Real Estate Investor Magazine South Africa November 2015

INVESTMENT US Real Estate Investment Trusts US-focused Real Estate Investment Trusts are inplay as global stock markets falter BY WIM PRINSLOO T he past few months have been a disappointing time for investors in South African and other global stock markets. At the time of writing the JSE ALSI has lost 8% in value since the highs reached in April. The Australian (-15.25%) and Brazilian markets (-19.09%) have declined even further from their respective positions from earlier this year. The main reason for this poor performance by equity markets is the ongoing slowdown of China’s economic growth rate. China is the biggest contributor to the growth of the global economy. Without a strong China the world economy will struggle to expand at its current pace. This is a troubling implication for stocks, specifically the deeply cyclical ones, which need improving growth prospects to perform well. In an environment where question marks loom about the sustainability of corporate profit growth, there are strong merits for allocating capital towards more defensive assets like listed real estate. As discussed below, our view is that the REIT market in the United States is in a particularly sweet spot at the moment: 44 NOVEMBER 2015 SA Real Estate Investor • The contractual nature of rental income stream provides the investor with more certainty compared to the income stream of a highly cyclical commodity-company like Glencore. • The strength of its economy bodes well for real estate fundamentals in the US. Unemployment continues to decline and acts as a tailwind for occupancy gains across the real estate market. This bodes well for a continuation of strong rental growth. The favorable economic conditions in the US is in stark contrast to what is currently being experienced locally in South Africa. • The pullback in stock markets provide good entry levels to invest in US-REITs. Many REITs in the US are trading at stock values that are less than the Net Asset Values observed in private transactional markets. Furthermore, dividend yields of 4% on these REITs were last available to investors in January 2014. www.reimag.co.za

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