Know-How Exchange : Branding

We are an SA property trading company, competing in a market dominated by listed property co's = REIT's. We intend seeking a listing of our shares in order to raise capital (amongst other benefits) to achieve our objectives.

We have been asked by the exchange to offer a viable value proposition for their consideration of our application.

We are inclined to compare the following:

REIT's are forced to grow earnings and distribution through acquisition, not organic growth;

Their costs are often excessive - asset mgmt fees = 0.5% of market cap are paid irrespective of the funds performance - actual e.g. revenue R424m; R62m deduction for various fees; R137m deducted for property expenses; R70m deducted for admin costs;

We are experiencing positive economic growth in SA - this is bringing yields down and prices up - REIT's have to buy props above these yields (around 13 - 14%) to avoid dilution in earnings - may compromise quality, reduced opportunities;

Our model is based on 2 primary factors:

1...trading, not holding, i.e. we buy at R5m and sell for R7m; we ensure as little exposure to risk as possible & seek to achieve simultaneous transfer of property - gearing enables us to fund up to 70% of the price; equity, say R1.5m; profit from sale = R2m; ROE before sundry costs = 33%;

Do not have expensive corporate overheads, small HO staff no.

2...syndications: a viable alternative to REIT's where secondary market is established and capital is secured through NAV;

Niche cap value market of R5m - R15m; REIT's & other corp's find these values insignificant i.r.o. their need to grow by acquisition - hassle value when considering this value relative to a R2bn fund;

if you can offer any ideas, it would be gratefully received: daryl@lantic.net;