Presenter: Lindsay Williams Guest(s): Gerald Nelson

Grapnel Property Group announces the Hospitality Property Fund Limited - South Africa’s first specialist listed property fund in hotels and resorts - destined for the JSE real estate holdings and development sector on Friday 10 February 2006. With Gerald Nelson from the Hospitality Property Fund

LINDSAY WILLIAMS: Gerald, this has been a trend in the last year or so - Siyathenga started it in another area, but this is the first one in the hospitality property sector - what’s the background to it?

GERALD NELSON: It’s something that we’ve been working on probably for about the last two years now - it was born in the context that if one looks at the normal commercial listed property sector, the availability of stock for further growth is limited. What isn’t in the sector is largely institutionally held, and I think it’s also a sign of maturity in the market - if one looks elsewhere, particularly in areas like the US and Canada where these funds are a lot more prolific, it’s almost a natural progression that once the markets start maturing an element of specialisation starts coming in.

LINDSAY WILLIAMS: Grapnel itself has assets in excess of R3-billion under management - what assets are going to be contained within this fund?

GERALD NELSON: The assets within this fund are around R1-billion - as you mentioned earlier it’s very specialised, and is focused exclusively on the hotel and leisure sector.

LINDSAY WILLIAMS: So they’re being spun off from the existing assets of Grapnel?

GERALD NELSON: No, not at all. These are all new acquisitions.

LINDSAY WILLIAMS: That’s interesting. Let’s look at some of those acquisitions now - even I know some of them, and I hardly travel anywhere. The Mount Grace Country House and Spa - I love that place with it’s huge plunge pool with 2.5 tons of salt in it – and the Radisson Hotel Waterfront in Cape Town has one of the finest bars and views in the country. These are quite big names, aren’t they - did you cobble them together in order to list them? Was this a specific strategy?

GERALD NELSON: It was. We really started with nothing I suppose, and as I said earlier - I’m probably going back about two years now to when we first started the process - we were trying to get is a fairly good blend in terms of diversity, it wasn’t just a matter of picking up whatever we could. What you’re seeing in terms of the portfolio now - which comprises 16 core properties - is really what we’re left with after probably analysing about 50 or 60 properties. The idea was really to get something that gave us good diversity in terms of star grading, geographic location, the type of hotel - whether it was focused on the business conference, or leisure sector. With the right sort of diversity obviously there’s a good mitigation of risk as well.

LINDSAY WILLIAMS: How should we analyse this? Should we be analysing this in terms of GDP growth in South Africa? Should we be looking at tourism numbers? It’s going to be an interesting concept for the fund managers to grasp…

GERALD NELSON: It is, and it’s a bit of a mix of different elements - so from an analysis perspective it is somewhat different. There is a very large fixed lease component within the fund - in terms of the through-flow of income to the fund - but there’s also an element of variable income. That was done intentionally, in order to introduce an element of excitement for the fund - that it wasn’t just plain commercial leases.

LINDSAY WILLIAMS: Any future funds planned - any new ones?

GERALD NELSON: No future funds, but certainly the intention is to grow hospitality - it’s been an untapped sector up to now, and we certainly have a number of properties in the pipeline that we’d be looking to introduce probably within the next nine to twelve months.