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Property in the jumble sale

Posted On Friday, 03 September 2010 02:00 Published by eProp Commercial Property News
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In a few years’ time Old Mutual will regret offloading its property portfolio.

Ben KodisangIn a few years’ time Old Mutual will regret offloading its property portfolio. It probably knows it. Yet needs must, and the company has little choice but to sell the family jewels to raise some cash, a condition it shares with smaller property owners at this stage of the cycle.

The giant insurer is to list its R12bn Triangle Core Fund, which holds some of the best retail and industrial properties investors could want. But the way it plans to carry it out could be contentious. It wants to raise R5bn from the listing, which means it will be left in 65% control of a fund with no debt and a R20bn development pipeline that can be funded by gearing.

Mutual still has to do its book building, which will determine its listing price, but its guideline is a forward yield of 20 basis points below the most desired list fund, Hyprop.

Listco, the current name of the company that is to be listed, will be externally managed by Old Mutual Investment Group Property Investments (Omigpi) (the management company) with its current MD, Ben Kodisang, as the fund’s CEO. But in announcing the listing last week, Kodisang said the management company would in time become internalised.

This bit of chicanery is old hat. It usually means that the management company will be sold to the fund down the line, giving Mutual an extra — undeserved — profit.

“They’re great assets and I’m all for bringing them to market,” says Stanlib’s joint property fund manager, Evan Jankelowitz “They’re about as prime as you can get, but I want to know what risk premium we’ll be paying.”

Another fund manager is more direct. “My only line of sight of management’s ability with a listed fund is the way they’ve managed SA Corporate Property. Their ability isn’t proved. In fact, it’s been one disaster after another.”

Kodisang seemed a bit down when he announced the listing to the press. Last year Old Mutual told him to raise R2,5bn. So he sold half of Cavendish Square in Claremont and Menlyn in Pretoria to Pareto, the Eskom Pension Fund retail arm in which the Public Investment Corp has 40%. Now the company wants R4,5bn.

This solution brings Kodisang’s two carefully laid expansion plans for Omigpi to an end.

The first plan was to create Triangle as an unlisted fund that would be aimed at institutional investors who wanted bluechip assets whose values and payout policies weren’t continually shifting with the tides of short-term sentiment that rule the listed sector. They prefer a steady view of decades rather than years.

Kodisang’s second plan was announced during a lavish multi-helicopter flight around his Gauteng development portfolio last year; it was to build SA’s first R100bn property portfolio. SA does not have enough investment properties, with new property development at only 2,5% of GDP, compared with a Western world norm of double that. So the timing of such ambition looked good. Like the first, this plan is sensible and achievable.

Now, Kodisang said at the press conference: “Old Mutual is to reduce its property allocation from its current 18% of investments to 8%.” He didn’t want to comment on the end of his plans except to confirm that he understood Omigpi could in time disappear when it eventually became the internal manco.

This would be the first time in 40 years that Old Mutual hasn’t had an in-house property management and development arm. It will have to find another name, one whose acronym will change its property arm from Omigpi to Opygmy.

Last modified on Saturday, 30 November 2013 13:06

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