Listed property:overview and growth

Posted On Friday, 13 April 2012 02:00 Published by
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Catalyst Fund Managers’ recent report on the listed property sector provides for some interesting perspectives, including how a particular growth strategy through potential hostile take-over bid, could shape up

Reserve BankThe SA Listed Property Index (J253) continues to perform relatively strongly and places the listed property asset as a shining beacon for investors, recording the highest total return (+ 2.10%) of the four traditional asset classes, during March. For the last 12 months SA Listed Property, as an asset class, has recorded the highest total return (20.27%), followed by SA Bonds (13.15%), Equities (7.53%) and SA Cash (5.68%).

However, Capital Markets weakened during the month with the yield to maturity on the Long Term Government Bond Index ending the month at 8.01% (7.92% - 29th February 2012). The historic 12- month rolled yield of the SA listed property sector ended the month firmer at 7.45 % (7.53% - 29th February 2012).

Catalyst indicates that “the current income yield plus prospect of income growth will drive the total return over the long term. As at the 31st March 2012 the historic rolled income yield of SA listed property was 7.45%. The outlook for distribution growth in 2012 remains reasonable and the sector is likely to deliver inflationary type growth in income distributions. Assuming distribution growth of 5% over the next twelve months, the forward yield from listed property at 31st March 2012 is 7.82%”.

Catalyst suggest on the risk to total returns over the short term, “is a weakening in capital markets and/ or deterioration in the income growth outlook. Listed property is a long term investment and over the long term the total return from listed property will be driven by the income yield plus growth in that income”.
With an investment environment eager to see sector growth, but with prime property assets difficult to come by at non-dillutionary prices, the sector inevitably invites growth through acquisitions and mergers. Perhaps the most influential and debated story doing the rounds presently is Redefine’s bid to acquire Fountainhead’s asset base - a retail dominated fund with its top five centres (Centurion, Westgate, Kenilworth Centre, N1 City , Blue Route and Benmore Gardens) accounting for about 70% of income .

According to Catalyst, during April “Redefine released a statement announcing that the company has concluded an agreement with Standard Bank Properties (Pty) Ltd and Liberty Holdings Ltd to acquire Fountainhead Property Trust asset management company for an aggregate consideration of R660 million. The acquisition of the Fountainhead asset management company is conditional on all required regulatory approvals, including approval of the Registrar of Collective Investment Schemes, the Competition Authorities and the South African Reserve Bank. Subject to the acquisition of the Fountainhead asset management company, Redefine intends making an offer to acquire all of the assets of Fountainhead Property Trust in return for units in Redefine and Hyprop Investments Ltd. At this stage, based on publicly available information, Redefine envisages pricing the offer at a level that, on the distribution of the consideration units, would result in a Fountainhead unitholder receiving Hyprop and Redefine units with a value at or about the current ‘clean’ price at which Fountainhead units
are trading”.

One of the crucial issues, according to Catalyst, is that the Registrar of Collective Investment Schemes will need to ensure Fountainhead investors are not prejudiced should the registrar approve the management company transaction. It’s a bit like being between a rock and a hard place: One the one hand, if the registrar approves the management company acquisition and thereafter Fountainhead shareholders reject an offer from Redefine to acquire the assets of Fountainhead, Fountainhead shareholders may be exposed to a hostile new management company owner. Arguably on the other hand, should the registrar not approve the acquisition, Fountainhead shareholders may be exposed to a hostile current management company owner. Hobson's choice perhaps; and so according to Catalyst, a solution for the registrar (and Fountainhead shareholders) lies with the fact that now that an acceptable price has been determined, Fountainhead shareholders should merely internalize the management company at this price (akin to Emira), effectively ridding themselves of the Redefine manacle. Let’s see what transpires!.

Last modified on Monday, 21 April 2014 18:30

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