Still room on the board for property listings

Posted On Thursday, 13 September 2007 02:00 Published by eProp Commercial Property News
Rate this item
(0 votes)

There are opportunities for new property listings on the JSE despite an “incredibly competitive market” and low capitalisation rates, says Paul Duncan, investment analyst at Catalyst Fund Managers

Paul Duncan Catalyst Fund ManagersDuncan says the best route may be for three or more individuals with existing portfolios to consolidate and enter into strategic alliances in order to create a property fund with the critical mass necessary for establishing a new listing.

By banding together the parties also protect themselves against hostile corporate activity while they are still small.

“Each will have a stake of the equity (in the new fund) and this enables them to protect themselves from hostile corporate activity,” Duncan says.

But, he says, the opportunities for entrepreneurs to go out and create their own property portfolios from scratch and list them are very limited. “It is incredibly competitive in the market and capitalisation rates are low.”

Duncan says when it comes to finding new quality property stock for a proposed listing, an entrepreneur will mostly find himself competing with “big hitters” such as the large listed property companies and pension funds, which are all desperately trying to acquire property in the marketplace.

The key to making a new listing viable is to create strategic alliances between parties that have existing portfolios.

Many analysts have said they do not expect to see any new property listings in the short to medium term because of the unfavourable higher interest-rate environment, which makes new listings difficult.

But last week, Shops For Africa, formerly a listed property loan stock company and now an ordinary share capital company, scotched theses predictions when the company announced that it was to be relisted later this month on the JSE as SA REIT, a property investment and development company.

To this end, 10 properties, including three development opportunities, were acquired for a total of R370m, and will be reverse-listed into the company.

In this case, the promoters and management of the entity were able to secure the property portfolio from private individuals to create a property fund with sufficient critical mass.

Duncan says he is encouraged by the new SA REIT’s decision to opt for in-house asset management and not external asset management.

There have been instances in the past where property players have brought a new property listing to market, but have also included an outside management company.

The players then use the capital markets to bulk up the portfolio and increase the value of the external asset management company, which earns fees every time properties are acquired.

The property players in these cases are heavily invested in the management company. They later sell out of the management company and create wealth for themselves.

Duncan says this irks fund managers and other investors, who invest in listed property companies, because they are long-term property holders.

An in-house management structure and the fact that management is also acquiring interests in the new listing’s equity imply that management is interested in a long-term sustainable property listing.

Duncan says for Catalyst, size is not necessarily the main criterion for investment.

“If the management is transparent and the quality of assets and development pipeline underpin the valuations of the portfolio, we would consider investing no matter the size of the fund,” he says.

Kundayi Munzara, property analyst at Investec Listed Property Investments, says that given the big appetite of institutional investors for listed property exposure, a good opportunity may present itself for direct unlisted property owners to list good-quality assets at yields lower than physical property capitalisation rates.

“As listed property yields are trading 1%-1,5% lower than reporting capitalisation rates, direct property owners could benefit by achieving capital upside through listing.

“In addition to this advantage, vendors can achieve diversification through exposure to a broader range of assets with much higher levels of liquidity and ease of trade than the physical property market,” Munzara says.

He says Investec Listed Property Investments believes there is more potential in the longer term for significant listings and that the market has long anticipated the listing of unlisted property funds Attfund, Pareto, Improvon and Retail Africa.

SA REIT CEO Arnold Maresky confirms the property market is “very tight at the moment”.

“What is going to give you the competitive edge is to have the correct network with a board and an experienced management base. It gives you entrance into markets.”

He says SA REIT’s development pipeline will more than double the asset base of SA REIT.

Maresky says the directors of SA REIT will hold a 20% interest in the company.

“This has been made in a direct cash investment, which indicates the confidence and commitment to the success of the company,” he says.

Last modified on Wednesday, 23 April 2014 12:50

Please publish modules in offcanvas position.