‘House full’ for property mergers

Posted On Tuesday, 12 April 2005 02:00 Published by eProp Commercial Property News
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Although some listed property companies have recently considered aggressively growing their portfolios through hostile takeover bids, such opportunities are limited in the medium term, property commentators say.

Andre Stadler

Although some listed property companies have recently considered aggressively growing their portfolios through hostile takeover bids, such opportunities are limited in the medium term, property commentators say.

The listed property sector has experienced massive expansion in acquisitions over the last five years. Last week, listed property loan stock company Hyprop Investments announced a proposed hostile takeover of SA Retail Properties.

SA Retail and listed property unit trust Martprop, both managed by Marriott, announced a deal that would see the two funds being co-owners of each other’s retail properties.

This follows a drawn-out bidding war between listed property loan stock companies Vukile Property Fund and ApexHi Properties for loan stock company MICC Property Income Fund.

Vukile now owns about 74% of MICC’s issued capital, while ApexHi controls just more than 19% of MICC’s units.

Mariette Warner, fund manager of Stanlib Property Income Fund, says hostile takeover opportunities are limited and that if any further consolidation in the listed property sector is to take place it will be on a "mutual-agreement" basis between funds that have friendly ties — those that have the same directors on each other’s boards, for instance.

Warner says that even if two listed property funds shared the same directors, they may not want to merge because they could have different strategies. For example, one fund may have an older industrial property portfolio, while the other may own prime offices and retail centres.

Unitholders in the office and retail property fund may not want any exposure to industrial properties, and vice versa.

Warner says there is not going to be too much expansion of the listed property sector over the next two to three years because of the limited amount of fixed property stock available.

But in the longer term there could be significant growth in the listed property sector as the endowment products of life assurers mature. If these products are linked to fixed property assets, life assurers will have to rethink their liquidity strategies to pay out their clients in cash or tradable shares, says Warner.

This is because it is impossible to divide up a physical property asset in order to pay out clients.

Warner says life assurers could either decide to list their properties in a new fund on the JSE Securities Exchange SA or sell them to a listed property fund in exchange for units and cash.

Catalyst Securities MD Andre Stadler says listed property companies with small market capitalisations are open to hostile takeovers if they do not have some form of "niche focus" and do not have strong unitholder support behind them.

Strong support will exist if a company’s management owns a significant chunk of its units or if parties associated with management are the owners.

Stadler also says there is room for "friendly mergers". He does not envisage any significant new listings other than from the corporate sector, where a company has a significant amount of property assets not considered core to its business.

"They may securitise the properties. These may be done separately or come into existing funds," says Stadler. He says that unless there are novel property products created for listing on the JSE, there will not be much growth in new listings.

"The physical property stock available for acquisition is starting to thin," says Stadler.

While listed property funds will continue to try to expand, the rate of expansion will be slow, says Stadler.

However, he says, individual property funds may be able to grow through new capital investment in the expansion of their existing property assets.

This would take the form of extending existing retail properties and refurbishing other assets.

Last modified on Saturday, 10 May 2014 11:46

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