Real Estate Investor Magazine South Africa April/ May 2020 | Page 54

REITS
Take your
wealth abroad
Global property investment for South Africans
GARRETH E. ELSTON
S
outh African investors have generally neglected Global
Listed Property investments, this is despite the asset class
being one of the best performing globally over the last
fifteen years, having significantly outperformed South African
Listed Property, the JSE All Share and SA Bonds and Cash.
Global Listed Property
Global listed property is an asset class that has proven itself
over the long-term, and it has shown why it should be included
in all South African investors’ portfolios. Global property offers
South African investors a diversified, uncorrelated, income
producing asset class that delivers hard currency returns.
Most academic and practitioner studies conclude that
adding listed real estate improves the risk-return profile of a
mixed-asset portfolio, and that achieving the optimal inter-
asset allocation of investors’ capital is of prime importance due
to the critical impact it has on portfolio performance.
Global listed property has steadily improved its accessibility
as an asset class, primarily through the proliferation and
success of listed property investment vehicles, such as
Real Estate Investment Trusts (REITs) and other entities
such as Real Estate Operating Companies (REOCs), and real
estate development companies. Global property securities
provide a way for investors to invest in companies that own
traditional properties such as shopping malls, office buildings,
apartments, warehouses, and hotels, as well as new specialized
types such as data centres, cellphone towers and life science
laboratories. Through global property investments South
African investors can own parts of iconic real estate such as
Empire State Building offices, warehouses powering Amazon
data centres streaming Netflix as well as cell towers connecting
the mobile economy.
REITs
Not all listed property companies are REITs, but approximately
75% of the companies in the global real estate market are REITs,
and this corporate structure provides a tax-efficient means of
distributing rental income to shareholders.
Real Estate Investment Trusts are companies that own, and
sometimes operate, income-producing real estates. REITs own
many types of commercial real estate, ranging from office
and apartment buildings to warehouses, hospitals, shopping
centres, hotels and timberlands.
Presently over 39 countries have REIT-type structures, and
listed real estate companies operate in almost every global
market. The latest market to adopt a REIT structure was
Portugal in February 2019, and South Africa adopted its REIT
structure in 2013.
As vast and diverse the property sector is regionally, internationally
and globally, African real estate investors seem to lack in taking
advantage of global listed property as an investment tool. For a
country that has entered into an economic recession at the beginning
of March, it remains extremely significant for local real estate investors
to seek alternative investment ventures that will affirm the protection
of their wealth.
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APRIL/MAY 2020 SA Real Estate Investor Magazine
Benefits of investing in Global Listed Property
Globally the REIT structure, and similar investment products,
offer investors access to the same cash flow characteristics
that previously were available only to direct commercial
real estate investors. The global listed property market has
continued to expand and now constitutes over a thousand
listed companies, listed in over 49 countries, and with a total
market capitalisation of around US$3 trillion.
The primary benefits that global listed property offers over
other asset classes include:
Low correlations – Compared to South African asset

classes, global listed property has demonstrated
consistently low correlations, and is negatively correlated
with SA fixed income, money market and property.
Sector diversification – There is a broad and growing
choice of global real property sectors (over 23 primary
and sub-sectors) that empowers investors to diversify
exposure and improve returns by being able to select
segments moving in diametrically opposite directions
within the same economy.
Inflation protection – Landlords generally link
rental escalations to inflation and rental rates tend to
rise during periods of increasing inflation, generally
protecting listed property from the detrimental effect
of inflation.
Attractive total returns – Due to the income
distribution requirement, REITs generally have
higher dividend yields compared to general equities
and bonds. Listed property typically delivers solid
dividends, plus the potential for moderate long-term
capital appreciation. In general, the long-term total
returns of global listed property will tend to be lower
than the returns of higher risk high-growth stocks, and
higher than the returns of lower risk bonds.
Advantages over direct physical property
investments – Being listed entities, advantages
include liquidity, corporate transparency, corporate
governance, real-time pricing and lower transaction
costs. International research has increasingly shown
that returns from listed property are a close proxy for
direct property investment, but in a more efficient
manner for the investor.
All these positive attributes work in concert to deliver not
only superior returns, but also good defensive characteristics.
Various international studies have been conducted (including
ones on South African portfolios by Reitway Global) as to
the benefits of adding global listed property portfolios and
whenever allocations to REITs were available, results have
demonstrated that global property either increases the returns
of the portfolio at the same risk level, or reduces the risk while
offering the same return.
The international property universe offers investors over
a thousand investible global companies, diversified across
over twenty-three sub-sectors, over forty-nine countries, and
a range of international currencies. All of this combines to
offer investors superior long-term diversification, inflation
protection and income generation through economic cycles.
SA focused research bolsters the view that from a
diversification standpoint global property may boost returns
and/or reduce risk when added to a diversified portfolio of
South African equities and fixed income, making the asset class
one well deserving of increased attention from South African
investors. The Reitway Global property suite of global property
products offers South African investors all these benefits with
top quartile performance over an eight-year track record.
SOURCE Reitway Global
GARRETH ELSTON is the Chief Investment
Officer of Reitway Global’s suite of global
listed property funds. He is an investment
management professional with over 20 years
of international capital markets’ experience
in South Africa, North America, the United
Kingdom and Europe.
SA Real Estate Investor Magazine APRIL/MAY 2020
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