35-odd property stocks on the JSE compared to around 300 globally that they can access via a collective investment scheme.
Offshore property markets also give SA investors access to some subsectors that are not represented locally, such as triple net lease Reits, data centre Reits and health care.
“In addition, given the low global bond yield and debt funding environment, we are more bullish about the fundamentals of the global than the local property market.”
Munzara says the fundamentals in global real estate are compelling, given relatively limited new supply and steadily growing tenant demand. Property share prices also haven’t fully recovered yet from their 2008/2009 lows.
He believes valuations are looking particularly attractive in the US, where Reits are trading at dividend yields of 4% (in US dollar terms) versus the 10-year bond rate of only 1.5%. 100 80 60 40 20 0
Dividends paid out by US Reits are expected to grow at an average 6%-8%/year over the short term, which far outpaces the US inflation rate of around 1%.
“The US Reit sector is so large that investors can choose exposure to not only a dozen or so subsectors of the property market but even to individual cities. An example is Kilroy, which invests purely in the Silicon Valley office market, which takes advantage of the growth in the tech industry.”
Demand for US Reits is likely to increase after August 31, when listed property companies will be elevated from their long-time home in the broader financials sector to a stand-alone sector in the Global Industry Classification Standard.
This is a classification system watched by equity investors worldwide.
The Sesfikile BCI Global Property Fund has a 60% bias towards the US, with the rest of its assets split between Reits in the Europe, the UK, Japan, Australia and Canada.
Ian Anderson, chief investment officer at Grindrod Asset Management, says even general equity fund managers can no longer afford to ignore real estate as an asset class. The SA property sector has achieved a stellar 22.5%/year average return since 1999 versus 15.4%/year for the all share index.
“The sector is also benefiting from capital inflows by fund managers who have to increase their offshore allocation.”
At the SA Property Association’s (Sapoa) annual conference last week, Anderson said the SA listed property sector’s exposure to offshore assets had grown from less than 2% in 2009 to 38% now (see graph). He expects continuing money flows to the sector because most SA fund managers are still underexposed to real estate as a percentage of total assets.
“SA pension funds are allowed to invest up to 25% of total assets in listed property yet the average allocation is still only 4.1%. That compares to 15% plus for US pension funds.”