Reit equities earn excellent returns

Posted On Monday, 12 October 2009 02:00 Published by eProp Commercial Property News
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SA’s real estate investment trust (Reit) equities managed to return a stellar 41,9% as an asset class last month, thanks largely to the stronger rand and a rise in real estate equity prices.

Prieur du PlessisThe Plexus Global Reit index released on Friday showed that diversifying some domestic real estate investments into global real estate could pay handsomely for local investors, especially since South African real estate companies and funds were relatively immune during the global sell-off over the past two years.

Plexus group chairman Prieur du Plessis said investors who had taken their maximum allowance offshore could invest in global real estate through foreign rand denominated funds, such as Fortress Reit Fund, Grindrod Global Property Income Fund, Marriott Global Real Estate Fund, Catalyst Global Real Estate Feeder Fund, and Oasis Crescent International Property Equity Feeder Fund.

Du Plessis said investors with offshore funds could invest in real estate in developed markets through First Trust FTSE EPRA/NAReit Developed Markets Real Estate and in global real estate through SPDR Dow Jones Global Real Estate ETF.

The Plexus Global Reit index showed the prices of global real estate securities peaked in January 2007, then declined to a low in February, resulting in a 68,2% loss in dollar terms.

Du Plessis said the subsequent rise in Reits had taken the index back to 1994 levels and that it was still a “massive” 48% below the January 2007 levels.

Real estate equities were a unique preferred asset class during the five years preceding the major top of the global real estate market in 2007 due to the significant outperformance of global equities and a low correlation with bonds and equities.

The Plexus Global Reit index showed that since the onset of the third quarter of 2007, the picture had changed significantly as the correlation between global real estate equities and the global equity market had narrowed substantially.

“With the major sell-off in global equities in the fourth quarter of last year and the first quarter of this year, Reit equities fell to large discounts to net asset value due to forced fund liquidations,” Du Plessis said. Following the substantial recovery since the “carnage”, Reit equities were now trading closer to their underlying net asset value.

 

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