Real Estate Investor Magazine South Africa September 2016 | Page 16

5 Tangible asset – unlike shares which you cannot
see it where real estate is made of bricks and mortar
which you can see.
6 Easy to analyse and quantify income and expenses –
rental income is based on specific location, quality of
accommodation, type of accommodation and value
of the property. If you can borrow at 8% and rent out
at 10% you are already cash flow positive.
7 It builds long-term wealth – the underlying equity
growth and capital component with the additional
rental cash flow generation component makes it
a perfect wealth builder. With shares you have
to trust what the company reports and numbers
can be manipulated to make it look better using
amortization strategies, depreciation or adjusting
account receivables.
8 Utility value of the property – you can use your home
or property as a shelter or rental even during bad
times there is always a demand for property and for
people to live.
There are two main categories in property: Residential
and Commercial. Residential can be split into flats,
town houses, semi-detached houses, free standing
houses, estate living and can be sectional title, freehold
or leasehold properties. Commercial is split into
the 3 main categories of retail, industrial, office and
hospitality. It can be split up into more sub sectors such
as parking, airports, hospitals, schools, etc.
We can choose listed or non-listed property or
public versus private investments. REITS are different
to direct investment but both have their own unique
benefits.

Investing into Listed property

The fundamentals of listed property are generally the
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SEPTEMBER 2016 SA Real Estate Investor

same as direct investment although direct is a more
active investment process while listed is more passive
as you can work through a broker network. They both
offer great dividend yields, rental income growth, and
capital growth. The JSE-listed Real Estate Investment
Trust (REITS) is a tried and tested vehicle, which has
performed way above investor expectations for the last
15 years.

Indicators to look for performance in a listed
property fund or REIT as an investor are:

1 Listed price and performance
2 Return on assets – profits divided by asset value
3 Return on equity or Net Asset Value (NAV) – equity
is assets less liabilities
4 Gearing ratios – are they low at around 35% loan to
value or high from around 70% loan to value?
5 Interest rate exposure fixed or fluctuating at what
rate?
6 Income growth, distribution and dividend per share
7 Cap rates
8 Tenant mix and retention
9 Portfolio mix – retail, office, industrial, hospitality,
etc.
10 Quality of assets – A, B or C grade assets
11 Ability to raise capital for future projects
The main reason why South African listed property
sector has delivered great returns over time in a
declining yield environment is mainly due to predictable
and growing income streams. Distribution growths of
around 8% per annum since 2002 since listed property
inception are not uncommon.
Mohammed Kalla, founder of Sesfikile Capital,
says that it is important to continually recycle assets to
enhance rental growth. The income growth element of
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