Smaller property funds offer bigger returns, says experts

Few smaller listed property funds with specialised assets may still offer strong returns.

WHILE most large listed property funds have seen their strong share price runs of the past few years come to halt this year as investors sold bonds in anticipation of future interest rate hikes, a few smaller funds with specialised assets may still offer strong returns.

A weak rand and subdued economic growth in SA have also encouraged investors to buy into property funds with overseas exposure. Grindrod Asset Management chief investment officer Ian Anderson said this week that Tower Property Fund, Texton Property Fund, Delta Property Fund and Rebosis Property Fund were compelling investment opportunities.

“These funds are trading on forward yields of between 9% and 11% and are expected to grow distributions in excess of inflation over the next three years.”

Tower is a diversified fund with a Western Cape bias.

It has recently sold some of its B-grade offices and bought more retail property.

CEO Marc Edwards said earlier this year that Tower generated a total return of 19% for its 2014 calendar year while expanding the fund’s portfolio and enhancing its propertygreening programme.

Texton, formerly Vunani Property Investment Fund, has invested mostly in local offices. An injection of capital last year enabled it to look abroad and it has started to buy UK shopping centres. Texton CEO Angelique de Rauville said various towns and cities other than London offered strong investment opportunities for the group.

“Places like Nottingham and Reading have become very attractive while London is prohibitively expensive. The cost of funding in many parts of the UK is about 3%. It is about 8% in SA at the moment.”

Delta and Rebosis are broadbased black economic empowerment property funds. Delta has made returns from government-tenanted offices, while Rebosis has had success with shopping centres in Pretoria and the Eastern Cape.

It has a stake in New Frontier Properties, which owns two malls in the British towns of Middlesbrough and Burton.

Maurice Shapiro, a portfolio manager at Ma’alot Investments, said yesterday that retaildominant Vukile Property Fund and Capital & Counties, the owner of mix-used properties in Earls Court and Covent Garden in London, were his stock picks to perform well later this year.