Diversified Property Fund listed in October 2005 after a placing of linked units at R5. In the 16 months since listing, the unit price has increased 75% and is trading at R8,75.
The fund has also managed to nearly triple its market capitalisation from R442,8m at listing to R1,22bn.
The historic rolled yield of Diversified was 7,55% as at December 31 2006, compared with the sector average of 7,2 %.
The fund recorded a total return in 2006 of 35,86%, in comparison with the SA listed property index, which recorded a total return of 28,4%.
Diversified was launched by Resilient Property Income Fund, which is also the fund's asset manager and its largest unit holder with an 18,8% stake in the fund (as at December 31 2006). Diversified's directors also own significant stakes in the fund.
Management is focused on rural retail developments and will continue to dispose of smaller properties and re-invest the proceeds in new retail developments. In addition to the current developments, negotiations are at an advanced stage for the acquisition of stakes in other retail developments.
The fund's sectoral spread at December 31 2006 was 56,9% retail, 38,4% industrial and 4,7% commercial.
The fund is heavily exposed to Gauteng, with 75,4% of its portfolio located there. The biggest drawback for investors is the fact that the fund is fairly illiquid, with only 16% of its units in issue trading during the year ended December 31 2006. A 50% trade is considered the minimum liquidity required.
The fund has participated in various acquisitions and developments over the past financial period, as highlighted in the interim results for the period ended December 31 2006. One of its large investments was New Redruth Village in Alberton on the East Rand. This 11 400 m² convenience and value centre was acquired at a yield of 9,5%.
Diversified also bought a 25% stake in Montague Business Park, a 61,5 ha site, in partnership with Improvon and Acucap Properties. Construction of the infrastructure is scheduled to commence in April. Council approval has been obtained, and construction of the 2 000 m² gross lettable area extension to Market Square in Grahamstown has commenced with completion scheduled for September.
The redevelopment of the Allied building in Isando Business Park was completed within budget in December 2006. And lastly, a 68% interest in Sterkspruit Plaza, an 8,7 ha site, was acquired at a cost of R4,3m. Retail rights have been approved for 100% of the site. Tenant interest is strong, and plans are being drawn up for an 18 000 m² shopping centre.
Apart from its investment in direct property, Diversified has also invested R10m in an international real estate unit trust and R10m in a hedge fund. The international unit trust is managed by Fortress Asset Managers, a wholly owned subsidiary of Diversified.
Fortress has obtained approval from the Financial Services Board (FSB) to establish a management company to manage the unit trust, the "Fortress Reit Fund".
The main objective of the fund is to actively invest in the international real estate investment trust (Reit) market.
The fund attracted investments totalling R55m (including R10m from Diversified) since the launch in November 2006.
In addition to the Fortress Reit Fund, Fortress Asset Managers jointly ventured with the Madison Group, is in the process of launching a real estate exchange traded fund (ETF) on the JSE based on the JSAPY 253 index of the top 20 listed real estate stocks. It is expected that the ETF will be listed within the next six months. Over and above the ETF, Fortress will be launching new portfolios in 2007 focusing on specialised global real estate opportunities and global real estate indexes.
Diversified has declared a distribution of 30,96c/linked unit for the six months to December 31 2006. Annualised, this constitutes 16,15% growth over the distribution of 39,98c/linked unit for the nine months to June 30 2006.
Management attributes this growth primarily to the strong performance of the industrial portfolio and a lower interest cost. Diversified has reduced its gearing ratio from 34,9% to 21,1% over the 12-month period ended December 31 2006.
A further contributing factor was the disposal of noncore assets at lower yields than the yields on acquisitions made during the period, in spite of the fact that the properties acquired are of a better quality than the properties sold.
Diversified will continue to benefit from the experience and entrepreneurial flair of the Resilient management team. The strategy is more aggressive than that of the average fund.
Diversified is more suitable for investors who back the management team and have an aggressive appetite for risk and return.
