Property should be a conservative, long-term investment for steady income. These attributes have been used over the centuries by investors to build fortunes.
Even in the listed real estate sector, where properties have been made more tradable by being bunched together in funds, the big institutional investors are still interested mainly in the cash stream. There are certainly opportunities for short-term speculation, but these investments are at their best as long-term income funds.
While other sectors usually give dividend income of less than 5% of the share price, property funds average over 10%, usually a mix of dividend and interest payments. And these payouts tend to be less volatile than dividends in other sectors.
Turnover, share price movement and market capitalisation - key indicators for other listed companies - pale in comparison to the performance of the underlying properties and the cash that property funds pass on to their investors each year. That is why the FM has decided to use this as the sole measure for choosing the top company in the R25bn listed property sector.
The funds that increased their latest payouts most in 2004 - either interim or final - compared with the previous year are Premium (29% increase) and Octodec (25%), both managed by the Wapnick family in Pretoria. They are followed by Cape-based Spearhead (21%), retail blue chip Hyprop (7,7%) and sector giant Growthpoint (4,7%) (see graphic page 81).
Two other small funds - Prima and Shops For Africa - also performed well. But Prima is becoming an entirely different animal under new management by Marc Wainer and Wolf Cesman at Madison (formerly Corpcapital's property arm), and Shops For Africa has sold its entire portfolio to ApexHi, another Madison fund.
Critics of the payout measure will argue that Premium, Octodec and Spearhead - all small-cap funds - are highly geared and gained from the fall in interest rates in 2003 rather than from property performance. This is true, but as listed fund manager Provest's MD Angelique de Rauville retorts: "They took a view on rates that paid off and that is part of their performance."
The three performers also happen to be regional funds managed by respected property entrepreneurs. They have used their skills to identify and exploit special opportunities . And they are no flash in the pan; they have produced double-digit average increases over three years too.
Some of SA's smartest property men run the next two, Hyprop and Growthpoint, supporting the argument for payout as the sole measure.
Premium (market cap R400m) CEO Jeffrey Wapnick and his father Alec have invested heavily in converting distressed office buildings in Central Pretoria into affordable residential flats, whose quality is widely admired and copied. Recently they moved into central Johannesburg. Octodec (R360m) gained from improved lettings and new purchases.
Spearhead (market cap R300m) CEO Mike Flax and Allan Groll, who is assisting him, have taken advantage of their knowledge of Cape Town to get exceptional performance from industrial development and conversion of offices to flats. They also play the listed property sector and are launching a mixed-use development.
These small funds have been more manoeuvrable than the sector's giants in difficult times brought about by an oversupply of office space. But Hyprop (market cap R1,3bn) has been able to minimise the sector's problems. It has earned its blue-chip status with a 7,69% payout rise. And Growthpoint (market cap R3,8bn) has digested large acquisitions and still produced a 4,7% increase in income.
It may all change next year as the hard work of other funds begins to bear fruit. But there's a more than even chance that this year's top performers will be back up there in 2005.
