Formed in March 2001, Paraprop adopted a dual structure comprising
income-earning A and interest-free B debentures. The latter, issued as
deferred payment to vendors of properties, were intended to "turbocharge" A
debenture yields for five years.
Says Squire-Howe: "When we launched, everything appeared very positive and
we premised our forecasts on rental income growing at 6% to 8%/year."
That was way off track for a start. However, the real problems started in
January this year, when the first of each annual automatic conversion of
one-fifth of B debentures into A debentures began. "The model was geared -
and it hit hard when things went wrong," says Squire-Howe.
And how it did hit in the six months to April 2003. Two "significant
vacancies" sliced about 5% off rental income and debenture conversions did
the rest, sending income distributions diving 41%, to 24c/unit.

If not exactly a rabbit out of a hat, at least Absa has come to the rescue.
Absa Commercial Property Finance is set to take a 34% stake in Paraprop by
way of 17,54m new units, with payment in cash and Growthpoint Property
units. Precise amounts will depend on Paraprop's average price over 90 days
to 1 September. However, at its current 350c/unit there should be a cash
injection of around R33m and Growthpoint units valued at about R26m.
More pertinent could be Absa's now joint management of Paraprop and
potential for what's a good quality, R825m portfolio to be absorbed into a
larger property fund. This, and Paraprop's current 27% discount to a net
asset value of 480c/unit, could be the real attraction.