Positive outlook for listed property relative to alternatives

Posted On Thursday, 28 June 2012 09:51 Published by
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Most international/global REIT (Real Estate Investment Trust) managers are upbeat about the prospects for this asset class over the next two years, despite the economic malaise in Europe and concerns about global economic growth. This was the overriding message to come out of the Nareit (National Association of Real Estate Investment Trusts) REITWeek Investor Forum in New York earlier this month

South Africa’s Estienne de Klerk, Executive Director of Growthpoint Properties Limited, the largest South African JSE-listed property company, presented at this global event. Local PLSs (Property Loan Stocks) are similar to REITs. However, SA expects to have its own REIT structure introduced in 2013. De Klerk also heads the Property Loan Stock Association’s (PLSA) REIT Committee.

Nareit is the worldwide representative voice for REITs and publicly traded real estate companies with an interest in U.S. real estate and capital markets. With more than a thousand investors and over one hundred REITs attending, it’s the preeminent forum for investors to gain insight into REITs, both in the US and globally.

De Klerk reports that SA listed property is outperforming most asset classes globally. Similarly, in SA, for the first five months of 2012, listed property achieved returns of 11.1%, compared with shares at 5.1% and bonds at 4.2%.

In the US, REITs have also outperformed other asset classes.

De Klerk points out several speakers highlighted expectations that the lower global interest rate environment would continue for longer. This is good news for the sector in general.

“REITs have undergone a significant metamorphosis since the credit crisis. Most companies have taken the opportunity to improve both their property portfolios and balance sheets,” says Ian Anderson of Grindrod Asset Management, who was also at the event.

This makes them attractive to both local and foreign investors seeking the higher yields and predictable cash flows on offer in a low return and low interest rate environment. “Some exposure to global real estate should be part of a balanced portfolio, where investors should expect yields of between 4% and 5% and growth in income of between 3% and 5% yearly, over the next three to five years,” says Anderson.

“Publicly traded REITs are now the recipients of notably cheap capital, both debt and equity. This allows them to continually improve the quality of their portfolios and generate substantial shareholder value over the medium term,” says Anderson.

Even with limited economic growth, the scarcity of new supply which has characterised the global property landscape since the credit crisis is providing the ideal backdrop for falling vacancy rates and increasing rentals. This is visible in supply-constrained markets like Manhattan, where rentals have recovered to pre-crisis levels.
 
Anderson notes current yields available on global REIT securities, while low in absolute terms, compare favourably with yields on other asset classes, like bonds and cash.

Last modified on Thursday, 28 June 2012 12:11

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