Nick Wilson

Property Editor

THE fallout in European and US property could offer offshore investment opportunities for listed property companies.

JSE-listed Redefine Income Fund, which owns 26,9% of Ciref, a UK-listed property fund, has already taken this plunge and says the investment has met its expectations in terms of growth.

Redefine CEO Brian Azizollahoff said last week that the major drop in listed property prices overseas had made it “relatively cheap” for investors to buy into stock.

Azizollahoff said the advantages of limited offshore diversification made “even dilutionary acquisitions somewhat palatable” as there was a mitigation of risk from a “geographic concentration point of view”.

Such investments also offered a rand hedge.

He said historically South African property companies had been precluded from investing off shore. “Exchange control issues aside, forward yields on foreign property investments in highly developed countries such as the US, 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,” said Azizollahoff.

He highlighted Land Securities, Hammerson and Liberty International as three UK listed property funds that have had dramatic falls in share prices.

“The drop in value is dramatic — up to 50%, although the net asset values have not decreased in the same proportions.”

The US was no different and the appetite for property was at very low levels, he said. There was anecdotal evidence of initial yields of about 10% for prime properties in large centres in the US.

Azizollahoff said Ciref was Redefine’s only exposure to overseas markets but that Ciref would be expanding its investments into Europe and UK.

He said Ciref would be looking at the UK, Germany, eastern Europe and Switzerland property markets.

Property economist Francois Viruly, of Viruly Consulting, said that he thought the poor performance seen in the UK and US property markets “leads to the suggestion that some of the yields in those markets could well become attractive viz-a-viz the prices of South African properties”.

“I think we still need to see some of our properties adjust downwards to make them attractive in the existing environment,” said Viruly.

Erwin Rode, CEO of Rode & Associates, said that over the past year or so, the yield differential between SA and some overseas countries had narrowed, mainly because of the subprime crisis.

“ I agree that from a diversification point of view, it makes sense given the rand hedge for funds to look overseas,” he said.

“I think a case can be made that some funds would go for the maximum (investment) amount allowed out of the country by the Reserve Bank given the reduced yield difference and also the rand hedge advantage.”

Source: Business Day