Investors score in newly listed property funds

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While interest in real estate investment trusts (Reits) is high as they pay regular dividends and have fared well in a difficult economy, many of the newly listed funds' strong performances have been boosted more by distribution growth than capital gains as investors opt for the bigger established blue chip stocks, such as Hyprop Investments. Nevertheless, there have been standout performers.

Texton Property Fund and Pivotal Property Fund are two recently listed property funds that have performed well in terms of income growth and share price appreciation.

Year to date, diversified property group Texton's shares have gained 9%. Texton is trying to build up a portfolio with half its assets in SA, and the rest in Europe.

Pivotal Property Fund, a diversified fund with exposure to high quality offices and shopping centres, has also seen its share price increase strongly since listing in December last year. For the year to date, its shares are 16.38% higher.

Tower Property Fund, a Capebased company that listed in July 2013, has also seen relatively strong share price growth this year. Tower's share price has risen 8.89% year to date from R9 to R9.80. The fund has also acquired a portfolio that is spread across SA, and has exposure to Croatia in eastern Europe.

But chief investment officer at Grindrod Asset Management, Ian Anderson, says newly listed funds have struggled to gain support from investors. "Generally the funds have all delivered in terms of investor expectations for distributions and distribution growth. In terms of price action, most have underperformed the SAPY (JSE real estate index) index and are actually trading at discounts to net asset value," he says.

Most recent listings have been unable to attract investors or fund flows away from the established companies in the sector, such as Hyprop Investments and the Resilient group, including Resilient Property Income Fund, Fortress Income Fund and New Europe Property Investments.

"Some of that has to do with the manner in which the SAPY is constructed, limited as it is to just 20 companies, but even those newer listings that have made it into the SAPY index have been unable to attract meaningful support from a broad range of investors."

The larger and more liquid companies have also benefited from their inclusion in global equity indices over the past year, which has further increased their investor base and profile among large, institutional investors, says Anderson.

Delta International, the first pan-African property income fund, has struggled since listing at around R24 at the end of July last year. Its share price has fallen nearly 16% year to date. Its initial investments have been in retail shopping assets in Morocco and offices in Mozambique, but newly appointed CEO Bronwyn Corbett says the fund is now also looking to invest in East Africa.

Old Mutual Investment Group SA portfolio manager Evan Robins says Delta International has had a disappointing year since it listed. "The share price has struggled. The resignation of the former CEO, Louis Schnetler also created uncertainty."

Apart from Delta, Robins was also surprised at moves into overseas markets by Texton and Tower.

South African property funds operating abroad need to be more careful before going into markets about which they have limited knowledge, he says. But Robins notes these funds have partnered with local experts in those markets.

He does not want funds to invest abroad at the expense of local operations and they need to be aware of the risks in other markets.

"It does not add obvious value to investors, who have a number of avenues for diversification, for smaller funds to sacrifice focus on the market they are expert in and then buy into markets of which they have limited knowledge," he says.

Source: Business Day