Are listed property funds specialising?

Posted On Wednesday, 07 September 2005 02:00 Published by eProp Commercial Property News
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The listed property sector of the JSE continues to lure investors with higher than average returns. Classic Business Day speaks to Provest Fund Managers chief executive Angelique de Rauville, and Business Day property correspondent Nick Wilson about the emerging trend towards specialisation

Angelique de RauvilleLINDSAY WILLIAMS: Angelique, did the results out from Growthpoint and Pangbourne impress you?

ANGELIQUE DE RAUVILLE: They were mainly in line with expectations. Growthpoint was slightly ahead of Provest’s expectations - we were anticipating in the region of 6% earnings growth year on year, they managed to deliver 6.1%. Pangbourne was pretty much in line with expectations - declaring a 96 cents distribution for the year that was 4.9% up from the previous year.

LINDSAY WILLIAMS: If we look at Growthpoint’s results out yesterday - if you take into account the distribution plus the increase in the linked unit price it came to about 63% - is there any chance that we can see that sort of return in the next year?

ANGELIQUE DE RAUVILLE: The listed property sector has been coming off a very low base, so a lot of that share price appreciation was in line with the fact that listed property is today a recognised asset class that should form part of both private client and institutional investors’ portfolios - so listed property today is trading more in line with where it should be. Achieving 60% capital growth going forward? It would be naïve of any investor to expect that in the next 12 months!

LINDSAY WILLIAMS: Nick, you’re one of the top journalists and you speak to all the companies - you look at it from a slightly different point of view to a fund manager - would you agree with Angelique’s assessment that we’re not going to see quite the returns that we have in the last two to three years?

NICK WILSON: I agree with her. Obviously from speaking to analysts and fund managers - and obviously the chief executives of these listed property funds - what I think is basically going to happen is there’s going to be strong growth going forward, but obviously not at the kind of levels that we’ve seen, especially over the last two or three years. I think for the last four or five years the listed property sector has out-performed the all share index.

LINDSAY WILLIAMS: Yes, if you look at the Growthpoint distribution over three years - the total income returns - it’s 39% I think for that particular company. That’s an amazing return. Do you think that we’re now getting down to the fact that we are milking the last run of the property sector?

NICK WILSON: No. From what I can gather obviously the net asset value of these companies is increasing as well, and a lot of people say the underlying property portfolios aren’t fully valued - so you could have another up-tick in share prices. This is obviously what some of the people in the market are thinking...

LINDSAY WILLIAMS: Angelique, do you agree, are we going to see another up-tick? The situation I’m seeing now is that we’re getting a change in macro-economic fundamentals - both locally and internationally - and investors in the JSE are going to have to become stock-pickers. Do you think you’ll become stock-pickers and target the property sector?

ANGELIQUE DE RAUVILLE: Yes, as well as picking up on Nick’s previous point. The fact is that a couple of listed property sceptics are saying listed property is trading at significant premiums to net asset values - in some circumstances as much as 30% - but the point is that valuations are exceptionally conservative. In terms of their valuation methodology they usually apply a discounted cash flow percentage far higher than where they should given the current interest rate environment that South Africa is offering - which is fairly low, and fairly stable.

LINDSAY WILLIAMS: What I said about milking the last run of the property sector in a rather clumsy way - I see that we’ve had Siyathenga spin-off from Pangbourne as a separate listing, we’ve also now got the Diversified Fund which is potentially a spin-off from Resilient - do you think this is a signal that maybe we’re coming to the end of a run?

ANGELIQUE DE RAUVILLE: Not really - obviously with these kinds of transactions one has to consider the merits of each on an individual basis. In terms of Resilient’s strategy it makes a lot of sense for them to focus on dominant retail developments in large towns and small cities - so we are in favour of that strategy, although they are going to retain some interest in the portfolios that they are disposing of to the Diversified Fund through retaining an equity stake and through share participation in the company.

LINDSAY WILLIAMS: Nick, do you think this is going to be a trend? Are people going to start to list more properties on the JSE, and make it more specialised by placing a retail, office or industrial part of their fund as a separate listing?

NICK WILSON: I agree with that, I think that’s going to happen - already at a presentation for analysts last week Pangbourne indicated that they could be looking at another fund apart from Siyathenga. They didn’t specify what it was, but chances are it would be another industrial or maybe offices. Then we’ve got Grapnel - they are in the process of a hotel listing, and they’re quite far ahead on the road with that - so that’s another specialised listing. I think investors are going to be wanting specialised funds going forward, I think they also still want the large big funds with a mix of all the property types like industrial, offices and retail - those are more your safe bets. But they will also probably want specific funds, retail funds. Hyprop is a retail fund, it’s got offices as well - they’ve done well over the last ten years, I think it’s more than 10% in distribution growth each year for the last ten years.

LINDSAY WILLIAMS: It sounds as though you’re both very, very optimistic about it - the one thing I will say is the increase in listed property funds on the JSE will serve the function of attracting foreign investors! I know one particular US fund has been over here sniffing around - so it’s a good, positive trend. 
 



Last modified on Monday, 05 May 2014 15:56

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