Real Estate Investor Magazine South Africa March 2014 | Page 46

STRATEGIES

BY JONATHAN SMITH

Mapping out the plan

How to grow the value of your property portfolio through sound strategies

I

f you happen to be a private property fund
looking to grow your net asset value and your
associated distributions, you will definitely
need a strategic plan.

your property is moving in order to predict its
distributable earnings and justify their risk in
sacrificing their opportunity to invest elsewhere
in your favour.

Increasing the value of your private equity
property fund requires the implementation of a
documented and exemplary strategy which has
been both approved by- and committed to- by
your board.

In order to assist in planning and implementing
such an asset management plan, I would propose
that the components of such a plan be divided
into four categories of action-steps, as follows:
• Establishing your existing portfolio’s true worth;
• Identifying your constraints;
• Setting organic growth goals and objectives;
• Setting out external growth goals and
objectives; and
The dangers not establishing a planned and
documented asset management strategy are also
mentioned further along in this article.

If your fund attempts to work in an ad hoc
manner without using measurable objectives
as benchmarks, it is vaguely possible that you
will enhance your property fund’s value and
distributable earnings along the way just by
luck and intuition but it is more likely that your
fund shall lose real value through a number of
pitfalls, as I shall mention below.
It is far better to devise and agree a strategic
plan which you can, then, implement at the
various levels within your organisation: this
allows benchmarking and also permits your
chief executive officer to identify people within
your company to which specific responsibilities
and targets may be allocated and monitored.
Investors and potential investors shall, of
course, be inspired by such a detailed strategic
plan as their confidence in the management of
your fund shall not be misplaced is they can
see and understand the direction in which

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March 2014 SA Real Estate Investor

Establish your portfolio’s true worth
The process of growing your property portfolio’s
worth commences with establishing your
existing portfolio’s real worth and, then,
disposing of any properties which diminish
your overall portfolio’s worth. These are the
action steps in establishing the current worth of
your existing portfolio:
• Identify all of the properties within your
existing (current) portfolio;
• Compile a meaningful data fact sheet on all of
the properties within your portfolio;
• Identify all of the vacancies within each of
your existing buildings;
• Identify the expiry profile within each of your

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existing buildings;
• Identify the tenant-profile within each of your
existing buildings;
• Identif y the maintenance-prof ile and
maintenance/repair requirements within each
of your existing buildings;
• Identify and assess the risk profile of each
existing development;
• Insert the lease-income and expense data into
a risk-adjusted valuation model (which model
takes cognisance of your weighted average cost
of capital) in order to derive the risk-adjusted
(true) value of your property portfolio;
• Assess each of the tenant mixes (profiles)
within your existing buildings against the
optimal requirements the target market which
each building serves: this means researching a
number of factors within the surrounding target
market of each development so as to ensure that
your proposed tenant mixes (profiles) match the
profile of such target market; and
• Establish (identify) any buildings which
should ideally be sold as they do not and cannot
contribute towards your portfolio’s improved
value (worth)

identifying your constraints
Before embark ing upon an organic - or
external- growth strategy, it is necessary to
establish a model which shows how much
funding is available at each value-level. The
steps in this process are:
• Calculate your cost of equity - and debt-

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