Historically South African property companies have been precluded from investing off-shore.  Exchange control issues aside, forward yields on foreign property investments in highly developed countries such as the USA, the UK and other European centres have been far too low to be attractive to South African listed companies as the acquisition of such foreign assets would be income dilutionary to local funds which in turn would have had a negative effect on the acquirers’ share price.

In recent years, there has been a change in the thinking of the investor community towards off-shore diversification. The advantages of limited off-shore diversification have made even dilutionary acquisitions somewhat palatable as there is a mitigation of risk from a geographic concentration point of view as well as a natural Rand hedge when the local currency weakens.

What is very attractive in the current world economic climate is that there is value in the property sectors in the USA, Europe and Australia never before offered. Yields on both direct property as well as listed property companies are at highs even above yields in South Africa. 

The movement in price of three of the largest UK REIT’s, Land Securities, Hammerson and Liberty International indicate that the drop in value is dramatic – up to 50% - although the net asset values have not decreased in the same proportions. 

The performance of Westfield Group – the largest Listed Property Trust (or LPT) in Australia – is now on a forward yield approaching 8% representing unparalleled value relative to the group’s size, quality of assets and liquidity.

Looking at the US market, one of the major REIT management companies is Cohen & Steers which manages 12 listed entities. Two of their listed REIT’s are highlighted below:

Cohen & Steers REIT & Preferred Income Fund, Inc.
Pricing Information (as of 04 Jun 2008)

Closing Net Asset Value (NAV)$22.07
 
Closing Price $21.86
 
Premium/Discount-0.95%

Market Yield 10.98%

52-Week High $29.80  

52-Week Low $18.52
 

Cohen & Steers Worldwide Realty Income Fund, Inc.
Pricing Information (as of 04 Jun 2008)

Closing Net Asset Value (NAV)$16.52
 
Closing Price $17.06

Premium/Discount 3.27%

Market Yield 19.84%

52-Week High $26.69

52-Week Low $13.53
 

These two REIT’s are trading on yields of almost 12% and 20% respectively and there are numerous other REIT’s trading on yields in excess of 10% offering US based assets in quality portfolios.

The significant drop in property value is by no means confined to the listed property sector and anecdotal evidence is of prime real estate in the UK trading at yields of 8% and 9% and in the rest of Europe (for example Germany) between 10% and 12%.
 
The most recent IPD statistics (2007) are set out in the table below.  Since these statistics are historical, one can extrapolate the effect on yields that the 20% to 30% drop in values over the last six months have had on yields. What is evident is that in many countries, yields are now in excess of 7.5% on prime properties.

IPD Statistics (2007)

Country: (see below)
 Retail
 Offices
 Industrial
 All property

Canada
 5.89
 6.15
 6.63
 6.09

Denmark
 5.98
 5.71
 6.29
 5.36

France
 5.27
 5.47
 6.46
 5.24