Madison toughs out listed property slump through diversification tentacles

Posted On Monday, 11 August 2008 02:00 Published by eProp Commercial Property News
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Madison Property Fund Managers have reported an interim distribution of 39 cents per linked unit for the period to 30 June 2008, representing an 8.3% increase from the prior interim distribution period

Mike FlaxMadison achieved revenue of R98,8 million for the period, up from R94 million in 2007. This comprises asset management fees of R67,8 million, property management fees of R7 million, development fees of R19,5 million, and leasing commissions of R4,5 million.

All represent healthy increases from the corresponding period, with the exception of asset management fees from the managed funds (ApexHi Properties Limited, Redefine Income Fund Limited and Hyprop Investments Limited) which reduced by a marginal 1% (2007: R68,5 million), despite the unit prices decreasing by 30% during the period under review, a significant portion of which occurred in the second quarter of 2008. “The reduction was partially offset by additional fees from the asset management of joint ventures with BEE partners,” explains director Wolf Cesman.

Diversifying its income base, the contractual income from the three South African listed funds contributed 68.6% of total revenue for the interim period, representing a significant reduction from some 73% and 80% for the corresponding 2007 and 2006 periods respectively.

Contributing positively to the company’s performance is the flow-through of benefits from Madison’s strategic international expansion.

Madison’s first dividends received from property asset management company Corovest Fund Managers, in which Madison has a 34% stake, of R7,7 million have been included in distributable earnings for the period. Corovest undertakes the management of CIREF Limited, which is listed on the London Stock Exchange AIM.

“Rand hedged earnings from Corovest are anticipated to grow and Madison is pursuing local and offshore opportunities for the company and its managed funds. Each step we take into the international market opens up even more opportunities for Madison,” says director Marc Wainer.

During the period Corovest acquired 50% of Wichford Property Management Limited. Wichford Property Management Limited is the property manager of London Stock Exchange listed property company Wichford Plc, valued at £600 million with a portfolio of 78 properties totalling 322,000m2 leased mainly to central and state government bodies in the UK and Europe.

Madison has become one of the larger property development and leasing businesses in the country. Although displaying solid increases, development fees and leasing commissions achieved were somewhat lower than anticipated. “We set demanding budgets in late 2007 based on conditions in a vastly different environment when dynamics were rosy from a development perspective,” explains Madison director Mike Flax.

Flax cites the substantial rise in the cost of capital and a major inhibitor of new development, resulting in non-viable yields. For Madison this has restricted the volume of new development undertaken. This has had a knock-on effect for its leasing team which faces the challenge of low vacancy levels and little new space coming to market.

However a number of significant large-scale developments remain viable in the current market, including planned developments in Luanda and Namibia. “We are nearly at a point to push the button on these projects which should contribute positively to Madison’s income streams over the next few years,” says Flax.

Diversification of income sources is also being applied in these divisions which are undertaking projects for investors in addition to its funds under management, including New York-based international company Lehman Brothers and others.

“The first half of 2008 has certainly been rough for listed property. These adverse market forces inhibited Madison’s growth in distribution to less than the original forecast for the year of between 10% and 12% and market volatility and economic uncertainty are expected to continue,” notes Wainer. “Barring unforeseen changes in market conditions and based on current unit prices of the managed funds, we anticipate that the distribution for the six months ending 31 December 2008 will be between 41 cents and 43 cents per linked unit,” says Wainer, who stresses that property fundamentals remain sound.

Wainer points out that sticking to the property basics will be important in maintaining future growth, certainly in the short-term. “In current market conditions, deals are difficult but not impossible. Opportunities exist for acquisitions, corporate activity and unlocking value within the portfolios of the managed funds,” says Wainer.

Demonstrating ample liquidity during the period, 45,6 million linked units traded on the JSE Limited for R321,1 million, equivalent to 21.9% of linked units in issue.

Last modified on Monday, 21 April 2014 13:30

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