Enhance Your Portfolio
The old saying “don’t put all your eggs in one basket”, surely makes a comeback this year. If you’re aiming to build a property fund portfolio, you might want to consider your options.
IFA Hotels & Resorts, listed in the hotels sector of the JSE 18 months ago, is likely to test the most fundamental tenet of property as an asset class; it is a long-term investment in income rather than capital growth. It is the first big property development company to list on the JSE since the 1960s. It is 85%-held by the parent IFA Hotels & Resorts, listed in Kuwait and Dubai, which is in turn 55%-controlled by International Financial Advisors, a listed Kuwaiti giant headed by Jassim Al Bahar.
In less than 10 years, IFA has grown to become one of the world’s biggest mixed-use resort developers, with projects in Portugal, Dubai, Lebanon, Kenya, Britain, Zanzibar and Southern Africa. Current projects include 50% of Zimbali coastal resort in Ballito, the Zimbali Lodge hotel, an interest in Boschendal Estate in Franschhoek and 50% of four resorts in Namibia.
Executive director Phillip de Sylva says IFA’s development strategy is consistent – they looked for the best development sites in a country (Zimbali, Boschendal); they found a strong strategic partner (Tongaan-Hullet); they chose an internationally branded hotel partners (Canadian hotelier Fairmont for the new Zimbali beach resort); and they brought in their own experience, particularly in global marketing.
De Sylva is not as clear about what payouts investors can expect and when. "We aggressively go for returns, say 25%, for Zimbali. I expect we should be able to pay the first dividends within five years, but I can't say exactly when." He says that IFA Hotels in Kuwait has just paid a dividend and bonus share issue, less than three years after listing.
Seven years after construction, Zimbali Lodge is now breaking even for the first time. Only 480 of 1 400 houses have been completed on the coastal resort, and further development at the new Lakes and Brentwood land parcels will take 20 years.
Like its 1960s listed counterparts, IFA develops in order to hold core income-producing resorts, surrounded by privately owned houses, flats, timeshare and fractionally owned units. They bring a variety of income, including rental, management fees and income sharing.
Because of its low free float of only 15% of the issued capital, (only 2% held by South Africans); IFA does not attract a lot of institutional investors. Most investors are private investors but Al Bahar has committed the Kuwaiti holding company to diluting substantially, though it is likely to hang on to control.
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