By Ian Fife
Private investors and institutions scrambling for listed property shares have been pushing initial yields of JSE funds to record lows. If you're aiming to build a property fund portfolio, you might want other opportunities as well.
Over the next few months the FM will be exploring which of these and the core funds could be combined to make the best-performing portfolio.
IFA Hotels & Resorts, listed in the hotels sector of the JSE 18 months ago, is likely to test the most fundamental tenet of property as an asset class: it is a long-term investment in income rather than capital growth.
It is the first big property development company to list on the JSE since the 1960s, when about 30 developers were the darlings of the bourse. It is 85%-held by the parent IFA Hotels & Resorts, listed in Kuwait and Dubai, which is in turn 55%-controlled by International Financial Advisors, a listed Kuwaiti giant headed by Jassim Al Bahar.
IFA has grown into one of the world's biggest mixed-use resort developers in less than a decade, with projects in Portugal, Lebanon, Dubai, Zanzibar, Kenya, Britain and Southern Africa.
Current projects include 50% of Zimbali coastal resort in Ballito, the Zimbali Lodge hotel, a minority interest in Boschendal estate in Franschhoek, and 50% of four resorts in Namibia.
But this is just the beginning. Al Bahar has made it clear to the FM that equity of US$350m (R2,5bn) is immediately available for SA investment, and less than half of that has been spent. The company is under cautionary as it negotiates another investment.
Executive director Phillip de Sylva says IFA's development strategy is consistent:
But De Sylva is less clear about what payouts investors can expect and when. "We aggressively go for returns, say 25%, for Zimbali. I expect we should be able to pay the first dividends within five years, but I can't say exactly when." He points out that IFA Hotels in Kuwait has just paid a dividend and bonus share issue, less than three years after listing.
Development is a long-term business, with large investment up front, and years before payback. Zimbali Lodge is now breaking even for the first time, seven years after construction. Only 480 of 1 400 houses have been completed on the coastal resort, and further development at the new Lakes and Brentwood land parcels will take 20 years. There is a R1bn investment in the beach resort. "In its nature, development requires long-term stamina," says De Sylva.
Like its 1960s listed counterparts, IFA develops in order to hold core income-producing resorts, surrounded by privately owned houses, flats, timeshare and fractionally owned units. They bring a variety of income, including rental, management fees and income sharing. Once payouts start, they grow exponentially.
Institutional investors are unlikely to be attracted to IFA because of its low free float of 15% of the issued capital, with only 2% held by South Africans, so it will attract only private investors for now. But Al Bahar has committed the Kuwaiti holding company to diluting substantially, though it is likely to hang on to control.
The upside is that Al Bahar has gathered around him satisfied Middle Eastern investors who will expect him to go on producing the enriching results with the JSE-listed IFA that he has done with the international operation in the past.
Whether a longish wait for income would enable this share to make the grade in a property portfolio will be decided later. But there is little doubt about IFA's talent and potential.
Financial Mail
Publisher: I-Net Bridge
Source: I-Net Bridge
