Traditionally, risk-averse investors tended to keep their money in cash, but in many countries the real after-tax return on cash is below the inflation rate, which means those cash holdings are actually losing value.
For example, in South Africa, where the November 2022 inflation rate was 7.6%, at mid-December interest rates on six-month fixed deposits with the major banks ranged from 8% to 8.25%. That means, assuming an investor is in the top tax bracket of 45%, they are effectively earning about 4.5%.
“It was clear to us that there was a growing need for a lower-risk investment that still delivers regular income and preserves capital value,” says OrbVest CEO Martin Freeman. “The additional competitive advantage that OrbVest can offer is diversification into the world reserve currency, the US Dollar, through our investment in medical office buildings in the US, which offsets single-country risk.”
OrbVest has re-packaged its offering of medical office buildings in the US to respond to investors’ desire to spread their risks during a period of heightened geopolitical upheaval and uncertainty.
In 2021, OrbVest launched its first diversified portfolio, OrbVest Diversified Holdings 1 (ODH 1)
This was comprised of at least eight buildings that investors could put their money into to spread their risk beyond a single building. Since then, OrbVest has launched four more ODH offerings. It also offered another diversified portfolio, Triple Net One, which was also envisaged to be a portfolio of eight SNL (Single Net Lease) healthcare buildings, but one where the tenants have signed “triple net” leases, making tenants responsible for all the maintenance costs.
In response to market demand, towards the end of 2022, OrbVest decided to offer investors in those six products a single, consolidated product, simply called ODH. The rationale behind consolidation is to make these investments more robust, in a market which has become riskier because of higher inflation and interest rates. It will also save about $400,000 of costs over a five-year term, since each one of the ODHs and Triple Net One are separate listed entities.
Shareholders voted overwhelmingly in favour of the proposal to consolidate.
“For investors, it means their risk is now spread across over 100 medical tenants and 26 different buildings in 9 states across the US,” Freeman says. “In the event that the US does go into recession in 2023, even though the medical profession is relatively resilient, it is likely to experience some stress. But with diversification across such a broad portfolio, investors in medical office properties will see little impact if a few tenants are unable to meet their obligations.”
The new ODH has a five-year structure, which will start at the end of 2023.
OrbVest will accept investments until the end of December 2023, until ODH closes. Every time a new investor comes in, it triggers a new issue of shares, which makes those investors eligible for distributions immediately. Previously, investors into a single building have had to wait until the transaction has closed before their money starts to work for them which had an impact on the returns in the first year (although they were offered the opportunity to put the money in an interest-bearing note which mitigated this impact to a large extent).
Since the inception of ODH 1, investors have received over 7% annualised returns, and is anticipated to continue to pay 7% for the full investment period. All returns are distributed as Dividends and not as interest so are more tax efficient. Each of the underlying investment properties should be sold after the 5-year investment period and any capital growth is shared with investors on a profit waterfall, pushing the anticipated return per annum into double figures and the targeted figure is to exceed 10% IRR (internal rate of return). This return in dollars compares favorably to the rates currently being offered by South African banks to investors willing to tie their cash up for five years, which are between 9.9% and 11.25%, according to rateweb.co.za. Those returns translate into 5.5% and 6.25% respectively, for those in the top tax bracket. Also the anticipated depreciation of the Rand over the US Dollar over time should be considered.
OrbVest’s fees on the ODH portfolio are only 30 basis points (0.3%), but OrbVest also earn fees on the underlying investments which are weighted in favour of performance, with a 7% hurdle. All fees and charges are explained in the documentation, as required by the financial regulators in South Africa and the US.
For more information view this short video below or contact OrbVest on www.orbvest.com or email support@orbvest.com
Disclaimer
OrbVest SA (Pty) Ltd is an authorised Financial Services Provider. The content and information herein contained and being distributed by OrbVest is for information purposes only and should not be construed, under any circumstances, by implication or otherwise, as advice of any kind or nature, or as an offer to sell or a solicitation to buy or sell or to invest in any securities. Past performance does not guarantee future performance.
Returns are taxable and will be taxed as dividends from a foreign source, ordinary income or capital gains, depending on your tax residency. OrbVest is not a tax and/or legal advisor. Owing to the complex tax reporting requirements associated with private equity and private real estate investments, investors should consult with their financial or tax advisor or attorney before investing.
For members investing via www.orbvest.com the particulars of the investment are outlined in the property supplement, a private placement memorandum or subscription agreement, which should be read in their entirety by the proposed investor prior to investing and having obtained independent advice.
