WITH listed property generally trading at a premium to net asset value, hybrid property loan stock company Redefine Income Fund says that the group's current strategy is to dispose of listed property stock and beef up the fund's fixed property portfolio.
Redefine Income Fund was the first listed property company to advocate a combination of direct and indirect property investment, when the company listed in February 2000. This type of investment vehicle was termed a "hybrid".
A significant portion of the property loan stock sector on the JSE Securities Exchange SA also have hybrid qualities, investing in both direct property and other listed property stocks.
Redefine CE Brian Azizollahoff says the fund recently disposed of R158m worth of listed property units, replaced it with R188m of commercial property, which has already been acquired by Redefine.
Negotiations are also under way for the acquisition of a further R1,03m of office and retail properties, he says.
Azizollahoff says that listed property is generally trading at a premium to net asset value, making fixed property more attractive.
He says it stands to reason that Redefine should purchase fixed property at the underlying net asset value instead of listed property securities at a premium. "One has to look at relative value. If we can sell listed units on a 10,5% yield and use that cash to purchase fixed property at a yield of 11,5% there is an immediate benefit."
Azizollahoff emphasises that Redefine is not going to offload all of its listed property stocks in other funds, because not everything offers that value.
He says there is also room for other hybrid property funds, saying that the hybrid system has been beneficial to Redefine.
Mariette Warner, fund manager of the Stanlib Property Income Fund, agrees that now is a certainly a time where good quality physical properties should generate better returns than listed property.
"This is subject to correct due diligence and investment analysis," says Warner.
On the subject of hybrids, Warner says she does not believe that all hybrid property funds have the research capabilities in a weak listed property market. Furthermore, Warner says that this could lead to problematic listed holdings.
"Share selection should be done by qualified analysts and fund managers," she says.
Angelique de Rauville, MD of listed asset management company Provest, which is part of the Investec Property Group, says in the current market all hybrids should consider converting their listed units for direct properties in respect of the fact that listed units are trading at a premium to net asset value.
May 19 2004 07:38:21:000AM Nick Wilson Business Day 1st Edition
Publisher: Business Day
Source: Business Day