Nick Wilson

GRAPNEL Property Group, the fund managers of blue-chip listed property unit trust Sycom, is planning a new hotel listing on the real estate index of the JSE Securities Exchange SA.

The new Hospitality Property Fund will be the first specialised hotel listing on the real estate index. Grapnel MD Gerald Nelson says the group is in the process of assembling the hotel portfolio and the listing is expected to take place in October this year.

Nelson says the South African hotel sector is the one sector where ownership is disparate and where consolidation has been largely untapped.

"We have done a lot of international research — primarily in the US, Canada and Australia — and these types of specialised funds have been very successful there," Nelson says.

Hospitality’s total property value would be between R1bn and R1,5bn, with a market capitalisation that is likely to be half of that figure. Nelson says the fund’s properties vary in size from hotels worth R20m to ones worth R200m.

Grapnel will be doing the listing jointly with specialist hotel industry consultants Horwath Consulting. "We (Grapnel) conceptualised it (the idea of a hotel listing), and we brought them (Horwath Consulting) in to provide us with specialised hotel industry knowledge."

After a relatively long period of inactivity in new property listings, investors can now expect at least two new listings this year.

Listed property loan-stock company Resilient Property Income Fund is planning to put together another listed property fund with exposure to retail properties in rural areas and other parts of Africa.

Resilient, which is promoting the new Diversified Fund, hopes to have it listed on the JSE before the end of the year.

Property analysts say that Grapnel’s hotel listing has the potential to do well in the current market.

Andisa Securities property analyst Len van Niekerk says the income stream of a hotel listing should be "very secure" because there would be long leases in place with a hotel operator.

"These tenants are usually good companies with track records," he says.

Questions have also been raised about whether SA has enough hotels to accommodate people for the 2010 Soccer World Cup. Van Niekerk says the new fund could benefit from this.

"Over the next few years we are probably going to see a steady rise in tourism and this would benefit the hotel industry."

Colin Young, property sector head at Old Mutual Asset Management, says that when it comes to a hotel listing, it is "critical" to remove the occupancy risk for that listing to be classified with other property listings.

Young says that if this is done, the hotel listing can be structured as a property loan stock company or a property unit trust where the "yield is the primary driver".

"This would mean signing a long triple-net lease with a hotel management company, like you would with any other company," says Young.