It is clear that companies which put together funds for short-term benefits at the expense of investors will not be tolerated.

A report by a committee appointed by AProp's board into the matter concluded that the substantial loss in value of its linked units since listing and the decline in net asset value was a result of a combination of factors, including the basis upon which the fund was structured.

All profits were required to be distributed to unit holders without funds being available to service capital repayment obligations.

Other important factors were a "deficient or ineffectual due diligence process resulting in the overvaluation of acquisitions and/or deficient structuring and/or deficient contractual terms for implementing acquisitions".

A-Prop's board also received "incomplete or deficient input" from its previous fund manager and advisers.

The company has appointed attorneys Knowles Husain Lindsay to institute legal action against certain vendors who allegedly made misrepresentations to the company about the properties sold to it.

Mariette Warner, head of fund management at Standard Bank Properties and manager of the Standard Bank Property Income Fund, believes three aspects of listings need to be re-evaluated, namely promoters' fees, promoters'
interests and the integrity of the valuations.

Warner believes the promoters' fees should not be "stripped out upfront", but rather should be in the form of the equity of the new listing with a restraint of trade over a reasonable period of about two to three years.

She says if the listing is done with quality and performance in mind rather than shortterm profit, there is no reason why the promoters should be unwilling to take equity instead of cash upfront. Warner says reputable companies that understand both the physical and listed property markets will not shy away from performance-based promoters' fees.

She says valuations ought to be more regulated in terms of the level of the written mandate and the valuation methodology requirements. New listings should have the backing of a reputable company with a good track record in property management.

Daryl Ducasse, CEO of investment property trading company Stratgro Capital, says there will be far greater investor confidence if promoters receive fees when and if a property fund starts performing.

Norbert Sasse, head of property fund and asset management at Investec Property Group, agrees with Warner. "I believe that one needs to differentiate the guys who are in it for the short term as opposed to the individuals and institutions with track records who are in it for the long term."

Sasse said investors should take some comfort in that where there is an institution with a brand and reputation backing a listing, they would have covered all aspects of a listing properly.

Simon Pearse, MD of The Income Specialists, a division of Marriott, said investors and analysts should also be diligent in their analysis and investigation of the structure of a new listing, especially the debt arrangements and deferred payment arrangements, rather than just accepting what promoters said.

The good news though for investors in AProp is that Corovest, the new fund manager of A-Prop appointed in June, has stabilised AProp and is certain it will turn the firm around and unlock value for shareholders.

They have overseen the recapitalisation of the firm via a R30m clawback offer underwritten by major unit holders Redefine Income Fund and Spearhead Property Holdings.

The company's loan arrangements with its bankers have also been restructured in respect of the capital repayment profile and the renegotiation of interest rate fixing arrangements from an effective rate of about 13,9% to about 10,65% a year.