The awards were made at the Sandton Intercontinental Hotel last week. They recognise the fund's return on capital employed, taken over two years, and the consistent top performance of the underlying property assets of listed property funds in the IPD database.

Paraprop reported a total return of 12,6%, which included capital growth and income return, against an average of 7,2% among listed property funds and 6,3% among all funds, both listed and unlisted.

Property analysts said Paraprop was recovering from the original negative financial structure of the fund. When Paramount was launched in March 2001, it had in place a B-class debenture system.

When management bought the properties for the company, it paid 60% in cash, 20% in linked units and 20% in convertible B-debentures.

Every year one-fifth of debentures would convert into linked units. In the interim the B-debentures carried no interest payments.

When management launched the fund it believed economic growth and growing income streams would offset any dilutionary consequences of the B-debenture system.

Instead, it experienced poor growth and significant dilution.

Paraprop says that when the company was launched, it turned in good results for its first two financial year-ends and then "hit a wall".

Distributions for last year dropped more than 40% and market consensus was that prospects for the fund looked grim.

Paraprop says that while it had a portfolio of good quality properties, it had a financial structure that was dilutionary and exaggerated any negative earnings.

Paraprop MD Rodney SquireHowe says that although the B debenture conversions were dilutionary, the market had looked very positive when it listed.

The fund was then confronted with events such as the September 11 attacks in the US and the information technology crash, which left the property market flooded with office space in a dormant economy.

"Rentals in some areas dropped 40%, and instead of achieving the 6% growth we needed to avoid dilution, our net rental income went negative. It was our worst nightmare come true," says Squire-Howe.

To compound Paraprop's problems, he sayd, two of its largest tenants vacated their premises unexpectedly and left the fund with more than 10000m² of vacant space.

Spire Property Services, which manages Paraprop, curtailed expenditure and put in place a major letting drive.

Squire-Howe says that to marginalise the debentures, the fund needed to increase its total market capitalisation.

This was achieved by, firstly, bringing Absa on board as a major strategic shareholder last year, through the issue of R17,5m worth of new shares.

This immediately diluted the ratio of B-debentures from 45% of the fund's total capital down to 33%.

The fund then went on an aggressive acquisition drive, issuing a combination of cash and linked units to sellers of properties. The fund managed to grow the portfolio by R500m over the year and diluted the ratio of B-debentures to 10%.

Squire-Howe said Paraprop was "really appreciative" of the award, which confirmed "the quality of Paraprop's portfolio and of our management of the properties".

Angelique de Rauville, MD of listed property portfolio management company Provest, said it was encouraging to have a company with a small market capitalisation achieve the top award in the office category.