Listed property sector moves towards consolidation.

Posted On Friday, 29 November 2002 10:01 Published by eProp Commercial Property News
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Fraternity hopes mergers will deliver bigger, better and more liquid funds and draw the attention of fund managers.

Property-Housing-ResidentialThe long-awaited consolidation of the listed property sector of the JSE Securities Exchange SA seems to be gathering momentum as the year comes a close.

Redefine Income Fund has assimilated the entire portfolio of Rand Leases Properties, while Hyprop, ApexHi and Capital look set to acquire the assets of Cenprop. A merger is also looming between Bonatla and Fairvest or between Bonatla, iProp and A-prop.

In excess of R1bn worth of property portfolios has changed hands between listed property funds. Consolidation is likely to attract investors attention, which has been lacking in the sector.

The listed property sector is full of small, illiquid and poorquality property portfolios. This turns off fund managers.

The property fraternity hopes that consolidation will deliver bigger, better and more liquid listed property funds and, in the process, draw the attention of fund managers.

'The time for small property funds is over,' says Fairvest fund manager Niki Vontas, who argues that a property fund needs assets worth about R2bn to attract major investors.

Consolidation has been on the cards for the past few years but never looked strong until interest rates rose four percentage points to 17% during the course of this year.

The interest rate movements may have forced listed property funds that are hungry for growth to look at each other to expand.

This applies more to the highly geared small funds which, in fear of being stripped out by other bigger funds, will consider a merger.

Property funds, especially property loan stock companies, rely on gearing to effect acquisitions.

Higher interest rates mean higher costs of capital, making leveraged acquisitions unviable.

One tool which that can be used to effect acquisitions without exposing funds to the high cost of capital is to issue paper. Vendors of quality property, however, dislike paper because of yield differentials between listed property portfolios and directly held property.

Deals struck within the sector are relatively easy because they are mainly settled through a paper swap or exchange of units in listed property funds.

This allows companies to grow without exposing themselves to higher costs of capital, says Marriott Property Services director David Green.

Rising interest rates are a factor in the current flurry of transactions, but some funds are also taking advantage of undervalued assets.

Green says consolidation is key to boosting the standing of the listed property sector among other investment asset classes.

Many major domestic and foreign investors, he says, will not look at companies with market capitalisations of less than R1bn.

Business Day

Publisher: Business Day
Source: Business Day

Last modified on Saturday, 26 April 2014 09:57

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