3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Research report: South African commercial real estate as an inflation hedge(2019) Taderera, MarimoOne of the primary objectives of any investment manager is to protect investors’ wealth against the negative effects of inflation. Real estate investments have traditionally been viewed as a good inflation hedge. Property has been included in mixed asset portfolios for two main reasons, the first being for diversification benefits, the second being for its alleged inflation hedging benefits. Escalation clauses in lease agreements and rent reviews are the mechanisms through which investors adjust rentals for inflation, and do not necessarily allow investors to adjust rentals for inflation instantaneously. The purpose of this study is to investigate the inflation hedging ability of South African Commercial Real Estate investments (CRE) and employs quantitative techniques to study the relationship between Inflation rates and CRE returns. The Vector Error Correction (VEC) model for cointegrated time series was used to investigate the long run relationship between property returns and inflation. This study finds that retail and industrial property hedge against inflation in the long-run, with retail property being the better inflation hedge of the two property typesItem Property-type diversification strategies and their performance implications on the South African real estate investment trusts(2018) Bantseke, ThathatsoBackground - Extensive research that examines the performance implications of regional and property-type diversification has been undertaken in Asia, United States of America and the United Kingdom. Research on South African real estate investment trusts’ (SAREITs) diversification strategies is insufficient. The South listed property market is ranked amongst the largest sectors on the JSE with 35 SA REITs listed on the JSE, which represent a market capitalisation of over ZAR435 billion which is 6% of the JSE All Share Index market value. The size of this sector emphasizes the importance it within the South African economy. This study is of significance to the academic fraternity as well as local and international investors and asset managers who are interested in participating in the South African REITs market Purpose -The study investigates the effects of property-type diversification on SAREITs performance through literature review which explores the key variables in the diversification and performance relationship to create an understanding of the REITs sector. Correlation and multiple regression analysis is undertaken utilizing secondary data from Published Annual Financial Statements, MSCI South Africa and INET BFA Databases. The REITS analyzed have the majority of their underlying property assets located within South Africa and have been listed on the JSE for the 2014 to 2017 financial years. Findings - The findings from the literature review highlight that property type diversification strategies although playing a paramount role in portfolio formation of REITs and performance, the returns of companies are also influenced by other moderating factors such as property specific, organizational and industry characteristics. Regressions between return variables with the property types and degree of diversification of REITs, show both positive and negative relationship but these associations were found to be statistically insignificant. The hypothesis is not fully supported by the statistical data analysis and entails that other non-systemic risk factors such as“firm leverage policies”;“management style”;“net asset values”;“size of REITs stock” and “property location” need to be analysed in conjunction with in order to yield more robust results. Limitations - The study focused on SAREITS with the majority of their underlying property assets located within South Africa and listed on the JSE for the 2014 to 2017 financial years. Complete regional data on the listed REITs was lacking which restricted the study to an analysis of property type strategies. Utilisation of secondary data restricted the research to a single set of data and this impacts on the findings as some of the data is incomplete. Further studies in this area could include regional-type diversification strategies analysis over a longer observation period.Item A framework for mergers and acquisitions due diligence: lessons from selected REITs in South Africa(2018) Mabece, YongamaIn April 2013, the South African listed property sector converted from Property Unit Trust and Property Loan Stock investment structures into a Real Estate Investment Trust (REIT) structure that is understood globally. This conversion spurred consolidations in the property market in the form of mergers and acquisitions. Research shows that mergers and acquisitions tend to have high failure rates as growth strategies. It remains unknown how sufficient traditional due diligence is and how it can be improved to enhance the chances of successful corporate marriages within the South African REIT market. This paper reviews the aspects of the traditional due diligence scope which generally comprises of financial, legal and commercial due diligence in order to determine its adequacy as a decision making tool that helps reduce the risk of failure in REIT merger and acquisition transactions in South Africa. There is consensus in the literature that due diligence is a means to reduce the risk of merger and acquisition failure, some studies suggest that failure occurs when due diligence is not done well. This paper uses interviews conducted with due diligence professionals from seven REIT companies listed on the Johannesburg Stock Exchange who were involved in large merger and acquisition transactions in the preceding four years. The interviews were used to ascertain how the professionals perform due diligence, whether or not they think that traditional due diligence is sufficient for REIT mergers and acquisitions and to solicit their views on how the due diligence scope can be expanded. Transcribed data from each of the interviews was analysed based on three concurrent sub-processes adapted from the works of Miles and Huberman (1994) which consist of data reduction, data display and drawing and verifying conclusions. The results show that the traditional due diligence scope is not sufficient for REIT merger and acquisition transactions, a majority of the respondents agree with this observation. Encouragingly the professionals within the South African REIT market have a due diligence scope which is already much wider than the iii traditional scope, be that as it may, there is still a high failure rate of 59% observed in the sample analysed. Due diligence professionals have a low regard for understanding and resolving the different companies cultural issues, this is cited in the literature as one of the contributing factors for merger and acquisition failure. This is an area that can possibly augment the due diligence cycle and professionals should focus on it in order to improve the chances of success. The research proposes expanding the due diligence scope by incorporating strategic due diligence which is forward looking and it overcomes the challenges of traditional due diligence of relying on historic information. Strategic due diligence assists the acquirers understand the target’s future prospects, and it allows the acquirers to determine if the target prospects fit with their own strategic objectives. This together with a higher focus on understanding and resolving cultural issues of the merging companies should augment the traditional scope and ultimately lead to transactions that yield higher shareholder value.Item REIT implementation and conversion in South Africa(2017) Pagiwa, Reneiloe LehlohonoloIn 2013 new legislation was introduced allowing for the creation of a new listed property entity called a Real Estate Investment Trusts (REIT). Previously the listed property sector was dominated by two main types of property which were Property Unit Trusts (PUT) and Property Loan Stock Companies (PLS). The introduction of the REIT entity allowed existing listed property companies to convert to REIT status and for new companies to list on the Johannesburg Stock Exchange as REITs. The purpose of this study is to evaluate the impact of REIT implementation and the conversion of PLS and PUT to REIT status on shareholder wealth in South Africa. The study evaluates the change in shareholder wealth through the use of abnormal return calculations during events that led up to the implementation of REITs and conversion to REIT status. The findings show that implementation and conversion to REITs did not result in significant industry gains in shareholder wealth. The events leading to the implementation of REITs however showed positive abnormal returns out lining positive sentiments in the market. For the companies that converted to REIT status their shareholder wealth had negative performance returns. Immediate gains in shareholder wealth are not present. This indicating that the use of REITs as an investment will have to be monitored in the long term.Item Determinants of listed property stock performance in South Africa(2017) Gulubane, TlameloDespite the perceived superior performance of the South African listed property market and, even so, the recent introduction of Real Estate Investment Trust legislation to increase its global competitiveness, limited research exists on the market. This report thus examines the drivers of listed property performance from an economic and firm-specific perspective as well as providing an overview of the South African listed property market. The results of the study suggest that investors particularly earn a premium for holding stock with a low ratio of book-to-market value of equity. This study advances the knowledge of the South African listed property market, and further provides investors and fund managers alike with insight on the performance of listed property stock.Item Valuation accurancy in South Africa(2017) Mabuza, Sandile InnocentBackground The perception of inconsistent and uncertain valuations has been the subject of debate worldwide. However, it is a phenomenon that has gone largely ignored in South Africa. The effect of unreliable valuations cannot be overstated, as all lending and investment decisions are based on valuation estimates. Objectives This study seeks to investigate the level of valuation accuracy in South Africa by comparing mortgage valuation estimates done prior to finance of the properties against their actual realised transaction prices. Methods and Results Valuers from four financial institutions as well as from external valuation firms were randomly chosen to participate in a questionnaire and in addition 32,826 properties which were valued and sold between January to December 2016 were also analysed. The valuation estimates and actual transaction prices were collected in an Excel file. While data from the banks and valuers was collected and analysed using Qualtrics. Data was analysed using R software version 3.3.3 to come up with descriptive and inference statistics. The result of the analysis showed that the level of valuation accuracy for the properties in South Africa used in the study is high (2.03%), which shows a very high level of accuracy compared to the adopted benchmark of 10%. The accuracy level across the three provinces in our study namely Gauteng, KwaZulu-Natal and Western Cape is 2.23%, 1.93% and 1.58% respectively, indicating that valuation accuracy is higher in Western Cape than Gauteng and KwaZulu-Natal Conclusion The study revealed that valuation estimates were good proxies of the market value (actual realised sale prices). Based on the 10% acceptable margin of error benchmark adopted by this study it shows that valuers in South Africa are indeed accurate in as far as estimating residential cost values. Based on the 2.03% level of accuracy obtained in this study, we recommend that valuation stakeholders adopt 5% maximum margin of error between valuation estimates and actual realised prices.Item Alternative funding models for redeveloping inner-city Brownfield real estate in South Africa(2016) Marsden, Elliot ManuelSouth African inner-city , through a series of political cycles, social transformations and shifts in local government structures, have undergone significant physical change in a deteriorating direction. This change has largely manifested in the dilapidation of inner-city real estate stock, in that brownfield buildings, or buildings with former residential, commercial and industrial functions, have been re-appropriated for alternative (often illegal) uses that have potential consequences for that redevelopment and, through the sourcing of necessary capital, maybe restored and rehabilitees to better serve inner-city inhabitants and stake holds.Item The financing of corporate real estate acquisition, a South African study(2017) Avivi, RamiThe purpose of this study is to fill specific gaps in the existing body of knowledge of South African corporate real estate management by investigating the determinants influencing the lease versus buy decision; the methods and financing sources of corporate real estate acquisition; and the criteria used in deciding on the financing technique for corporate real estate acquisition. The research followed a similar methodology to that of Redman and Tanner (1991) in their study “The Financing of Corporate Real Estate: A Survey”. However, it specifically focused on the South African corporate real estate environment. The data collection instrument was an online survey and the survey produced quantitative descriptions of certain aspects of the population. The population for the research was corporate real estate decision makers of leading South African companies. The data captured was presented through the aid of tables, charts and graphs. The data was further analysed through cross tabulations and hypothesis testing using the Chi Squared test of independence to determine significance of results. South African firms use some form of leasing (mainly long term leasing) in acquiring their corporate real estate. However, ownership is also a common form of real estate acquisition through the use of mortgages secured by the acquired property, mortgage backed securities and sale of unsecured bonds. The decision criteria for acquisition includes both financial and non-financial determinants. Financial analysis is also an important factor in analysing the lease versus buy decision. This is mainly done by comparing the undiscounted cash flow of leasing versus buying. Where a discounting approach of evaluation is used, the most favoured discount rates include the weighted average cost of capital and rate of return on new investments. Mostly outscored professional services are used when making the lease versus buy decision. The benefit of this study was to understand the factors influencing the corporate real estate decision making process and to provide a corporate real estate decision makers with a decisional framework when determining the form or real estate tenure. Future studies should attempt to secure better response rate to allow for robustness of results and other methodologies of analysis.Item Tax legislation and unlisted real estate funds(2016) Zwane, Busisiwe JacobethOn the 4th of July 2013, the South African National Treasury introduced the Taxation Laws Amendment Bill. The purpose of the amendment bill was to introduce new anti-avoidance rules into the Income Tax Act No. 58 of 1962 (the Act) in order to reduce the formation of equity instruments that are falsely masked as debt instruments. The amendment bill contains sections 8F and 8FA which have unintended consequences for the real estate industry, more specifically for the unlisted real estate sector. The application of sections 8F and 8FA of the Taxation Laws Amendment Act, has been suggested to have a negative impact on the returns of unlisted real estate funds. The legislation appears to provide tax relief to real estate investment trusts (REITs) and this is perceived as grossly biased and discriminatory against unlisted real estate funds. The Investment Property Databank (IPD) South Africa estimates the unlisted real estate market in South Africa makes up 46% of the property market. When pension funds and banks, short term and long term insurers, private investors and government are included, the unlisted real estate market is possibly larger than the listed real estate market. Despite the numerous listings of real estate investment trusts South Africa has seen over the last ten years, the listed real estate market is still in its infancy stage and accounts for a very small percentage of the property market in South Africa. This indicates the important role unlisted real estate funds play in the South African property market. The purpose of this study is to find out whether the application of the tax legislation has had any effect on the performance of South African unlisted real estate funds. This study evaluates the investment performance of the unlisted real estate funds and real estate investment trusts (REITS) through the implementation of descriptive statistics, and the event study methodology to indicate whether there is a significant relationship in the returns of unlisted real estate funds and tax legislation. The study finds that tax legislation imposed on South African unlisted real estate funds has had no significant impact on the return performance of unlisted real estate funds. The study also finds that the returns of unlisted real estate funds are very competitive with the listed real estate returns listed on the Johannesburg Stock Exchange.Item An overview of the initial performance of South African Real Estate Investment Trusts(2016) Ntuli, MpiloSouth Africa implemented the REIT structure in 2013 with the intention of encouraging local and international investment. A year after implementation South African listed property was reported to have performed better than the UK, European, and Asian REITs. This report assesses the initial performance of South African REITs and their portfolio diversification benefits when paired with Shares, Bonds, T-Bills, and other Listed Property in a mixed-asset portfolio, over the period May 2013 to December 2015. The findings show that REITs are the second best performing asset, risk-adjusted. REITs are a return-enhancer when included in a mixed-asset portfolio, and tend to contribute at the higher end of the risk spectrum. This reports contributes to the few that exist on emerging markets, it is a study of the only major REIT market in Africa, and is significant as it discusses South African REITs from their implementation.