Take your pick
| Don't underestimate the speed at which property investment
is globalising - or the range of opportunities emerging for SA investors.
Real estate investment trusts (Reits), the international form of listed property funds, are now found in 29 countries. They have firm growth ahead of them, despite nervous financial markets. The shopping centres, offices and factories they own are fundamentally sound, with growing demand for space and rising rents as the world economy forges ahead.
South Africans have a growing choice of international property investment funds that don't need exchange control permission.
These offer forward yields from Liberty International's 2,7% to the 7,3% of a new entity, Fortress Reit Fund, recently launched by local listed fund Diversified. That is a higher yield than many local funds. Other rand-denominated funds are unit trusts such as the Marriott global real estate and Stanlib international property fund. You can also get offshore exposure through listed fund Redefine. It is the biggest shareholder in Ciref, a London-listed property fund launched by Coronation and run by South African Mike Watters.
Listed Reit prices will be as volatile as other equities and you'll be buying into currency risk with them. But you can rely on office and industrial vacancies at near-record lows in many countries, driving rents up steadily over the next five years or so. Reits pay out 90% of their income each year, and it's this compounding yield that is attracting big and small investors.
It's best to ignore capital profits and losses as stock markets continue to wobble, and rather concentrate on the growing income over the long term.
Marketing people will be quick to tell you that Reits outperformed equities and bonds over 10 years, with Stanlib returning 52% last year and Marriott 48%. They're implying those funds will produce similar returns this year. But the past is no indicator of the future. Assuming no change in the rand-dollar exchange rate, they will have difficulty achieving 10% total return.
SA property hedge fund manager Michael Berman is convinced Reit share prices will plunge, though he doesn't know when. Until that happens, the weight of funds into Reits will continue, coming from millions of ageing baby-boomers, insurers and pension funds who have suddenly decided at the top of the market - as usual - to increase their investment weighting in property. This will push down Reit capitalisation rates- the forward yield at which investors buy - to below the 3%-5% that is common in most countries.
You can wait for a crash that may never come to give you higher yields or buy now and lock in the current yields, and comfort yourself with your continuing payouts when the plunge comes. Property is, after all, an income investment and best over the long term.
Fortress is intriguing. It's managed by Diversified's Haydn Bamford and Craig Hallowes and is invested mainly in Canadian listed funds through the Royal Bank of Scotland (RBS). Bamford was a senior executive at RBS before returning to SA. He has taken advantage of his contacts and their local knowledge.
Fortress has bought into funds that own retirement facilities catering for the growing population band of over-60s. "We are now beginning to buy into Australian funds," says Hallowes.
The fund is small at R55m and unproven. But its management are experts in property investment rather than institutional investment, and the Resilient/Diversified stable has an excellent record in property.
Hallowes says the RBS's Neil Downey is a top global Reit analyst. Fortress also uses technical and quant research.
Stanlib, the second-best performing unit trust in SA last year, takes a more conservative institutional approach than Fortress. It is managed by Fidelity in the US and is invested in UK, European and US Reits. Stanlib's Paul Hansen expects a forward yield on the fund of near 3%.
The Marriott fund has been closed off for some time.
Don't write off Donald Gordon's Liberty International just because it has a low initial yield. Developer and investor Allan Groll has been an enthusiastic investor in the fund since it was launched out of Liberty Life in 1999: "It has given an excellent return over the time, even adjusting for the weakening rand and the gain from converting to a Reit.
"It will continue to do so and there is a good chance that a private equity fund will bid to buy it out in the near future."
You can buy into Stanlib and Fortress through your financial adviser, and Liberty International and Redefine through your stockbroker.
Article from: www.businessday.co.za