Real Estate Investor Magazine South Africa October 2014 | Page 53
LISTED
BY MIKE BROWN
Listed Property Shares
A distinct asset class
L
isted property shares, which now account for
a market capitalisation of R350 billion on the
JSE, are a distinct asset class. The Regulation
28 Requirements of the Pension Funds Act, for
instance, allows 25% of the total assets of a Pension
or Retirement Fund to invest in listed property shares,
over and above the allocation to other equities (shares)
that are allowed under this Regulation.
The unique characteristics of commercial property
securities is that they pay both a high distribution
(dividend) yield, as well as providing capital growth
over time. This dual capacity as high yielding
instruments, as well as capital growing equities,
separates property securities from other equities
(which typically have substantially lower distributions)
and from Bonds, which pay high yields, but offer little
or no capital growth. Even preference shares, which
pay a high dividend yield, typically linked to the prime
rate of interest, normally trade at par, so show little or
no capital growth over time.
Income bearing asset
Over the past 15 years, the average distribution yield
on listed property shares on the JSE has been close to
9% per annum. This is equivalent to the yield on a RSA
Government bonds over the same period, or indeed,
the total return for RSA Government inflation-linked
bonds.
So, from a yield stream point of view, property
shares pay equivalent returns to the so-called risk free
investment class of Government bonds.
Capital growth asset
The ability of property shares to pay high income
returns is dependent on the rents they receive from the
commercial properties (shopping centres, industrial
parks, office buildings) they own. Rentals are linked
to the Government bond yield to start with and they
escalate typically at above the rate of inflation on an
annual basis. So, as long as property owners have welllet buildings, rentals earnings can often grow at well
above the inflation rate, giving significant real returns.
This can be reflected in an appreciation in the value
of property shares, through price increases on the JSE.
In addition, the commercial property owners will
renovate their buildings, make constant improvements,
purchase new buildings, develop properties, purchase
other property portfolios or companies, etc all of which
adds to the capital value of their portfolios. In this way,
property shares are also a net asset value (NAV) play.
The total return of listed property shares (using the
JSE Listed Property index, SAPY) is compared with
the total return on RSA Government bonds and
inflation-linked bonds over the past 3, 5 and 10 years
in the table below.
The extremely good total returns for the “hybrid”
investment, listed property shares, make a strong
case for considering this as a separate asset class, for
inclusion in medium to long-term portfolios.
RESOURCES
etfSA.co.za
Total Return (% per annum)
(with distributions reinvested)
3 Years
5 Years
10 Years
SA Listed Property Shares (SAPY)
19,11%
19,98%
22,99%
RSA Government Bond index (GOVI)
8,03%
9,58%
9,20%
RSA Inflation-linked bonds (LIBI)
9,95%
9,96%
10,21%
Source: Profile Data (31/8/2014).
www.reimag.co.za
October 2014 SA Real Estate Investor
53