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Jan 16, 2012:
JOHANNESBURG – Analysts have warned of a bumpy ride ahead in the listed property sector but say the asset class remains viable over the long term.
The top performers for 2011 were Fortress B, Capco, Sycom, Investec Property Fund and SA Corporate. The bottom five were Capshop, Emira, Dipula, Redefine International and Hospitality B.
Paul Duncan, portfolio manager at Catalyst Fund Managers, says while Fortress B is a company run by an excellent management team, it is unlikely to sustain its outstanding 106% year to date yield. Fortress listed in October 2009 on the main board of the Johannesburg Stock Exchange as a property loan structured stock company.
Duncan says the company does carry more risk due to its high levels of gearing. A company with high gearing or high leverage is more vulnerable to downturns in the business cycle as it has to continue servicing its debt regardless of how bad property fundamentals are.
Ian Anderson, the chief investment officer at Grindrod Asset Management, says: “The highly geared nature of the Fortress B units ensured that distribution grew by more than 38% in the six months to end of June 2011 and similar distribution growth is expected over the next two years.” Anderson warns, however, that forecast risk is high and investing in Fortress B is not for the faint hearted.
Anderson explains that in a dual unit structure, such as Fortress, the A units always have a preferential right to earnings while B units will receive the balance of the distributions. Simply put, once the income due to the A unit holder has been paid, the B unit holder will be paid the balance.