Asset chasers eyeing SA

Posted On Monday, 13 November 2006 02:00 Published by
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THE JSE-LISTED PROPERTY SECTOR could double in size if corporates, institutions and Government - which still own the bulk of South Africa's commercial property stock

THE JSE-LISTED PROPERTY SECTOR could double in size if corporates, institutions and Government - which still own the bulk of South Africa's commercial property stock - start offloading their land and buildings to listed property funds.

One of the sentiments raised at IPD/Sapoa's recently held property investment conference in Cape Town is that now is a good time for institutions such as Old Mutual, Liberty and Sanlam, plus major Government pension funds, such as PIC, to bring their crown jewels - notably some of SA's biggest centres - to the JSE, giving local and foreign investors the chance to buy into some of our most lucrative property assets.

For example, Old Mutual has a directly held property portfolio worth R9bn, including some of SA's most prestigious shopping centres, such as Menlyn Park (Pretoria), Cavendish Square (Cape Town) and Gateway (Umhlanga). Although the market has been waiting with bated breath for Old Mutual to list its prime properties via its recently acquired Marriott-managed, listed funds Martprop (soon to be renamed SA Corporate Real Estate Fund) and SA Retail, market commentators aren't sure when or even if that will happen.

The general consensus at the conference, which was supported by a number of movers and shakers in the listed property sector, was that international fund managers are slowly but surely starting to eye SA listed property. However, most speakers conceded that size and liquidity would need to increase significantly before international asset chasers will pile into the sector.

Investec Listed Property Investments CEO Angelique de Rauville estimates that the JSE's Alsi 40 companies, institutions and Government are collectively sitting on commercial property stock worth roughly R200bn. That's about three times more than the entire listed sector's current market cap of around R68bn.

De Rauville says the R200bn portfolio represents a wide spread of properties, from undeveloped land to prime shopping centres and office blocks.

She says that if a large chunk of those could be brought to market, the sector would become significantly more attractive to foreign investors. Says De Rauville: "If Old Mutual brings a retail asset - say, Menlyn Park - or Liberty a Sandton City to the JSE we could start achieving the bulk needed by the sector to continue performing well and lure foreign capital."

It also makes good commercial sense for corporates to dispose of their buildings at a time that there's huge appetite for commercial property assets. "Why should general equity stocks hold on to property assets that yield between 8% and 10% if they can free up their balance sheets and earn a higher return on investing the capital raised by property sales in their core business?"

De Rauville says though international hedge fund managers are starting to play in the listed property sector, the sector needs to double its market cap to at least R140bn if it wants to feature on the radar screens of international fund managers. She says it's even difficult to convince SA's pension funds to up their exposure to listed property to more than 2% while the sector continues to represent only 2% of the JSE's total market cap. De Rauville says real estate sectors generally represent around 6% of total market cap on stock markets worldwide.

Old Mutual Properties head of asset management Colin Young says a shortage of available property stock for listing means that the sector's probably not yet big enough to absorb a major inflow of foreign money. "It's a problem that a lot of commercial property is still owned by corporates. They need to be convinced to move their buildings off balance sheet and unleash them on to the property market."

Figures from Macquarie First South Securities show that less than 2% of SA's listed property is currently in foreign hands, while between 20% and 50% of general equities on the JSE are foreign owned. That's despite the fact that SA property (both physical and listed) looks cheap compared with that of the United States, Britain, Europe and even Australia.


Publisher: Financial Week
Source: Joan Muller

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