Allan Gray Property Trust, established in 1983, is the doyen of the listed property sector. It is a well-respected fund with one of the longest track records in the sector and is the traditional property blue chip.
Grayprop is the second-largest listed property fund by market cap, which, at the time of going to press, was R8bn, and the largest of the rapidly diminishing number of property unit trusts.
Though it is a sizeable fund, its asset base has not been grown as aggressively as that of its peers. Its approach has appeared increasingly conservative and ponderous against that of the more entrepreneurial newer-listed funds. It has not issued units since 2004.
Grayprop is developing existing holdings rather than buying new properties at what it regards as expensive current yields. Its management committee cannot be accused of managing the fund to maximise its fees.
Grayprop is a purist property unit trust, conservatively managed to the extent of not even capitalising interest, with virtually no gearing, involved only in rental income from its properties rather than trading, developing or buying listed funds, providing good liquidity and trading at a premium rating.
Grayprop's portfolio is 78% retail property. This has been the best-performing sector historically and is where most of the big funds' holdings are concentrated. Three centres - Centurion Mall, Westgate Shopping Centre and Blue Route Mall - comprise 42% of the fund's value.
Grayprop owns 75% of Centurion Mall, which is a 69 457 m² retail centre in Centurion valued at R839m, the other 25% is owned by unlisted Attfund; 41,2% of Westgate Shopping Centre, a 43 908 m² retail centre in Roodeport valued at R556m; and 100% of Blue Route Mall, a 47 379 m² retail cent re in Tokai valued at R450m.
Other sizeable retail centre holdings are Kenilworth Centre, The Boulders Shopping Centre, Bryanston Shopping Centre, 16% of Southgate Mall, 58% of N1 City and Brightwater Commons.
Sixty mainly office and industrial buildings make up the remaining 30% of fund value. Included in the fund is a hospital, Bedford Gardens, with 17 years to run on its lease and a hotel, the Johannesburg Airport Holiday Inn, with six more years to run on the lease.
Parts of the portfolio are arguably tied up and there are a few problem buildings such as Brightwater Commons, which management has flagged and endeavoured to turn around. The fund is concentrated in Gauteng (74%) and the Western Cape (24%) with the remaining 2% in KwaZulu Natal.
Grayprop's interim distribution was up 10,9% on the past interim distribution. More impressively, it was up 9,7% on the final distribution. Office vacancies were reduced by two percentage points.
Grayprop's distribution growth was at this level despite having little gearing to enhance returns and not being involved in any acquisitions.
The fund expects d istribution growth to remain at around the same level in the coming year. Grayprop's pipeline of yield-enhancing projects, such as the Centurion Mall expansion, the Brightwater Commons project, alterations at Benmore Gardens, and parking and office refurbishment at Douglas Roberts Centre should combine with organic income growth to underpin solid growth in future years.
Grayprop's lease expiry profile is short-tailed, with a quarter of leases expiring in 2007. As rentals are firming this will be to the company 's advantage though rentals levels in the subsequent years could be at a sweeter spot.
At the time of writing, the future of Grayprop is in question. Allan Gray has put its majority stake in the management company that runs the fund up for sale.
A transaction may result in a new management which may have new ideas for the fund, including merging it with another property fund. As one of the oldest listed property funds it is ironic that Grayprop may become a sign of the times, getting caught up in the move towards industry consolidation.
Grayprop in its current form is among the least risky property funds. This is because of its status as a property unit trust, its virtually debt-free balance sheet, ownership of well-established assets and its holdings of larger shopping cent res, which are regarded as lower-risk assets.
The portfolio does not provide much geographical diversification or meaningful exposure to non-retail property sectors.
The flip side of some of these factors is that distribution growth should generally be lower than its more aggressive retail-focused peers.
The fund's capital value will be at risk if bond yields rise, property fundamentals deteriorate or there is a fall in retail spending - adversely affecting trading in its retail assets.
