Listed prop­erty still a good bet

Real es­tate ve­hi­cles of­fer a unique al­ter­na­tive to in­vest­ing di­rectly in prop­erty

Finweek English Edition - - Creation and preservation of wealth -

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.


Source: Stan­lib

Smaller in­vestors

could ben­e­fit. Ma­ri­ette Warner

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.