Alternative Property Investments:
The property sector looks very different to that of 3 years ago, as the sector was one of the hardest hit by the Global Pandemic. Offices were forced to shut down, seeing many of the large listed property managers providing some sort of rental relief to tenants. Three years on and although the economy is open for business, the property sector looks very different, especially in the commercial property space:
The Global pandemic has accelerated the work from home movement, meaning less demand on commercial property space. Companies have been downsizing office space, with employees revolving, in terms of days in and out of the office. Estienne de Klerk, the chief executive of Growthpoint Properties Limited South Africa, said the commercial property sector's recovery from Covid-19's blow, has also been constrained by enduring economic conditions.
An alternative option to traditional REITs:
The increase in working from home has resulted in an increase in demand for residential accommodation, storage, technology, and lastly server and data centres. While work from home demand increases so more and more server space is required Globally. Companies as well as large residential downsizing means storage is needed for excess furniture and equipment. There are investment options in the REIT space with exposure to exactly this. Below are a few types of options available to investors, looking for a REIT type investment however with different property exposure:
Stor-Age (SSY) Property REIT
Stor-Age Property REIT Ltd is a locally listed real estate investment trust. The firm invests in the real estate markets of South Africa and is focused on the ownership, acquisition, development, and management of prime self-storage assets.
One of the main attractions of this REIT is the high dividend yield and the stability of company earnings. Despite the tough economic conditions during the Global Pandemic in 2020, the REIT was able to outperform the industry by over 25% and deliver a favourable return to investors, where traditional property investments really struggled.
SSY was founded in 2006 and is in a mature life cycle and offers investors a typical REIT like return with a balance of capital appreciation and dividend yield. Both residents and businesses have been downscaling on the back of the Global pandemic, which will increase the demand for storage space.
The debt-to-equity ratio is low compared to other traditional REIT schemes within SA, meaning when interest rates increase like they have as of late, so the company will still maintain healthy profit levels. Private storage demand is increasing globally, and options like SSY are available to investors looking to gain exposure to this type of property opportunity.
Equinix (EQIX) REIT
Equinix (Nasdaq: EQIX) is the world's largest digital infrastructure company by market capitalisation. One of the newer REIT sectors, data centres have been one of the primary growth engines of the REIT sector. Data centres provide the critical infrastructure - power, cooling, and physical rack space - to a variety of enterprise customers with different networking and computing needs.
The investment offers both exposure to property as well as the increase in demand for technology. One of the main attractions of this investment is that the REIT has 211 data centres in over 26 countries allowing access to the data storage industry in a globally diversified manner. EQIX has over 9700 customers across a diverse range of businesses. Over 50% of the REITS clients are fortune 500 companies.
The PE multiple of a data centre type REIT like EQIX is high compared to other traditional REITs; however, you are investing into future growth and a combination of physical property and technology and thus cannot solely be compared to traditional property investments on their own.
The dividend yield is also typically lower than traditional REITs as profits are retained to assist in further growth. Debt to equity ratio is high, due to the large capital outlay in setting up the data centres. The move to working from home and the downscaling of businesses will see increased demand for data storage and server space and presents an alternative property exposure to an investors portfolio.
In Closing
Global property will take some time to recover post the Global Pandemic, and even so, might never return to previous levels. The work from home movement looks here to stay and with it an increase in the use of technology. These types of trends cannot be ignored by investors, and exposure to these trends can be obtained through alternative property assets like SSY and EQIX.
