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Property: Madison Property Managers Reports 6.6% Distribution Growth


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Madison Property Fund Managers today reported distribution growth of 6.6% for the year ended 31 December 2008.

Madison, which is a listed property fund manager responsible for the asset management of listed funds ApexHi Properties, Redefine Income Fund and Hyprop Investments, announced a final distribution of 42 cents per linked unit for the six months ended 31 December 2008, which, together with the interim distribution of 39 cents, amounts to a total distribution of 81 cents for the year.

Madison’s distribution growth was achieved despite a 14% decline, compared to 2007, in the weighted average unit price of its managed funds, which form the basis for its asset management fees.

The company’s total revenue of R195,9 million for the year (2007: R193,1 million) comprises asset management fees of R138,1 million (2007: R141,5 million), development fees of R27,4 million (2007: R22,8 million), property management fees of R14,2 million (2007: R11,7 million), trading income of R4,2 million (2007: nil) and net leasing commissions of R12,0 million (2007: R17,1 million).

Madison’s development activity was somewhat lower than in 2007, prevailing from market conditions. “Increased hurdle rates in the funds under management meant that a number of planned developments were not viable in the current environment,” says Madison director Mike Flax.

Accordingly, leasing commissions decreased as fewer transactions were concluded and other income of R7,6 million was lower than in 2007 due to reduced corporate activity.

“Madison still has a significant development pipeline for 2009 and 2010 which will continue to contribute to income, albeit at a lower level during this period,” says Flax.

In terms of Madison’s offshore investments, property asset management company Corovest Fund Managers contributed to Madison’s distributable earnings for the first time, with dividends of R14 million from Corovest being included. Corovest, which undertakes the management of London Stock Exchange AIM listed CIREF Limited, acquired 50% of Wichford Property Management Limited, the property manager of London Stock Exchange listed property company Wichford Plc, on 1 April 2008. The transaction resulted in Madison’s holding in Corovest being diluted from 40% to 34%.

“We expect the unit prices of the managed funds to increase during 2009 as the market responds to anticipated reductions in interest rates,” says Madison Director Wolf Cesman

“However, in line with current international trends, conditions in the property sector are tightening which could impact performance,” notes Cesman. “We anticipate that, barring unforeseen changes in market conditions, the total distribution for the year ending 31 December 2009 should be between 85 cents and 87 cents per linked unit, an increase of between 5% and 7% on 2008.”

Currently trading under cautionary following Redefine’s announcement of its intention to acquire Madison and ApexHi, which could result in the formation of the second largest South African listed property company, Madison has appointed Grant Thornton to provide independent advice on the Redefine transaction and this advice will be detailed in a circular which will be posted to Madison unitholders in due course.

Should the transaction with Redefine and ApexHi proceed, Madison will become the internal manager of the new fund. Madison’s asset management agreement with Hyprop expires on 31 December 2009 and discussions for the renewal are in progress. Asset management contracts with Redefine and ApexHi expire on 31 August 2010 and 31 December 2012 respectively.

Madison director Marc Wainer says that he sees good reason for the company’s asset management agreement with Hyprop to continue. “Redefine has a 30% stake in its retail-focused peer and has a real interest, which is aligned with other Hyprop unitholders, in being actively involved in its management,” says Wainer.

Madison has launched a new global opportunity fund, Phoenix, which will be listed on the Bermuda Stock Exchange before mid-year. The Madison-managed fund intends to invest in non-South Africa, international property stocks and is anticipated to be introduced to market with assets under management exceeding R1-billion. Phoenix will provide SA investors the opportunity to utilize local currency to invest internationally via the asset swap mechanism. Phoenix will be structured as a 5-year closed-end investment.

Demonstrating good levels of liquidity during the year, 88,5 million Madison linked units equivalent to 42.6% of the number in issue traded on the JSE Limited for R593,5 million.

In September 2008, Madison disposed of its 50% interest in Proptrax, at a nominal profit.

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