Photo by: Bloomberg
South African (SA) real estate investment trusts (Reits) should not set off on a path of international exposure in a knee-jerk reaction to domestic challenges, delegates heard at the second SA Reit Association conference, held in Sandton, last week.
South Africa was currently facing an economic storm, with the possible downgrade by investment ratings agencies, lagging economic growth and rising costs and inflation, besides others.
In light of this, besides others, many industries were looking outwards to diversify to cushion any potential blows.
Further, South Africa had significantly picked up its pace in acquiring offshore properties and investing internationally, said Resolution Capital Australia MD Andrew Parsons.
However, he cautioned SA Reits on embarking on aggressive offshore investments recklessly, urging caution based on Australia’s own experience.
It was “paramount” that management and investment activities were carefully monitored to ensure Africa did not follow Australia’s Reit downward trend over the past few years, compounding challenges domestically with poor choices abroad.
Many Australian Reits embarked on offshore investment programmes in recent years, with some resulting in collateral damage and leaving companies scrambling to recover through disposals.
The Australian Reit price index plunged some 40% below its 2007 peak, Parsons noted.
While the boxes were “ticked”, namely dividend growth, yield, currency hedging, diversification and local partnerships, it emerged that they contained some “ticking time bombs”, and chasing yields, despite the surface attractiveness, led to losses.
Fortress Income Fund CEO Mark Stevens urged companies to ensure their targets were sufficiently geared and established in their markets, with the local partners investing significantly, and not just part of a seemingly attractive offshore strategy that was formed as a knee-jerk reaction to what was being experienced currently domestically.
There was a need to have experienced teams on the ground, with years of planning under the company’s belt.
Stevens was speaking during a panel debate comprising other SA Reit heavyweights, including Growthpoint CEO Norbert Sasse, Redefine CEO Andrew Konig and Dipula Income Fund CEO Izak Peterson.