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Path of the future, but tread carefully.

Posted On Friday, 02 May 2003 02:00 Published by eProp Commercial Property News
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The long-awaited listing of large numbers of property portfolios held by institutions has begun.

Erwin RodeThe question is how far the trend will go and what forms it will take.

Sanlam Property Asset Management is preparing to list two or more property funds worth R2bn each. MD Banus van der Walt says he won't list anything with less assets than that.

Sanlam has in the past injected properties into existing funds in exchange for paper. But this time it has chosen to do the listing itself, and it will also handle the asset management of the funds.

Van der Walt says the listing feeds into his main mandate, which is to reduce Sanlam's exposure to the direct investment asset class.

Asked how far he will go, he says the listed property sector is the future of the property industry. "Why box yourself into a fixed, inflexible investment, when you can convert it into a more liquid listed product?" he asks. He sounds as if he is about to wipe out Sanlam's direct property exposure.

The trading discount in listed property relative to directly held property is disappearing, and this is the main driver for institutions to list their property.

In fact, property economist Erwin Rode contends that listed property now trades at a premium to directly held property. "I cannot think of any other reason preventing institutions from listing their portfolios," he says.

There are several other institutions embracing the listed property sector, but their views are less aggressive.

RMB Properties is looking at listing a portfolio of about R1bn, with a major part of the assets from the portfolio of insurance group Momentum.

RMB Properties MD Brian Jackson says the timing is right for listing property. He also cites the convergence of yields in listed and directly held property, plus a positive interest-rate outlook.

Though he agrees that conditions are conducive for listings of large chunks of properties held by institutions, Jackson warns that "one has to be selective and justify each listing by a solid business case".

The Mines Pension Fund (MPF) went into the field earlier, by reverse-listing a R1,5bn portfolio into Growthpoint, the property fund managed by Investec Property Group.

In October last year MPF pumped R650m in linked units from different property funds into Growthpoint for more Growthpoint paper.

Absa is working with Marriott Property Services to list a fund later this year.

Absa Commercial Property Finance general manager Geoff Cannings says its process is still at the preliminary stages, but that conditions are ripe for listing.

The direct involvement of institutions in listed property funds, where they not only pump property into existing funds but become involved in managing them, may be a signal that the institutions are preparing to release their prime portfolios onto the JSE.

The dominant perception has been that the institutions are using the JSE's real-estate sector as a dumping ground for their underperforming properties.

The income stream accruing from fund-management fees could have also played a significant role in the move to direct involvement by institutions in the real-estate sector.

Though this new wave of listings is expected to transfer large property portfolios into the JSE, the property directly held by institutions - estimated at R120bn - is not expected to be radically reduced.

The listing of property has a number of benefits, including enhanced liquidity, flexibility and diversity, but there will always be a place for directly held property.

"Listing is not a panacea for everything," says Jackson, because some fund managers may have a rationale for certain property investments not requiring listing .

Listing of property portfolios is a positive move, but because the trend is so prevalent there is a danger that the market will overshoot. Investors need to tread carefully.

Last modified on Tuesday, 06 May 2014 09:30

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