Absa CPF defines its mission as providing finance for property investments. But it also has a substantial investment portfolio in listed and unlisted property companies.
These equity investments provide Absa CPF with a third stream of income through dividends and realisations (from the eventual sale of the investment), in addition to the interest and fee income from its lending activities.
Though income from investments can be sizeable, returns vary with underlying portfolio performances and are thus more volatile.
The bank has a number of different strategies for its investment portfolio, according to Kelly Clinton, who runs Absa CPF's investment portfolio. But underlying the strategy is that taking equity positions often complements its debt funding. "If we are lending debt to a company, it is a show of faith. If we also take equity in the asset management company or the underlying project.
"But we are ultimately a trading company and at the end of the day we will sell our equity position at the right price."
Clinton lists five key areas of Absa CPF's investment portfolio:
Ambit
This asset management company is held 78% by Absa with Cape Empowerment Trust (CET) currently finalising its bid to buy 22%. Absa CPF controls the underlying property portfolio, which was worth about R1bn at the beginning of the year. Clinton says the portfolio is set to rise to about R3bn with a further R2bn worth of properties to be injected by year-end. One of its key investments is the Park Meadows shopping centre, but it will move more into office and industrial properties in future.
Last year Absa also sold its 50% stake in Paramount's asset management company to Growthpoint.
Nonstrategic listed portfolio
This portfolio, valued at about R550m, comprises holdings of no more than 5% in individual listed property companies. "These are often companies to whom we lend and where the equity investment backs our debt funding," Clinton says, adding that Absa CPF views these investments as long-term holdings.
Strategic unlisted portfolio
Absa CPF has taken an equity investment in four major developments:
- A 50% stake in asset management group Absec in which it partners property group Equity Estates.
- A holding in Ngwenya, a residential project near Brits that comprises 300 upmarket houses, 200 townhouses and an accompanying shopping centre.
- 100% of Diluculo Investments, which is leading its drive into low-income housing as well as building up a portfolio of rental stock.
- A 25% interest in Menlyn Park, a development that Clinton calls "Pretoria's Melrose Arch", with a mixed-use portfolio comprising residential, offices and retail. He expects it to be completed by 2010 when it will be valued at around R6bn.
Joint ventures with developers
Clinton says Absa CPF goes into JVs when developers cannot provide the equity for the development. "Our policy is to take no less than 26% but no more than 50% equity in a project," he says. Absa CPF's investments are valued at about R300m, but at the end of 2007 will be at R500m in projects worth more than R3bn.
Absa Property Equity Fund
Started with investments held by Absa CPF, the Absa property unit trust is one of the top-performing property funds in the market. It is run in a joint venture with black economic empowerment group Maego, which is the asset manager.
Though the fund gives itself a medium-high risk rating, it says its primary objective "is to provide investors with income and growth over the medium term". Its investments are described as "quality listed property assets with the aim of producing high income and sustained long-term capital growth".
The fund's size in midyear was at R150m and it has an exposure to most of the top listed property loan stock companies and property unit trusts listed on the JSE.
Its investment philosophy explains why listed property has such an attraction to Absa CPF, not just as an investment opportunity but also as a primary market for its debt products.
