Sycom and Martprop lead the way

Posted On Friday, 14 November 2003 02:00 Published by Commercial Property News
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Unit trusts recognised for consistent top performance of their underlying property assets

LISTED property unit trusts Sycom Property Fund and Martprop Property Fund took top honours last week at the Investment Property Databank (IPD) Listed Property Performance awards, presented for the first time in SA.

The awards recognise consistent top performance of the underlying property assets of listed property funds in the IPD database. They also aim to enhance the status of property investment by using quantified and comparable measures of performance parallel to those applied of other asset classes.

Awards were presented for the highest three-year total return in each of the retail, office and industrial categories.

Heavyweight funds Sycom and Martprop have performed consistently, and attribute this to making correct decisions at the right time, looking ahead and anticipating changing property market trends.

Sycom won the retail and office category. In retail, it recorded fund returns of 25,1% compared with the benchmark return of 19,0%, while in the office category its fund returns were 19,4% compared with the 12,7% benchmark.

Martprop, which has a strong industrial focus, won the industrial category recording fund returns of 14,1% compared with the 11,9% benchmark.

Sycom MD Gerald Nelson says the fund was "very active" in the past seven years, trading out of underperforming properties in its portfolios and reinvesting in investment grade properties strategically selected to deliver sustained earnings and capital growth.

Although 50% of Sycom's portfolio is in the office sector, which has experienced an oversupply, particularly in Johannesburg, the fund has still managed to outperform others.

Nelson says that when people talk about an oversupply in the office market, they refer to the market in general.

"There are certain nodes that tend to be better than others. The acquisitions we've made in recent years have all been focused on large well-located office buildings with a good spread of long-term leases," Nelson says.

It has been somewhat easier for Sycom to buy properties at good returns and low yields because the fund was well-rated by the market. "As a consequence it was able to make acquisitions of quality properties without diluting its earnings."

Nelson says many listed property funds find it difficult to buy low-yielding (higherpriced) properties.

Sycom also has a sharply focused investment strategy. "We don't just buy properties for the sake of bulking up the fund, and we won't just put anything into the fund that doesn't meet our investment criteria."

Sycom has only A-grade office buildings in its portfolio, a niche market. "You also attract a better quality tenant. You tend to find there is less tenant churn in A-grade properties. The leases are generally longer term which ensures steady income streams," says Nelson.

Sycom owns only regional shopping centres, which have outperformed all other property types. Small neighbourhood retail properties in portfolios of some listed property funds are higher risk as they have fewer national retailers.

Explaining why Martprop outperformed other funds in the industrial category, MD Roger Perkin says they have tended to buy in the "right nodes", areas which will show long-term rental growth.

"We've actively moved away from underperforming properties in the older industrial areas across the country. Johannesburg, Cape Town and Durban have older areas with industrial properties that don't offer the flexibility or accessibility that users are looking for."

Perkin says industrial users are looking for "clear space" warehousing with higher roofs and easy access into properties.

"A lot of the older industrial warehouses have multilevel ramp access into upper levels, which makes them very inflexible from a modern industrial users point of view," he says.

Perkin says the process of upgrading Martprop's industrial portfolio started in earnest about four years ago. "We realised the need to apply capital to buildings which offered longterm growth," he says.

Perkin says they also have the benefit of strategic warehouse buildings in Maiden Wharf, Durban, which due to their scarcity delivered good rental growth.

Last modified on Friday, 14 June 2013 22:33

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