SA property funds get ‘innovative’ with debt

Posted On Friday, 30 March 2012 02:00 Published by
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Funding via the bond market is considered as more transparent than conventional debt, with listed property funds accessing capital at more attractive rates

Keillen NdlovuSouth African property funds — which have low gearing levels — are increasingly looking to raise money from capital markets rather than the traditional method of borrowing from banks, as they are being offered more attractive interest rates.

Eyal Shevel, sector head of corporate ratings at Global Credit Ratings, yesterday said there was an enormous appetite to lend to property funds as they have low borrowings and offer a stable income flow.

Mr Shevel said in the past, the only alternatives to bank borrowings were complex securitisations that proved very cumbersome to manage and "significantly" limited management’s ability to trade properties. "As interest rates have fallen, these products have become a less viable option," he said.

SA’s largest property group, Growthpoint Properties , and its number two rival, Redefine Properties, have both recently opted to go to capital markets.
Stanlib head of property funds Keillen Ndlovu said the funds were becoming more "innovative" in funding their debt. "Most property funds, because they are lowly geared, are diversifying their debt funding, especially in capital markets, which is cheaper," he said.

Alternative Real Estate Capital Management fund manager Maurice Shapiro said that funding via the bonds market was far more transparent than via conventional banking lines, which meant that listed property funds could access debt at more attractive rates.

"We see the use of alternative funding of debt as a major contributor to the next phase of distribution growth for the listed property funds. Growthpoint have been the leaders in the property sector to use unsecured commercial bond issues to fund a portion of their debt," Mr Shapiro said.
He said property loan stock firm Hyprop Investments had also tapped the bond market after its acquisition of the Attfund property portfolio. Atterbury Investment Holdings has a portfolio of indirectly held assets through investment, notably a 40% shareholding in Attfund, which was bought by Hyprop last year.

Many South African property funds are carrying a loan-to-value ratio of 30%, or lower. "This is extremely low compared with international benchmarks, and even funds whose portfolios may not be performing well are still financially very sound, given their low gearing and strong asset base," Mr Shevel said.

"This is largely as a result of the fact that many of these property funds were spun out of life companies and other financial institutions.… As a result, the funds were listed with very little gearing and those with good properties have also been increasing in value, pushing the loan to value (ratio) down further," he said.

Last modified on Monday, 21 April 2014 09:25

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