Triangle expected to list as PLS

Posted On Thursday, 26 August 2010 02:00 Published by eProp Commercial Property News
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In response to changing capital market liquidity requirements, Old Mutual Investment Group Property Investments (OMIGPI) - the property asset management and development arm of Old Mutual SA - is gearing up to list it's blue-chip portfolio on the JSE

Ben KodisangAnnouncing their plans today in Johannesburg, OMIGPI Managing Director Ben Kodisang said that the fund, currently called the Triangle Real Estate Core Fund, presently comprises a mix of 40 prestigious prime retail, industrial and office properties, with a weighting in the retail sector. 

The listing is pencilled in for mid-2011, depending on market conditions and the completion of a number of requirements. Valued at approximately R12.0 billion, this would make it the third largest fund by value in the JSE’s listed property sector.

“We expect the listed fund, which will be structured as a Property Loan Stock, to be very attractive to investors for its characteristics of large, dominant, top-quality properties with blue-chip national tenants, exceptional income stability, and a history of outperforming in the unlisted property sector, among others,” said Kodisang.

The portfolio will include some of South Africa’s largest and best-known shopping centres such as the Gateway Theatre of Shopping in Durban, Pretoria’s Menlyn Shopping Centre, Cavendish Square in Cape Town, Riverside in Nelspruit and Vincent Park in East London.

These centres and others give the fund a retail focus, with 68% exposure to that sector. “These top five retail properties comprise over 50% of the fund’s value, making it a very concentrated - and therefore easily managed - portfolio,” noted Kodisang. “Their highquality, regional and super-regional status also lends the portfolio a defensive quality, which was demonstrated during the recent economic downturn as these centres benefited from the trend of consumers shopping less often, but spending more per visit. This defensiveness is also bolstered by OMIGPI’s sophisticated tenant-mix management, which has helped to give income streams a low correlation with the recent economic down-cycle. ” Apart from retail, the fund offers 13% exposure to the office sector and 9% to the industrial sector, with the remaining 10% made up of cash and working capital. Major office properties include Triangle House in central Cape Town, while industrial properties feature Phumelela Park in Montague Gardens, Cape Town.

The fund’s geographical spread, based on market value, gives it a 32% exposure to Gauteng, with 28% in KwaZulu-Natal, 21% in the Western Cape, 6% in Mpumalanga and 3% in the Eastern Cape (10% in cash and working capital).

Currently, occupancy levels are very good, given the subdued retail environment, added Kodisang. The overall portfolio has a weighted occupancy rate of 93.4%, while the weighted average lease period is also favourable at 6.4 years.

“OMIGPI will continue as the fund’s management company post-listing, making it an external manager,” Kodisang said. “We have managed the portfolio ever since it was acquired by Old Mutual Life Assurance Company SA (OMLACSA), driving its value and earnings growth to its current size and quality, and will continue to do so. Regarding that performance, the portfolio has outperformed the benchmark for unlisted (direct) property returns (the IPD Large Fund Index which tracks 12 property funds of over R5.0 billion) over the one-, three- and five-year periods (on an annualised basis) to the end of 2009. As measured by IPD, the fund returned 10.5% for the 12 months to the end of 2009, 16.6% p.a. over three years and 22.3% p.a. over five years.”

Outlining the fund’s investment strategy going forward, Kodisang said it would remain focused on the retail sector for the long-term, but predominantly invest in large, highquality assets that are diversified by geography, property type, tenancy mix and property size. As fund managers, OMIGPI aimed to maintain greater income stability from diversification, while reducing the concentration of properties. “We would also look to introduce borrowing prudently in order to enhance returns, as the fund is currently ungeared, while actively managing the portfolio to improve returns and expand the fund’s value over time.”

In terms of fund raising as part of the listing, OMIGPI was aiming to ensure that the fund’s free float comprised between 30% and 40% of the fund’s total value, which meant that it would raise approximately R5.0 billion in new capital. Upon listing, with the property assets being reclassified as “listed equity” holdings, the existing owners of the unlisted portfolio, namely OMLACSA and a few large pension funds, would need to rebalance their own investment portfolios to comply with Regulation 28 of the Pension Funds Act. As a result, some new investors would be required in the listed fund.

As for the reasons for deciding to list the fund, Kodisang explained that the local capital market, as well as global investors, had become more risk-averse in the wake of the global financial crisis and recession, during which time the liquidity of an investment (the ability to buy and sell an asset easily and quickly) had become paramount. “There has been a key change in capital markets worldwide - liquidity has now become much more important to investors than share-price volatility. Before, investors worried more about share-price volatility and were less concerned about liquidity. As a result, these days unlisted assets are less attractive investments than listed ones, so it makes sense for us to respond to these new requirements.

“At the same time, as an unlisted vehicle owned by OMLACSA, strict regulations and negative tax consequences meant there has been only a limited investor base for our properties – pension funds. Under the new structure, this restriction is completely eliminated, as the investor pays tax on a very transparent basis,” Kodisang concluded.

Last modified on Wednesday, 22 January 2014 09:06

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