Should property funds specialise?

Posted On Wednesday, 06 July 2005 02:00 Published by eProp Commercial Property News
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Should listed property funds be treated with caution? Are they at the top of a cycle? Should investors pick property funds that specialise or consolidate? With Provest head of private clients Christian Hansen

Property-Housing-ResidentialLINDSAY WILLIAMS: Specialist property fund Pangbourne launched a new retail fund - is that the way forward for the market?

CHRISTIAN HANSEN: It seems that Pangbourne are listing a fund called Siyathenga…

LINDSAY WILLIAMS: That’s the one!

CHRISTIAN HANSEN: It’s got a retail focus - and there are other specialist types of funds looking at being listed in the next couple of months. We’ve got wind of a hotel fund that’s in the pipeline, and a rural retail fund also proposed for later on in 2005. It seems that specialisation is the flavour of the month, but from a property fundamentals perspective we’re in favour of larger, more liquid, easily traded funds - certainly focusing more on consolidations rather than specialisations.

LINDSAY WILLIAMS: In other words you’re saying it’s all very well having a hotel fund - spinning off some of your hotel assets, and listing them separately, or selling and marketing them separately - but there just won’t be the liquidity to make them viable?

CHRISTIAN HANSEN: Exactly. Small market caps - under R500-million - it’s very nice to have them in your portfolio as a diversifier, but if you can’t trade them then really it is a bit tricky.

LINDSAY WILLIAMS: How are they going to work? Are they going to be literally unbundled from the existing funds, or is it going to be new assets brought to the market?

CHRISTIAN HANSEN: It’s a combination of both - that reduces your holdings in one fund, and then new properties are bought to market - so it’s not exactly like a completely new listing.

LINDSAY WILLIAMS: So you’re not against the principle of the thing - you’re just against the tradability of it, and the viability of it from a retail investment point of view, or indeed as an institutional investor?

CHRISTIAN HANSEN: Exactly, and that’s what we’re trying to grow at the moment - the size of the market cap of the listed property sector has grown from about R5-billion in 1998 to R43-billion currently, and the trend is certainly upwards - and we’d like to see it in excess of R60-billion to get increased exposure on the institutional radar screens.

LINDSAY WILLIAMS: If you look at the distribution that we’ve seen coming out of the listed property sector of the JSE - has it surprised you with its buoyancy?

CHRISTIAN HANSEN: It has. For the last five years there’s been very little income growth, but certainly over the last two years growth in the region of 5% to 8% in distributions is feeding through - and that’s really what’s been good for positive share price appreciation.

LINDSAY WILLIAMS: Do you see that continuing?

CHRISTIAN HANSEN: I do - for two to three years. The funds have locked in some good deals over the last few years that will feed through in the next few years.

LINDSAY WILLIAMS: I ask this same question more or less every week now - let’s say that a whole bunch of new funds were unbundled, repackaged and made specialist - what particular specialist areas of property would you invest in (if you could with confidence in terms of liquidity) right now? Where would you go?

CHRISTIAN HANSEN: The retail sector at the moment is looking to out-perform for a couple more years - although a lot of the fund managers are looking at the office market again. It was hugely oversupplied in 1999 - it seems like that take-up is almost finished, and certainly rentals per square metre are firming up sometimes in excess of R100 to R120 per square metre.

LINDSAY WILLIAMS: Any JSE names you’d care to drop for us?

CHRISTIAN HANSEN: A tough call - you’ve got to look at those that are producing above sector average returns, and that’s generally the retail funds at the moment like your Hyprop, Sycom, Growthpoint.

Last modified on Tuesday, 06 May 2014 18:33

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