Listed property still a good bet
Real estate vehicles offer a unique alternative to investing directly in property
GRANTED, IT’S BEEN A BIT OF A roller coaster ride for the listed property sector of late, with fears of rising interest rates and negative sentiment towards emerging markets resulting in skittish retail investors running like scared rabbits. As a result, last year the sector as a whole lost 25% of its value, though it has since clawed back lost ground as institutional investors saw the value decline as a buying opportunity.
With increased institutional control, the result has been a slew of consolidations. Of the 35 listed property vehicles, four are currently involved in corporate action and others are earmarked for changes in management control. Most of this is taking place in the loan stock (PLS) sector, where Investec’s Growthpoint recently acquired Paramount Property fund for R3bn, and Spearhead moved in with Redefine, in a deal valued at R1,3bn.
Meanwhile Allan Gray Management, which manages Grayprop, the country’s largest property unit trust (PUT), has indicated it’s in discussion with potential suitors, a sale that could have major implications for the size of the market. In fact market watchers believe that the number of listed counters could dwindle down to 20 by end-2007, making it difficult to decide which PUT or PLS – (commonly referred to as Real Estate Investment Trusts (REITs) internationally – to invest with.
Craig Hallowes, spokesperson for the
Association of PUTs, believes that consolidation would be inherently good for the industry, on the basis that fewer, larger entities would serve to boost liquidity in the sector as well as raise market capitalisation of stocks, making listed property more attractive to both private and institutional investors.
But what is the overall attraction of PUTS, PLSs or REITs? Hallowes says their major benefit as an asset class is that they embody the benefits of equities, in the form of income streams, while they trade at far higher yields than equities.
The current yield on PUTs, for instance, is 6,2%, PLSs are at 6,5%, while the yield on the FTSE/JSE all-share index is at a relatively diminutive 2,2%.
Effectively listed real estate vehicles also offer a unique alternative to investing directly in property. Risk is spread via a portfolio of properties within the fund, giving diversification in terms of buildings, tenants, lease expiry and geography.
Even with a small investment, a retiree can achieve considerable diversification, far more than could be achieved individually. Importantly, they also offer liquidity and can be easily bought and sold.
Mariette Warner, head of property funds at Stanlib, says smaller investors could also consider an indirect investment through one of the 12 specialist equity-linked unit trust funds registered in the SA asset allocation flexible property category of funds. While upfront charges of up to 5,7% are higher than brokerage and other costs of under 2% for a direct investment in a PUT or PLS, investors can see value in having their money managed across different elements of the same asset class.
Warner heads up funds valued at more than R7bn, which include Stanlib’s flagship Property Income A fund, which, even after the retail loss last year still has assets of R2,6bn and is posting some impressive returns.
Because it’s invested with a selection of the top performing listed funds (about half of its assets are invested with five of the listed vehicles), the fund has benefited from solid earnings growth since the downturn, spurred by strong fundamentals in rental markets.
STANLIB PROPERTY INCOME FUND... TOTAL RETURN PERFORMANCESource: Stanlib
could benefit. Mariette Warner