Property funds go for size

Posted On Thursday, 21 June 2007 02:00 Published by eProp Commercial Property News
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SA's listed property funds are in a race for size that could leave the 26-fund, R94bn market cap sector with five or six giants and a few dwarves

Angelique de RauvilleThey want to break the US$2bn threshold that will make them attractive to international investment fund managers and give them economies of scale and buying power to grow even bigger.

Growthpoint, the sector's biggest fund, is already there with a market cap of R16bn. It could soon be joined by ApexHi (market cap R10bn), which is merging with Redefine (R6bn). Both are in the Madison stable. And if negotiations between Madison and Standard Bank Properties concerning Grayprop (R6,5bn) and Hyprop (R6,5bn) are successful, Madison will have a second titan with their merger. The three combined funds will have half the sector's market cap.

Catalyst fund managers' Paul Duncan says Growthpoint and ApexHi/Redefine will quickly grow to R20bn. "Redefine has a R2,5bn development pipeline and Growthpoint R3,5bn," he says.

SA Corporate Property, recently moved out of Marriott, is also aiming to be among the top three. CEO Craig Ewin has grown its market cap from R2bn in January to R6,4bn and is finalising another R1bn purchase from the private Collins family holdings.

Investec listed fund managers chief Angelique de Rauville says the Pangbourne stable of Pangbourne, iFour, Siyathenga and Calulo (R7bn), and the Des de Beer stable of Resilient, Diversified and Capital (R7,5bn), are no doubt also looking at merging. " It will get more local institutional investment that is now concentrated on Growthpoint, ApexHi and Redefine," she adds.

Their big reward will be falling capitalisation rates - the sector has a forward yield of about 6,5%. Nedbank corporate finance chief Frank Berkeley said recently he expected these yields to fall to 4%. That is still well below international norms for large real estate investment funds (Reits).

"There will still be a risk premium on the SA funds but I expect the sector to fall to about 5%," says De Rauville. Legislation to convert the SA property unit trust and loan stock companies to Reits will add to their attractions.

The creation of larger companies could also be hindered by l egislation that limits unit trusts from investing more than a certain proportion of their funds in one property fund.

Last modified on Thursday, 24 April 2014 11:39

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