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THE FINANCE GHOST

The market lowdown on Sirius Real Estate, Vukile Property and Fairvest

The market lowdown on Sirius Real Estate, Vukile Property and Fairvest

With the work-from-home trend on the wane, the property sector is seeing an uptick in activity — and earnings.

The JSE reporting calendar can seem to be themed at times. In the past week, the property sector was a hive of activity with earnings updates, so that’s well worth focusing on. Things are slowly improving in the sector, although it depends on the specific fund you’re looking at.

It certainly helps funds with office property exposure that the work-from-home trend is diminishing by the day as most businesses are putting pressure on employees to return to the office.

And maybe, just maybe, landlords will be able to celebrate a decrease in interest rates later this year. We can only hope.

Sirius Real Estate: a steady grower

Sirius has a portfolio of assets in Germany and the UK and enjoys strong support from the market. When you want to raise equity and debt financing for further growth, this is important.

What underpins that support is a track record of 10 years of annualised rental growth above 5%. This is a growth rate in hard currency earnings, so Sirius has done an excellent job of delivering real growth to investors over a long period.

For the year ended March 2024, it achieved growth in funds from operations per share of 2.4%. Despite this modest growth rate, the dividend per share for the year was up 6.5%. The adjusted net asset value per share increased 1.8%, adding to the return to shareholders.

The balance sheet looks healthy and ­Sirius will no doubt continue to seek acquisition opportunities in properties that can benefit from active asset management. Part of the appeal of the fund is that it looks to buy properties that could do with some improvement. The active asset management strategy is then applied and the capital is subsequently recycled at a much better price before rinsing and repeating the process.

Vukile Property: one for the bulls

With the unusual combination of exposure to South Africa and Spain, Vukile Property Fund is right there in the running of the bulls. The bulls in the market will quickly point to growth in the total dividend for the year of 10.5%. This was powered by a 6.7% increase in funds from operations per share.

Although there are those in the market who have concerns about the profile of the South African portfolio, the recent performance of positive rental reversions in both South Africa and Spain is hard to fault. The loan-to-value ratio of 40.7% is at an acceptable level, but it is worth keeping an eye on as funds should avoid moving much higher.

Fairvest: two classes of shares, twice the fun?

Dual-share class structures aren’t as popular in the property sector as they used to be. Fortress showed us what happens when the structure doesn’t work out and a fund ends up losing its Real Estate Investment Trust status.

It really does come down to the details of the structure. For example, Fairvest’s share structure is working the way it is supposed to. In most of these structures, the idea is that one class of shares offers more dependable (but capped) returns, and the other class is more volatile but has uncapped returns. Investors can then pick the share class that matches their risk tolerance.

Fairvest’s A shares pay a distribution that increases by the lesser of 5% or the most recent Consumer Price Index, so this is structured specifically to offer inflation ­protection.

The B shares enjoy whatever is left, which means you want to hold them in an upswing rather than a downswing.

In the six months to March, the dividend on the A shares increased 5% as inflation has been higher than that. The B shares only achieved a 1.3% increase in the dividend. Despite this, the B shares have enjoyed a strong rally in the past year as the market has been pricing in an improved outlook for the sector.

For the benefit of buy-to-let enthusiasts out there, those Fairvest A shares are paying an annualised yield of almost 9%. They offer strong inflation protection, along with instant liquidity and no costs on the way in and out that would normally be associated with direct property ownership.

For those willing to do the research, it can end up being more lucrative to structure a listed property portfolio rather than wade into the tough world of buy-to-let. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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