The NFB Sensible Finance Magazine, NFB's quarterly Personal Finance Magazine packed with articles relating to travel, investing, property, insurance, legal and other issues relevant to our everyday lives and finances.
Eastern Cape's Community... PERSONAL FINANCE A FREE publication distributed Private Wealth Man gement by NFB a private wealth management Issue 24 July 2013 NFB PERSONAL FINANCE Magazine Eastern Cape's Community... WHOSE ESTATE IS IT ANYWAY? key questions to ask when doing your estate planning WHOSE ESTATE IS IT ANYWAY? key questions to ask when doing your estate planning WHOSE ESTATE IS IT ANYWAY? key questions to ask when doing your estate planning REWARDS PROGRAMS how to make the most of them REWARDS PROGRAMS how to make the most of them REWARDS PROGRAMS how to make the most of them HAVE I MADE SUFFICIENT PROVISION FOR DEATH, DISABILITY & RETIREMENT? HAVE I MADE SUFFICIENT PROVISION FOR DEATH, DISABILITY & RETIREMENT? HAVE I MADE SUFFICIENT PROVISION FOR DEATH, DISABILITY & RETIREMENT?
Transcript
Eastern Cape's Community...
PERSONAL FINANCE
A FREE publicationdistributed Private Wealth Man gementby NFB a
p r i v a t e w e a l t h m a n a g e m e n t
Issue 24July 2013
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
REWARDS PROGRAMShow to make the most of them
REWARDS PROGRAMShow to make the most of them
REWARDS PROGRAMShow to make the most of them
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
p r i v a t e w e a l t h m a n a g e m e n t
contact one of NFB's :private wealth managers
East London tel no: (043) 735-2000 or e-mail: @nfbel.co.zainfo
Port Elizabeth tel no: (041) 582-3990 or email: @nfbpe.co.zainfo
“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.
Only the present is within our reach. To care forthe present is to care for the future.”
4 REWARDS PROGRAMSAre you making the most of them? By Julie McDonald, Financial Paraplanner - NFBEast London.
6 PAYING FOR POOR SERVICE DELIVERYA blow to many rate payers. By Grandt Berndt - Abdo & Abdo.
7 COSTS OF PROVIDING FOR YOUR CHILDREN'S EDUCATIONHaving a plan in place is a must. By Lunga Nkonki, Trainee Financial Paraplanner - NFBEast London.
8 WHOSE ESTATE IS IT ANYWAY?Key questions to ask when doing your estate planning. By Tiny Carroll, FiduciarySpecialist - Glacier by Sanlam.
9 INVESTING THROUGH UNIT TRUSTSUseful, flexible, affordable. By Zuki Mbekeni, Trainee Financial Paraplanner - NFB EastLondon.
10 BY THE TIME YOU “MISS” ADVICE, IT IS TOO LATEBe fully informed about the “do's and don'ts” of insurance. By Barry Taylor, Chair ofShort term Insurance Executive Committee of the FIA. Source: Cover Magazine.
11 MEDICAL TAX CREDITSThe new system ensuring equality across the tax brackets. By Nicole Boucher, TraineeFinancial Paraplanner - NFB East London.
14 HAVE I MADE SUFFICIENT PROVISION FOR DEATH,DISABILITY AND RETIREMENT?By Glen Wattrus, Private Wealth Manger - NFB East London.
16 LIBERTY'S LIFESTYLE PROTECTOREnhancements which add affordable customisation to income protection.Contributed by Liberty.
18 THE TAX ADMINISTRATION ACTA summary. By Shaun Murphy - Klinkradt Murphy.
20 IS IT TIME TO LOOK OFFSHORE?Looking attractive to the local investor in terms of potential returns. By Bryce Wild,Trainee Financial Paraplanner - NFB East London.
21 RETIREMENT INVESTMENTSAn integral part of an investment portfolio. By Nini Joannou, Trainee Financial Advisor -NFB Gauteng.
24 DIVORCE ORDERS AND RETIREMENT SAVINGSAn explanation of the “clean-break” principle. By Julie McDonald, FinancialParaplanner - NFB East London.
25 CALLING ALL NEW PARENTSAdd your Will to your “to do” list today! By Debi Godwin, Director - IndependentExecutor & Trust.
27 Q &A.You ask. We answer. Advice column answering your investment, personal finance, lifeand/or risk insurance questions with Travis McClure, Private Wealth Manager - NFB EastLondon.
24 GET INTO INTUA look at this rand hedge company. By Rob McIntyre, Portfolio Manager - NVestSecurities.
4
So you go to the gym, have regular health
checkups and do assessments online in
order to improve your status on the many
wellness and rewards programs available
such as Discovery's Vitality and Momentum's
Multiply.
But the question is - are you taking full advantage
of the rewards that they offer?
Wellness programs provide tools; information
and incentives to adopt and maintain a healthy
lifestyle, so why not take advantage of these
incentives?
Besides the reduction in your life premiums and
the paybacks on offer from Discovery and
Momentum there is whole world of rewards on
offer!
For example if you are on Discovery Vitality,
have you taken advantage of the extra cash-
backs available from Clicks by activating your
Healthy care benefit? Received your cash back
from buying healthy foods at Pick'n Pay with the
Healthy Foods Benefits? Do you enjoy the lower
movie price at Ster-Kinekor? Have you taken
advantage of the great savings available when
travelling?
Example: on Discovery Vitality and planning a
trip to Thailand? Take advantage of the discounts
along the way! Get in shape for the trip first by
working out at Virgin Active. Get magazine
subscriptions via Vitality Mall giving you reading
material for your trip and buy all your travel
necessities from Clicks. You could fly to
Johannesburg with Kulula, rent a car from Europcar
for the day and stay over at a Southern Sun hotel.
You could then fly with Emirates to Thailand and if
you have the Discovery Card and your
accommodation is booked through World Leisure
Holidays, your whole holiday is sorted every step of
the way with vitality discounts ranging from 5% to
50%. A sure reason to improve your Vitality status!
Having a baby? The Baby benefit offered by
Vitality gives you a free goodie bag with discount
coupons for all those necessary baby items.
If you belong to Momentum Multiply do you
know that you can take advantage of the flight
discounts on Virgin Atlantic and enjoy being royally
treated at Bidvest premier lounge at a discount
while waiting for your flight? While on a business trip
or holiday, look at staying, at a fraction of the
price, at a Protea Hotel or Citi Lodge. There are
great discounts on a wide selection of magazine
subscriptions for the whole family including the
Getaway, Popular Mechanics, Ideas, FinWeek,
House & Garden, Complete Golfer and National
Geographic Kids.
Looking for a great gift? Utilize the discounts by
buying some books, DVD's and CD's online with
Kalahari. For the sports lovers, discounts are
available on certain cricket match tickets.
Wellness programs really do offer an extensive
range of benefits for the whole family.
Remember that increasing and maintaining your
status on the various wellness programs is not
difficult to do:
1. Do a few online assessments
2. Have your health checkups and
3. Have a fitness assessment / keep active and
enjoy the wide range of rewards on offer!
Besides all the discounts and savings, the
underlying benefits such as death, disability and
severe illness by the likes of Discovery and
Momentum are comprehensive and top quality. By
using these wellness programmes and your savings
in premium, you can also look to increase your risk
benefits while at the same time getting some value
back from what is often felt is a grudge payment.
Contact your Private Wealth Manager for more
details on how to enjoy these rewards and improve
your benefits.
Rewards programsRewards programsare you making the most of them?
By Julie McDonald B.Com, CFP®
Financial Paraplanner - NFB East London
sensible finance july13
POORPAYING FOR
SERVICEDELIVERY
SENSIBLE SERVICESENSIBLE SERVICESENSIBLE SERVICE
SERVICE
In the previous edition we commented on a
case, then before the Constitutional Court,
where a Mrs Rademan, a member of the
Moqhaka Ratepayers and Residents Association,
withheld her payment of property rates as a protest
against poor service delivery by the local
Municipality.
The formation of Ratepayers Associations and
the drive to withhold the payment of rates or
making payment of the rates portion of one's
Municipal account into the Association's banking
account, is well established.
The Moqhaka Ratepayers and Residents
Association declared a dispute with the
Municipality and Mrs Rademan withheld her
payment of rates. The Municipality then
disconnected her electricity, despite that portion of
her account being up to date. Mrs Rademan
obtained an Order from the Magistrate's Court
against the Municipality, where they were ordered
to reconnect her electricity. The Municipality then
took the matter to the High Court where the Court
agreed that they had the right to disconnect the
electricity for non-payment of property rates. Mrs
Rademan then took the matter to the Supreme
Court of Appeal where she again lost.
In the Constitutional Court, Mrs Rademan
argued that the Municipality was not entitled to
disconnect her electricity supply due to the
provisions of the Electricity Regulation Act, as none
of the grounds on which the Municipality may cut
off electricity in terms of the Electricity Regulation
Act were applicable to her. She maintained that
there was a conflict between the Electricity
Regulation Act and the Local Government:
Municipal Systems Act and the Municipality's Credit
Control and Debt Collection By-Laws, and that the
Electricity Regulation Act should override the
Municipal Systems Act.
The Constitutional Court found that the matter
dealt with a failure to pay property rates and not a
failure to pay electricity. The Electricity Regulation
Act deals with the supply of electricity on a
national level and gives the basis for termination of
electricity supply. The Municipal Systems Act, deals
with the supply and right to disconnect at a local
level and thus there is no conflict between the two
Acts.
The Municipality also maintained that in terms
of the Municipal Systems Act and its By-Laws, that it
was entitled to consolidate various accounts and
disconnect Mrs Rademan's electricity for non-
payment of the property rates component of the
consolidated account. The Court held that the
consolidation of an account means that the
different components of the accounts belong to
one account and one cannot pick and choose
which component to pay. Thus the Court upheld
the Municipality's right to disconnect electricity for
Accounting • Auditing • Taxation PlanningEstate Planning • All Statutory Registration • Business Structuring
Concessions • Due Diligence • Business Succession Planning
Contact us on 043 726 9555 for all your queries.
partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)
Is it Time to look ?Offshore
Positive sentiment has crept into the global
economy as the recovery from the 2008
financial crisis has started to gain
momentum. For anyone who has previously burnt
their fingers investing abroad or has only been
around long enough to catch the local equity bull
run of the past decade, the case for investing
offshore looks more promising than it has in a long
time.
Even though local equities and local property
have shot the lights out over the past decade
(giving investors returns of 21.4% pa and 25.6% pa
respectively), the general consensus fund
managers have reached, is that South African
equities are overvalued on a global basis. This view
is backed by the fact that the MSCI World Index
has beaten the JSE All Share Index for the past
three years and the number of JSE listings has also
been in decline. With other emerging markets
offering higher fundamental growth than South
Africa and developed economies offering better
value from an investment point of view, there is no
doubt that offshore investment is looking attractive
to the local investor in terms of potential returns.
Coronation predicts that the next decade will see
global equities giving investors returns of between
10% pa and13% pa, followed by local equity and
local property, both predicted to give returns of
between 7% pa and 10% pa.
It must be remembered that there are
essentially two drivers of offshore return: namely the
performance of the underlying asset class and the
movement of the Rand. Issues such as the growing
current account deficit, spiralling increases in petrol
and electricity prices, lower labour productivity and
higher wage demands, make the fundamentals of
the Rand weak and thus the chances are, that
over the long term, the Rand is set to depreciate
against other major currencies. This currency play
presents an opportunity to boost the returns
achieved from underlying asset classes.
Another major obstacle in the past has been
the effort required to obtain tax clearance, in order
to take funds abroad. Government addressed this
issue at the beginning of last year and now one
can invest R1 million per year outside South African
borders, without having to obtain a tax clearance
certificate.
As a developing economy (making up 0.7% of
Global GDP), we are extremely susceptible to
global capital flows, exogenous shocks and the
movement of money between a limited range of
industries and investment sectors. Applying the
principle of diversification, looking offshore makes
sense in more ways than one.
The most important decision an investor can
make is to choose an asset allocation that is in line
with their risk profile, especially as alpha becomes
critical in a low-return environment. If you are
needing assistance with making this decision or
require further information do not hesitate to
contact an NFB financial advisor.
Is it Time to look ?Offshore
Looking attractive to the local investor in terms of potential returns. By
Bryce Wild, Trainee Financial Paraplanner - NFB East London.
20
SENSIBLE RETURNSSENSIBLE RETURNSSENSIBLE RETURNS
sensible finance july13
Retirement Investments
ConsiderationsLiquidity:
Retirement assets are illiquid prior to age 55 thus there
should be sufficient liquidity elsewhere in a portfolio
before considering an investment into retirement
assets. Upon retirement, up to one third may be
withdrawn as a lump sum whilst the remainder will be
transferred to a living annuity to generate a regular
income for the annuitant (the investor).
Asset Allocation:
Retirement annuities are governed by Regulation 28 of
the Prudential Investment Guidelines of the Pension
Funds Act in terms of asset class exposure. These assets
cannot have an equity exposure of more than 75%, a
property exposure of more than 25% and a foreign
exposure of more than 25%. This limitation can easily be
managed in conjunction with your advisor. If necessary,
one could adjust other investments to set off the
impact of the Regulation 28 requirements.
Beneficiary Nominations:
Although the investment allows for nominated
beneficiaries, the fund has trustees who must sanction
these, giving consideration to other dependants of the
investor.
FeaturesCompounded Returns:
Retirement investments are not subject to any tax on
the growth generated by the underlying investment
portfolios. This means that there will be no income tax,
no capital gains tax and no dividend withholding tax
applicable. For the high net worth individual, this can
be translated into a 40% saving on income tax, a 13.3%
saving on capital gains tax and a 15% saving on
dividend withholding tax. Below is a simulated example
of a ten year investment of R5 million into a unit trust
and a retirement annuity. The underlying investment
portfolio and platform fee is identical for both
investments. This is solely the result of the favourable
tax treatment and the powerful impact of
compounding.
*The example assumes that there is a 40/60 split between
income and capital growth and that income, within the unit
trust, has been taxed on an annual basis at 40%.
Within the retirement annuity, the investor has
generated approximately R7.2 million more than within
the unit trust, which represents almost 145% of the
original investment.
Estate Efficiency:
Retirement assets are not subject to estate duty or the
associated costs on death. This translates into a 20%
saving on estate duty, up to 3.99% saving on executor's
fees and up to 13.3% saving on capital gains tax.
Revisiting the example we used previously, these
savings are illustrated as follows:
* The example assumes that the estate duty abatement of R3.5
million has already been used and that, within the unit trust,
capital gains tax has been applied at 13.32%.
The net value available to the investor's family is
approximately R14 million more in the retirement
annuity. The impact of the tax efficient compounded
returns as well as pro-active estate planning has thus
saved the investor approximately 280% of the original
investment amount.
What's next?New legislation has recently been promulgated which
will further enhance the impact of retirement
investments. The impact of these changes, in
conjunction with current practice, potentially
represents a material saving to you and your family. To
learn more about this exciting opportunity, please
contact your NFB Private Wealth Manager.
Retirement InvestmentsRetirement investments are an integral part of an investment portfolio.The rationale behind these investments has often been criticised, however,when their features and considerations are understood in conjunction witheach other, these investments are an enhancement when appropriatelystructured into a portfolio. By , Trainee Financial Advisor - NFB GautengNina Joannou
Year Unit TrustRetirement
Annuity
Investment R 5 000 000 R 5 000 000
1
2
3
4
5
6
7
8
9
10 R 23 406 484 R 30 624 927
Variables Unit TrustRetirement
Annuity
Original Value R 5 000 000 R 5 000 000
Value @date of death R 23 406 484 R 30 624 927
CGT -R 1 751 245 R 0
Executor’s Fees -R 933 919 R 0
Estate Duty -R 4 144 264 R 0
Net Value R 16 577 056 R 30 624 927
With the introduction of the 'clean-break'
principle when the Pension Funds Act was
amended in 2007, non-member spouses can
get access to their award of their ex-spouses retirement
savings (pensionable interest) as indicated in the
divorce order immediately after divorce. The non-
member no longer has to wait for the retirement
benefit to accrue to their ex-spouse, whether that
being on retirement or exit from the fund - which may
still be years away.
Pension Interest is defined as the following in the
Divorce Act:
In the case of a Pension Fund, Provident Fund or
Preservation fund:
The benefits to which a member would have been
entitled to had he/she withdrawn from the fund on the
date of divorce.
In the case of a Retirement Annuity:
The total amount of the member's contributions to the
fund up to the date of divorce, together with a total
amount of annual simple interest on those contributions
up to that date, calculated at the rate as imposed by
the Prescribed Rate of Interest Act. The maximum
simple interest may not exceed the fund return on the
pension interest assigned to the non-member spouse.
Because of the change in legislation and amendments
thereof, there are differing scenarios with regards to the
tax payable.
If your Divorce Order was granted/dated 13before
September 2007:
Date of deemed accrual:
� Accrual date is the date of deduction from the
fund.
� Date of deduction is the date of election by non-
member spouse to take cash or transfer to another
fund.
Tax position:
� If your ex-spouse elected to make a deduction
between 1 November 2008 & 1 March 2009, you
were regarded as the taxpayer. The divorce award
would have been taxed at your average rate of tax
and you could claim back the tax from your ex-
spouse.
� However, if the deduction was/is made after 1
March 2009, no tax is payable by either parties
which is a very favourable position.
If your Divorce Order is granted/dated 13after
September 2007:
Date of deemed accrual:
� Date of deduction from the fund.
Tax position:
� Where the deduction is made after 1 March 2009,
the non-member is the tax payer and the retirement
cumulative withdrawal table applies if a lump sum is
taken (see below)
� Upon retirement (after age 55) by the non-member,
if they took a lump sum, the taxed divorce award
would be aggregated with other lump sums
according to the retirement tax tables.
Taxable portion of Tax Rate
withdrawal
R0 – 22 500 0%
R22 501 – R600 000 18% on the amount over
R22 500
R600 001 – R900 000 R103 950 + 27% on the
amount over R600 000
R900 001 + R184 950 + 36% on the
amount over R900 000
� The non-member may transfer to an approved
retirement fund and such a transfer is tax-free
(which is recommended). And then on retirement
from age 55 onwards the cumulative retirement tax
tables would apply to all of their retirement
products.
Taxable Portion on Rates of Tax
lump sum
R 0 - R315 000 0% of taxable income
R315 001 - R630 000 R0 plus 18% of the amount
exceeding R315 000
R630 001 - R945 000 R54 000 plus 27% of the
amount exceeding R630 000
R945 001 + R135 000 plus 36% of the
amount exceeding R945 000
The GEPF (Government Employees Pension Fund) has
also recently been amended to make allowance for
the clean-break principle.
Therefore, if you currently have a divorce order
that still requires a portion of your retirement savings to
be given to your ex-spouse this can be done now: a
'clean-break'.
Remembering that if your retirement savings have
been reduced by a divorce order against it, this could
leave you with less than sufficient retirement savings
when you do retire and therefore you would need look
at additional retirement savings.
RETIREMENT SAVINGSAn explanation of the “clean-break”
principle. Julie McDonaldBy , Financial
Paraplanner - NFB East London.
DIVORCE ORDERS AND
CALLINGALL NEWPARENTS
CALLINGALL NEWPARENTS
Add your Will to your “to
do” list today! DebiBy
Godwin, Director -
Independent
Executor
& Trust.
So you were probably woken up far too early,
struggled to find something to wear that
wasn't covered in baby dribble and now
there is the “to do list” to tackle that just keeps
getting longer. With small children there are not
enough hours in the day to get things done (at
least while they are asleep), but if you add
anything new to your “to do list” it must be to
ensure you have wills in place which provide for
your family, especially your children, if anything
should happen to you.
First it is important that your children are
named as beneficiaries in your will and it is natural
that, subject to making provision for your spouse,
your children are next in line to inherit. If you have
children from a previous relationship then we can
advise you how best to provide for all of your
family.
Another important factor to consider is the
appointment of guardians to look after your
children when you cannot. If both mother and
father have parental responsibility for the child,
then the survivor of them would continue the
parental role. But you should consider who you
would like to appoint as guardians should
something happen to both of you.
Guardians can be an awkward topic. You
may have a strong preference as to who you
would rather care for your children. By appointing
guardians you make known your wishes. But don't
forget to discuss it with your proposed guardian
first, to ensure that they are willing and able to take
on the role!
Wills are not always a subject that younger
people automatically think of, particularly when
they are busy raising a young family. However, it is
important and when it is done it will give you
peace of mind.
So go on, add it to your “to do list” today.
SENSIBLE TO DOSENSIBLE TO DOSENSIBLE TO DO
49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210
At Independent Executor Trust we are committed to personalized service and&
individual attention. With combined experience of 65 years, we specialize in the
Drafting of Wills, Administration of Estates Testamentary Trusts.&
sensible finance july13 25
27
Q: I realise that not every asset class performs the
best each year, but what asset class has been the
most consistent performer over the longer period?
Does it pay off to just choose a well balanced
portfolio or should one try and pick the asset class
winners each year?
A: A tough question to answer. It is always easy
looking at yesterday's winners, but much more
difficult to pick the winners of the future. Having
had a look at asset class performances over the
past 10 years it is clear that each year is different
and often the winners of last year are the losers of
the next year.
One theme that does ring true through these
periods is that a diversified portfolio will give you
the most consistent returns. It will never be the top
performing asset class, but it has also never been
the bottom. Over the past 10 years of data of year
on year returns, SA Real Estate (Commercial listed
property) and SA Equities have dominated the top
spots. This is no surprise as SA has experienced a
bull market in both these assets. It is not always the
case, however, as often the second position is
another asset class like bonds or cash. A case in
point would be 2008 when Inflation and SA Cash
were the top two performers with SA Real Estate at
the bottom with a negative 15.7% return.
The last 2 years we have seen foreign equities
make a comeback and the top spot is occupied
by Foreign Equity for 2013 with a return of 48.8%.
Over the past 5 years and 10 years it has been SA
Real topping the charts with returns of 19% and 21%
p.a. respectively. SA Equities would have given you
a similar return over the 10 years. A Balanced or
Diversified portfolio would have come in third and
given you on average around 11% and 14% p.a.
over 5 and 10 years. This return is well above the
inflation and cash returns which averaged closer to
6% and 7%.
A diversified portfolio will also give you good
returns at a much lower risk or volatility than an
equity portfolio. There are some excellent fund
managers who have achieved even better returns
with their portfolios than the average diversified
fund. These portfolio managers are able to actively
manage their portfolios within a risk mandate that
suits the client. This allows them to take advantage
of the opportunities that the various asset classes
provide. In a bear or risky market they can allocate
more funds to more stable assets like cash and
bonds. In an environment when things are going
well they can take advantage of equities and
properties. These mandates restrict the manager
from being too aggressive in any one asset class
and therefore ensure that returns are less volatile.
Looking at data from Prudential (source: I-Net
Bridge) over the past 30 years, equities have given
the best real return (the return over and above
inflation) at 7.7% p.a., but this also comes with the
highest Standard Deviation or risk at 20.2%. Property
would have given you 6.6% p.a. at a Standard
Deviation of 19.1%. It is interesting to note that
Residential Property has only given a real return of
0.7%. Gold would have given you 2.6%, but with a
Standard Deviation close to equities at 18%. Cash
and Bonds would have given you a real return of
3% p.a. and 4.7% p.a. respectively.
In the end it is best to seek advice and select a
portfolio that is best suited to your needs. It is no
good chasing past winners. Pick a champion who
can manage money consistently well over all asset
classes and who is able to adapt to the changing
economic environment.
Travis McClure
Please address all Questions to: Travis McClure,
NFB Sensible Finance Q&A, Box 8132, Nahoon,
5210 or email: @nfbel.co.zainfo
SENSIBLE Q A&SENSIBLE Q A&SENSIBLE Q A&
“Sensible Finance - Questions and Answers” is an advice columnthat will allow our readers the opportunity to write to a professionaland experienced financial advisor for advice regardinginvestments, personal finance, life and/or risk cover. TravisMcClure will be answering any questions that you may have.
sensible finance july13
Get into INTU
28
Get into INTUGet into INTUGet into INTU
Listed property is an important asset class for
our income investors. The universe comprises
property loan stocks and property unit trusts,
all of which are in the process of converting to a
Real Estate Investment Trust (REIT) regime. These
units trade on (taxable) gross yield of between
5.5% and 9.5%, and comprise stocks such as
Growthpoint, Redefine, Capital, Vukile, Emira, SA
Corporate and Vividend.
Listed property also has a place in general
equity portfolios, but the candidates that we would
seek for inclusion would typically be international
property development and owning companies
such as Redefine International, New Europe
Property Investments and Capital and Counties.
One such company that we will discuss today is
INTU Properties PLC.
INTU is the new name for Capital Shopping
Centres (CSC). CSC traces its roots to the old
Liberty International PLC structure that the founder
of Liberty Life, Donny Gordon created. At its peak,
Liberty International was a large UK based property
owning and development company listed on the
London Stock Exchange. A few years ago,
following the effects of the global financial crisis,
Liberty International was split into two separate
companies, one being Capital and Counties
(which focused on property development around
the Covent Gardens area) and the other being
INTU Properties (which is an owner of some of the
largest regional shopping centres in the UK). Both
companies remain listed in London and
Johannesburg. The Gordon family still owns 9.5% of
INTU. Other significant South African shareholders
include Coronation Asset Management at 15.08%
and the Public Investment Corporation at 5.71%.
Capital and Counties has done very well the
past few years and this has been reflected in the
share price, whilst the share price performance of
INTU has lagged behind its sibling; however, the
profile and investment proposition are very
different.
INTU owns some of the very best centres in the
strongest locations right across the UK, offering easy
access to great places for shopping and socialising
to more people than anyone else; INTU attracts
over 320 million customer visits each year. Given
the level of urban development in the UK and the
planning permission processes, many of these
centres simply cannot be replicated without
extraordinary effort, costs and time.
Given that INTU owns and operates some of
the largest shopping centres in the UK, the foot
traffic, trading patterns, basket sizes and tenant
failures that drive the performance of the tenants
and therefore INTU has been under some pressure
due to the recession that the UK has been in. This
has placed downward pressure of the carrying
amount of the properties in INTU and on INTU's net
rental income and therefore its distributions.
We believe that the trading environment has
stabilised, that property valuations should begin to
grow again and that INTU has built a base for future
growth.
INTU has also taken advantage of acquiring
further centres, albeit by the issue of equity over the
past few years.
INTU is trading at about 90% of its net property
value and has a forward gross distribution of 4.4%.
We have based this distribution on 15 pence per
unit and an exchange rate of R15 to the Pound.
Increases in the distribution are likely to be muted
for some time, until the recovery gains traction in
the UK. For the quality of its business and in relation
to its London listed peers, this is an attractive entry
point.
For the patient investor, who wishes to
accumulate a long term holding in a London listed
property company that is well capitalised and with
better prospects than the past few years, you would
NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist groupcompanies in the fields of stock broking, wills and the administration of deceased estates.
Anthony Godwin (RFP™, MIFM) - ManagingDirector and rivate ealth anager, yearsP W M 25experience;
Gavin Ramsay (BCom, MIFM) - ExecutiveDirector and rivate ealth anager, yearsP W M 20experience;
Andrew Kent (MIFM) - Executive Director andShare Portfolio Manager, years experience;20
Walter Lowrie - rivate ealth anager,P W M 28years experience;
Robert Masters (AFP™, MIFM) - rivate ealthP WM 28anager, years experience;
