Crown jewels unlikely listings

Posted On Monday, 21 November 2005 02:00 Published by
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 Old Mutual Property Group not to list prime retail assets.


Marc Wainer

The Old Mutual Property Group - the R33bn giant created by Old Mutual Properties (OMP) acquiring the property business of Durban-based asset manager Marriott - won't be listing its prime retail assets, such as Menlyn Park (Pretoria), Gateway (Umhlanga) and Cavendish Square (Cape Town), any time soon.

That will disappoint investors and fund managers hoping that OMP would use Marriott JSE stocks Martprop, SA Retail, Ambit and Namibian-listed Oryx as vehicles to list some of its top performing properties.

Old Mutual's directly held property portfolio is valued at R9bn, with a 72% exposure to the retail sector, including some of SA's biggest shopping centres. The industry was expecting a sizeable chunk of that portfolio to be brought to market once regulatory approval for the Marriott takeover was in place, giving the sector's size and liquidity a huge boost.

Instead, Old Mutual plans to create an (unlisted) institutional fund aimed at the retirement industry that could house up to R6bn worth of its existing property assets. Colin Young, OMP listed property executive recently appointed head of Old Mutual's institutional portfolios, says the new triangle fund - its assets will be spread between cash (5%), listed property funds (20% and 30%) and OMP's properties (65% to 75%) - will appeal to pension funds that seek a steady, growing income and should offer an attractive alternative to fixed income bonds.

Young argues that though OMP's prime assets won't be sold to listed funds, the triangle fund will create much new capital flow to five or six chosen listed funds (no doubt including the newly acquired Marriott ones).

He says that though Menlyn and Cavendish could find their way into the triangle fund, OMP would hold on to Gateway for at least another seven years before it would even consider releasing it into any fund - listed or otherwise. The triangle fund will be launched some time next year and could be opened up to retail investors within two to three years.

However, Martprop and SA Retail will benefit from OMP's development pipeline, with R6bn worth of new property investments expected to be taken up by these funds over the next three to four years.

Young says that will comprise mostly industrial developments, including the six MP3 distribution parks recently earmarked for Johannesburg, Centurion, Durban and Cape Town as well as the much-talked about R4bn Zonkizizwe mega mall in Midrand, which was put on the back burner about five years ago. The 200 000sq m mixed use project is likely to get the go-ahead as soon as the Gautrain project's plans are finalised.

But Young argues that the biggest benefit for Marriott listed entities will be access to capital and cheap debt funding via OMSFIN (Old Mutual's bulk financier) and its subsidiary, Nedbank, to help grow assets under management.

He believes that Martprop has the potential to overtake Growthpoint Properties (current market cap: R7,2bn) as the sector's biggest player. Says Young: "We plan to quadruple Martprop's size from its current market cap of around R2,5bn to close to R10bn over the next five years."

Though analysts welcome OMP's move to enter the fund management arena - the new entity will be a dominant player, with a 19% share of all listed property assets under management - they'd like to see punters given the chance to share in the performance of its crown jewels.

Catalyst Securities MD André Stadler says that most of SA's prime commercial and retail stock is still held by institutions. And if OMP uses this opportunity to list its top assets, other institutions could be encouraged to follow suit.

Says Stadler: "We need to bring the best properties to the market if we want to increase the sector's attractiveness and liquidity, particularly from an international fund manager's perspective. It will be disappointing if Old Mutual dumps its less attractive stock on the market and keeps the prime assets to itself."

But he agrees with First South Securities property analyst Leon Allison that it's not unexpected that OMP would want to retain full ownership of its prime assets, as these are probably trading at lower yields than those of Martprop, SA Retail and Ambit.

Says Allison: "If these funds were to buy OMP's best stock, one of two things would happen: either the funds would have to dilute their yields, which won't benefit unit holders in the short term, or OMP would have to write down capital values. Both scenarios are unlikely."

Last modified on Tuesday, 29 April 2014 17:17

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