Global leap stirs desire

Posted On Friday, 05 December 2008 02:00 Published by eProp Commercial Property News
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Last Tuesday Growthpoint’s price leapt 9,9% to R15,50 on a record turnover of 30m shares. This when the listed property sector lies moribund on the margins of the world’s unravelling financial markets.

Paul Duncan Catalyst Fund ManagersThat day Growthpoint was put on the Morgan Stanley emerging markets index (MSCI) and index trackers around the world adjusted their holdings accordingly. Growthpoint, market cap near R20bn, is SA’s biggest listed property fund. It’s the first unquestionable proof to other funds that large and liquid funds will attract global attention.

The jump in value will not be lost on funds that have been debating whether to merge into giants. These could include Sycom, Acucap and Hyprop; ApexHi, Redefine and Madison; and Pangbourne, Resilient and others in the Des de Beer stable. Any combination of these could have a market cap of over R20bn. Like Growthpoint they will move into emerging market indices. “This immediately puts them on the radar of global investors,” says Catalyst fund managers’ Paul Duncan. “It has nothing to do with performance. The index trackers simply must include them in their portfolios the minute they get on the index.”

Growthpoint’s peers have another opportunity to learn the lesson. The fund is heading for inclusion on the JSE’s Alsi 40 around mid-December. Its index trackers will load up with shares as well, possibly pushing the counter even higher. Investec Property’s Angelique de Rauville believes this has been influencing the price more than the MSCI. “People buy shortly before the share enters the index and cash in once it happens.” This can be seen from the performance of the share price in November. The price started rising from a low of 1330c the week before last. It fell after Tuesday as the traders cashed in, but again started rising to hold near its peak. There is likely to be another jump as soon as it joins the Alsi 40.

Growthpoint is also slated to be included in the new FTSE-EPRA Nareit emerging market property index launching early next year. So could other funds like Hyprop, Fountainhead and Redefine. But that is unlikely to have the same effect as the more established indices, says Duncan.

But will Growthpoint’s good fortune finally stir the others into a merger? It makes sense, and Madison’s Marc Wainer says his funds, ApexHi, Redefine and Hyprop, are constantly exploring it. The main block to progress has been the vested interests of boards of directors in staying independent.

But it is clearly in the interests of shareholders for the mergers to happen. Share prices will rise and economies of scale will enhance income. Lower capitalisation rates will give the funds more firepower to expand organically by acquiring more properties. It’s difficult to see who will lose. Unless it’s a few directors losing their positions to the economies of scale.

Last modified on Monday, 21 April 2014 12:52

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