S.Africa may be in line for Specialised Property Funds

EY tax practice partner Keith Engel said South Africa may have healthcare, residential, retirement and power station-biased Reits quite soon.

SA’s listed property sector has grown and matured over the past decade, as indicated by its size and the recent adoption of the globally recognised real estate investment trust structure.

Following a year of aggressive merger and acquisition activity and strong overall returns, analysts believe the time is ripe for more specialised funds to join the listed property sector.

For the year to date, the FTSE/JSE all share index has returned 7.1% in rand terms. Listed property as represented by the South African property index returned 14.51% over the same period.

This was despite fears that rising interest rates would put pressure on listed property funds.

Sponsored by Nedbank Corporate Property Finance, the SA Reit conference which was held in Sandton last week, assessed the progress SA’s listed property sector made since it converted to the real estate investment trust (Reits) model used across the world.

Reits are property funds that follow the same tax dispensation and pay out a minimum of 75% of their distributable earnings to their unitholders each year.

Many South African funds became Reits to attract larger foreign shareholders as they pursued assets in markets in Europe, Australia and Africa. At the conference, various speakers said they expected specialised funds to seek listings on the JSE’s AltX and main board.

“The impressive growth of listed property may cede a bit in 2015. I do think there is room though for smaller, specialised funds to get onto the JSE,” EY tax practice partner Keith Engel said.

“The US has had Reits for decades and, over the few years, there has been a move to listing specialised Reits. There are many residential-specific Reits on US exchanges. In SA, we could have healthcare, retirement and even power station-biased Reits quite soon,” he said.

Stanlib head of listed property Keillen Ndlovu agreed that there was space for specialised funds in the South African market.

“There is room for a couple of specialised funds like we find overseas, especially in the US. In SA we could see specialised funds in the residential and storage space in the next year. There is talk of a healthcare fund but we believe it’s still further out,” he said.

Grindrod Asset Management chief investment officer Ian Anderson said the inclusion of specialised Reits would be part of the evolution of the sector.

“Every listed property market throughout the world evolves over time, starting with generalist funds in the three traditional commercial real estate products; office, industrial and retail, then creating specialist funds in those three areas, before branching out further into other property types. It therefore makes sense that the South African market will follow a similar trend, resulting in the introduction of new property opportunities,” he said.