The listing of SA's largest property asset manager, Madison, on the JSE main board towards the end of this month is expected to spark further corporate activity in the listed property sector in the form of mergers and acquisitions.
Madison, which will manage listed property funds ApexHi Properties, Redefine Income Fund and Hyprop Investments at the time of its listing, will also create key opportunities for itself as smaller, independently managed listed property funds are concerned.
Angelique de Rauville, the MD of Investec Listed Property Investments, says that the listing is "a new and innovative concept" introduced to the real-estate sector of the JSE, given that most property stocks are underpinned by direct property investments.
Madison, on the other hand, will provide investors with annuity income through its contractual leases to manage three top-performing property companies.
De Rauville says the projected 10% yield for the first year is higher than the average 7% yield for listed properties which is risk-adjusted, given that there are no underlying properties within Madison.
"The attractive forward yield makes it a viable investment proposition for listed investors seeking a high and growing taxable-income stream."
De Rauville says that Investec Listed Property Investments supports the initiative because of the opportunities that are likely to evolve out of the listing. "We expect further corporate activity such as mergers and acquisitions within the listed property sector as a result of this listing."
She says in most cases, listed property unit trusts and property loan stock companies on the JSE have contracts with external management companies such as Madison to handle their day-to-day asset management responsibilities.
Merger or acquisition activity can be restricted in cases where cancelling these contracts can be "prohibitively expensive" for the listed entities themselves. "The Madison listing will provide a solution to this, offering the opportunity to convert shareholdings in the external management companies into a more tradable Madison shareholding, with no cancellations of contracts, and therefore no adverse implications to earnings for listed property investors."
Investec supports further consolidation of the listed property sector through merger and acquisition activity because of the advantages of investing in larger property stocks, she says.
"These advantages can include increased tradability, greater diversification and opportunity to streamline businesses and therefore profitability. Furthermore, institutions and international investors are attracted only to larger property stocks, which can contribute favourably to the rating of bigger listings."
Madison executive director Marc Wainer agrees with De Rauville. "It is one of the main reasons we are listing," he says. "It gives an additional currency if interested in an acquisition."
Andre Stadler, MD of Catalyst Fund Managers, says the planned listing "certainly provides Madison with a form of currency to acquire management contracts in the sector".
He says key opportunities for Madison lie with the smaller, independently managed funds. "The listing gives investors the option of investing in pure-play property investments or other property-derived sources."
Business Day
Publisher: I-Net Bridge
Source: I-Net Bridge
