Covenants of the fund
As a PUT, SA Corporate is governed by the provisions of the Act, as well as the terms of the Trust Deed entered into between the Fund’s Manco and ABSA Bank Limited. The Registrar of Collective Investments may, by notice, approve amendments to the governing legislation and regulations.
In South Africa, the Fund is permitted to invest in direct property assets, fixed property companies (assuming 100%
of the shares in the company are owned by the Fund) and other listed property funds (PUT’s and property loan stock
companies). The total investment exposure to the last mentioned assets may not exceed 25% of the market value
of all the assets comprised in a portfolio with a maximum investment of 10% of any other fund. Offshore investments
may be in immovable property, property shares or in participatory interests in a foreign collective investment
scheme in property, provided that the foreign country has a foreign currency sovereign rating by a rating agency.
In terms of the Trust Deed, the Fund is limited to a maximum borrowing level of 30% of the total investment portfolio
value. The Registrar of Collective Investments has, however, granted approval for the gearing limit to be increased to
60%, subject to unitholder approval.
The Act requires that the Fund be managed by an approved and licensed Manco. In SA Corporate’s case the Manco is
SA Corporate Real Estate Fund Managers Limited which is owned 95% by Old Mutual Property and 5% by the Durban Pension Fund.
PUTs are required to be listed on a licensed exchange which, in the case of SA Corporate, is the JSE. The JSE considers
the board of a PUT Manco to be the board of the Fund, which is the listed entity. The Manco Board and committee
structure is set out in more detail on pages 18 to 22 and 25 to 28.
The Manco is remunerated at 0,4% per annum of enterprise value (defined as market capitalisation plus debt, calculated daily), which is low compared to the industry norm of 0,5%. For the past year the service fee was R34,7 million (2009: R28,0 million). The increase was due to the higher average unit price during 2010.
The Manco has concluded an asset management agreement with Old Mutual Property, which is part of the Old Mutual Investment Group SA. This agreement covers the provision of full asset management functions to the Fund and the property portfolio, including the formulation and implementation of fund and investment strategies.
The agreement provides for an annual fee payable by the Manco to the asset manager calculated as 0,3% per annum
of enterprise value. This fee is drawn entirely from the service fee payable to the Manco by the Fund. The management team is remunerated by Old Mutual Property. The incentivisation of the executive management is linked tothe performance of the Fund thereby creating alignment with unitholders. For the past year the fee was R23,9 million (2009: R18,7 million).
The asset management agreement endures for a period of ten years, determined from 1 January 2007 and is subject
to termination in the event of material breach.
The property management agreement was revised with effect from 1 January 2010 to improve flexibility afforded
to the Fund while ensuring Old Mutual Property remains accountable to achieve set key performance indicators. The management agreement regulates the provision of property and building management services to the property portfolio, including leasing and lease management, rental collections, tenant liaison, maintenance and the payment of expenses.
The performance of the property management is measured quarterly, on a balanced scorecard approach, with the following specific areas of assessment: vacancies, lease documentation, rental collections, net income variances
and procurement. In the event of under-performance, the Fund (through the Manco) has several options, including,
but not limited to, terminating the entire contract.
The fees payable by the properties are applied on a sliding scale, dependent on the nature of the property and the
number of tenants in occupation. These fees range from 1,0% of rental collections for single tenanted buildings to
4,5% of rental collections for regional shopping centres. Property management staff costs, including centre management, are borne by Old Mutual Property out of these fees. For the past year, the fee was R34,3 million (2009: R28,3 million).
The property management agreement commenced on 1 July 2008 and endures for five years.
The Manco has concluded a financial services agreement with Old Mutual Property to provide all administration, accounting, secretarial and taxation work for the property companies, the Fund and the Manco.
The fees payable are calculated in accordance with the costs incurred by Old Mutual Property in providing the services and are renegotiated every year, taking into account the asset growth of the Fund each year, but subject to a minimum inflationary escalation each successive year. The fee for 2010 was R10,4million (2009: R10,0million).
The financial services agreement commenced on 1 January 2007 and continues for a period of ten years.