Madison not choked by rate hike

With debt of about R4bn, property fund manager Madison (JSE:MDN), might have had something to cry about after Reserve Bank Governor Tito Mboweni raised interest rates on Thursday.

But the fund manager says it has nothing to worry because 90% of ApexHi (JSE:AXC) and 85% of Redefine’s (JSE:RDF) debt is on a fixed interest rate. Madison is responsible for managing the assets of three listed property funds, which include the two already mentioned, and Hyprop (JSE:HYP), which doesn’t have debt. The three’s combined market capitalisation is in excess of R20,4bn and the combined enterprise value (market capitalisation plus debt) is over R26,2bn.

When the group listed a year ago at R5, the share price soon dipped by 20%, founding director Marc Wainer said, this was due to the unexpected 50 basis point rate hike in June.

He said that the entire property sector dropped by 70% over the next three months.

“So Madison went right down to just below R4 a share, but went back up again,” he noted.

On Thursday after Mboweni increased interest rates by 50 basis points, Madison was sitting at R9 a share.

The market knew that the hike was coming, Wainer said on the Power Lunch with Moneyweb broadcast on CNBC Africa on Friday. He said that the hike would not affect income distributions at all.

“The fundamentals are still exceptionally strong. There’s growth coming through unlike in 1998 or 1997 when property funds weren’t hedged.

“We had open positions on our borrowings and increase in rates affected our distribution.

Today the bulk of the funds have anything from 75 to 90% of their borrowings fixed. So it won’t affect distribution,” he said.

Wainer said that Hyprop, which has about six shopping centres, is doing well. He added that it plans to extend Canal Walk and the Glen and would add a hotel to Hyde Park shopping centre.

“Its growth is coming out of its rentals and escalations. We aren’t getting the same kind of reversions out of Hyprop that we were.

Redefine, which is the same size as Hyprop with a market capitalisation of R6,5bn has got investments in properties, which are doing well on reversions, Wainer said. 

Get commercial property news by email

Free alerts when we publish — pick a focus or get everything, unsubscribe in one click. Subscribe »