The transaction is good news for the sector, which has seen little acquisition activity in recent years and will give investors a choice and increase liquidity by adding R9bn worth of quality, well-managed property assets to the sector.
Hyprop’s acquisition of Attfund’s assets will grow the market capitalisation of the South African listed property sector to R126bn, adding a sizable R6bn in market capitalisation.
Listed, retail-focused property fund Hyprop will now manage and own assets, which include SA’s premium shopping centres, totalling R20bn. Following the deal, the company will have a projected market capitalisation of R15bn.
Investec Property’s head of research, Kundayi Munzara, says while the yield at which Attfund’s portfolio has been acquired has not been disclosed, “we believe that it will be earnings neutral for Hyprop but substantially increase its market capitalisation, diversification and liquidity”.
“We are further encouraged by the appointment of Attfund’s ‘top brass’ directors, Louis Norval and Louis van der Watt, to the board of Hyprop,” Mr Munzara says.
One interesting development is that SA’s second-largest property group, Redefine Properties, which owns 45,7% of Hyprop, is supportive of the transaction.
However, Redefine is choosing not to vote on the transaction. Redefine Properties executive director Brian Azizollahoff says the company has no ambitions of increasing its unit holding in Hyprop.
“The shares we own in Hyprop, we have not decided yet on them. We could sell but that will depend on the price we get,” Mr Azizollahoff says.
Mr Munzara says for Redefine, the proposed transaction is expected to add about 4,8c per unit to next year’s earnings, while further diversifying the company’s investment. “This will imply an increase in distribution of around 6% for 2011, which will bring Redefine’s performance in line with the sector,” he says.
The deal is material to Hyprop, which will quickly become the third-largest listed property company in SA by assets, and largest specialist fund with a few newly incorporated trophy retail assets such as the recently extended Clearwater Mall in Johannesburg and Woodland Boulevard in Pretoria.
“Our view is that the holdings in Sycom and Acucap will serve as strategic holdings or currency for further transactions for the larger Hyprop. Furthermore, our calculations indicate that the funding structure allows for the deal to be yield-neutral for Hyprop at a blended yield slightly north of 7%,” Mr Munzara says.
Adam Bravo, CEO of property advisers Retaillab, says the agreement between Hyprop and Attfund is a favourable one and is indicative of the consolidation trend in the market, especially when viewed with the recent activity between Redefine Income Fund, ApexHi Properties and Madison Property Fund Managers. Redefine Income Fund, ApexHi and Madison merged into the enlarged Redefine Properties last year.
Mr Bravo says the acquisition of Attfund will now allow Hyprop and Attfund to take on a far more powerful role within the market. “The combined strength of Hyprop and Attfund will allow them greater influence in the market and cement their retail property position.
“The merger of skills and experience will allow for Hyprop to acquire the necessary human capital to further strengthen their retail property position, while it will also allow for Attfund to concentrate on further opportunities within asset management.”
Meago property analyst Jay Padayatchi says that the proposed acquisition is attractive to Hyprop unitholders as there are few portfolios available of this quality and size.
“Some of the properties in the portfolio such as Clearwater Mall, Woodlands Boulevard and a portion of Centurion Mall will easily match the quality of properties that sit in the Hyprop portfolio.”
He says the acquisition will definitely improve Hyprop’s liquidity and visibility, and take its gearing to a more efficient level.
“The actual cost of R9bn will depend on the cost of debt negotiated by Hyprop on the R2,9bn cash portion of the transaction.
“It may be beneficial to inherit some of the Attfund debt as the annual reports state that it is at an attractive interest rate of 8,2%,” Mr Munzara says.
