New property political climate

Posted On Thursday, 20 May 2004 02:00 Published by eProp Commercial Property News
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An anticipated R8bn to R10bn worth of new institutional propertylisting activity is generally regarded as a positive development for themarket and investors, but the manner in which market capitalisation growthis occurring outside new listings is a subject for debate among marketanalysts.


Property-Housing-ResidentialJay Junkoon, a director of JHI Real Estate, says the acquisition ofsmaller listed counters by ostensibly large funds has led to a degree ofamalgamation in the sector and the establishment of a new property politicalclimate.

He says property unit trusts and property loans stocks have been swallowedup in consolidation over the past five years.

"The foray into company acquisitions is often easier than the piecemealdirect property assembly and acquisition path, particularly when the discountafforded by the premium of listed yields to direct capitalisation ratesis narrowing," he says.

While it is understood that for liquidity/tradability reasons fundswith market capitalisations of more than R2bn become more appealing tothe equity property unit trust industry since these are permitted to investup to 10% (5% if below R2bn) "what remains unclear is whether this is alwaysto the advantage of industry and the investor in general".

He says that an important consideration for the smaller and privateinvestors is that share-placing is often oversubscribed, with fund-of-fundsand hybrid listed vehicles tending to get a first bite at the cherry.

"Size is not necessarily the best yardstick, but clarity of purposeand quality of portfolio are," says Junkoon.

Some smaller capitalisation funds have produced excellent returns, hesays.

"Furthermore, they often provide a further spread of choice to fund-of-fundsor hybrid listed property funds, offering a risk-adjusted return profileand often a yield sweetener to an otherwise predictable ménage oflarge cap selections."

Junkoon says from another perspective the growth in acquisition activityis not always driven by price, value or diversification benefits but potentialfor additional ancillary business.

"A number of corporate battles are seeing funds scramble for undervaluedassets carried in the listed property sector."

In addition to relatively easy asset growth facilitated by such a hybridstrategy, the large property groups see an opportunity for augmenting theirproperty and asset-management interests and have similarly sought to investin listed counters as a way of influencing future directions, says Junkoon.Similarly, banks are vying for related business and becoming fund promoters,property managers and asset managers.

"As a result, a growing corporate property political landscape has emergedthat perhaps places fundamental concepts of transparency and independenceat risk," he says.

Last modified on Monday, 12 May 2014 14:24

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