Private investors flock to funds

Posted On Friday, 05 August 2005 02:00 Published by eProp Commercial Property News
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JSE-listed property funds - managed portfolios of shopping centres, offices and industrial property - show no sign of peaking, as some analysts started warning over a year ago that they would. Their combined market capitalisation has doubled to R46-billion in five years, and should reach R50-billion this year.

Des de Beer ResilientYet there are signs that demand for scrip is bigger than supply, and capitalisation rates - the first-year payouts as a percentage of the purchase price of scrip - continue to fall. This has triggered a rush to bring new funds to market. But there is also a shortage of good investment properties and their capitalisation rates are falling, too.

Large, comprehensive funds are almost impossible to put together, so promoters are concentrating on specialised and low market cap niche funds.

Property loan stock (PLS) company Pangbourne is listing Siyathenga, a retail fund with assets worth R800-million, including Crescent Shopping Centre in Umhlanga Ridge, Durban; Pineslopes Shopping Centre in Fourways, Johannesburg; and Willowbridge, a new centre opening in Tyger Valley, Cape Town.

Promoter Des de Beer, already a leading shareholder in Resilient, Acucap and Capital, is assembling a fund of retail stores in smaller cities and towns. Martin Ettin and Derek Greenberg, the founders of PLS Primegro who sold out to Growthpoint two years ago, are also preparing a fund with unlisted syndicator CBS's portfolio as its core. Grapnel, manager of blue-chip property unit trust Sycom, is putting together a hotel fund.

The current demand might encourage some of the proliferating private syndicates to list their portfolios as well. This will give their shareholders share tradability that they lack, which is a major criticism of syndicates.

The danger is that promoters will return to the bad habits of the 1980s and 1990s. They listed parcels of everybody's second-best properties into the eager but undiscriminating hands of institutional investors, burdened by what was called "a weight of funds". Insurers and pension funds were unable to invest outside SA because of strict exchange controls and sanctions, creating an investment hothouse with more money than good investments available.

Private investors have a parallel problem today. Yields on bonds (between 7% and 8%) and cash (6%) are uninviting. Equities are improving but volatile.

Private equity funds, rather than institutional investors, have turned property into the world's most popular asset class, because of its relatively high forward yields - just below 10% on average for SA listed funds - and steady, predictable income streams. Banks have been eager to lend investors a high percentage of their property fund purchases at rates equal to or below their forward yields.

Private individuals are the fastest-growing fund investors in SA, with about R12-billion bought through unit trusts that invest in property and through Provest, Investec's private property fund manager, with more than R2-billion in client's funds.

Large private investors who invest directly in funds and not through unit trusts have invested at least another R3-billion, and property funds have about R4bn in cross-holdings in other funds.

That leaves little more than half the scrip available for institutional investors, who are also developing a greater appetite for the property sector. They're a bit late, as usual, but they should keep the bourse steaming.

Analyst and former Old Mutual property fund investment chief Liliane Barnard cites three signs of property demand growing faster than supply: the growth of unit trusts that invest in listed property; property yields falling below the yields on long-dated government debt like the RSA 153; and a slowdown in listed funds issuing new scrip because they can't find properties to buy.

Stanlib property fund analyst Mariette Warner says private investors are pouring R100m/month into her two funds.

Marriott economist Ian Anderson says R1-billion flowed last quarter into 19 unit trusts that invest in listed funds, up from seven a few years ago. "Yields on listed funds are close to long-bond yields," adds Warner. "I expect them to fall below soon, showing that demand exceeds supply."

Provest MD Angelique Derauville confirms a slowdown in funds issuing new scrip as they struggle to find new investment stock.

Anderson warns that the growing demand and falling yields in listed funds are "enticing promoters to use the JSE as a dumping ground for rubbish properties as they did in the past. The initial yields of these funds will look attractive because yields on the established funds have been pushed so low."

The established funds have strong management, with good focus, and will be the better investment in the long term than higher-yielding, poor-quality new funds, he says.

"But investors are paying a premium because of the strong demand and we feel there is a good chance of a price correction soon," Anderson adds.

Most other analysts, however, expect the sector to keep on steaming ahead.


Last modified on Tuesday, 06 May 2014 15:36

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