The portfolios of most other listed funds include a bit of everything: offices, industrial and retail – not all investors like diversified funds since returns from different property sectors can differ markedly.

SA Retail Properties listed this week with a portfolio worth R800m, making it one of the largest property funds in the PLS counter. Managed by Marriott Property Services, the fund comprises 19 shopping centres.

The largest centre is Boksburg’s Galleria on the East Rand. Others include Kyalami Downs, Coachman’s Crossing (Bryanston), Eikestad Mall in Stellenbosch and Sanlam Centre in Witbank.

The portfolio has a 6% vacancy rate. Units have been issued at 500c and should trade on a forward yield of 12,95%.

But is it a good time to invest in shopping centres in view of lacklustre consumer spending and the recent decline in shopping centre returns (Finance Week, 9 November)?

Marriott Property Services director David Green says that though returns on retail property in general have fallen, returns vary depending on location and size.

He reckons the profit slump applies mostly to large regional centres whilst smaller convenience centres such as those in which SA Retail invests, continue to offer favourable returns.

Figures from the SA Property Index (Sapix) confirm this. Returns on smaller centres of up to 2 500 sq m actually improved last year – up from 11,1% in 1999 to 14,8%. Returns for centres ranging in size from 2 500 sq m to 25 000 sq m fell by 2% on average compared with the 10% slide for regional centres of more than 25 000 sq m.

However, Merrill Lynch property analyst Harry Boonzaaier warns that prospects for commercial property are less promising than they seemed a few months ago. He reckons that rising vacancies and growing pressure on rentals are bound to hit the earnings growth of PLSs and PUTs.
Publisher: Finance Week
Source: Finance Week