Hyprop investors to overpay for SA Retail?

Posted On Thursday, 12 May 2005 02:00 Published by eProp Commercial Property News
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Hyprop currently has an offer out on SA Retail. Lindsay Williams gets Simon Pearse, chief executive of competitor Marriott Property Services (Martprop) on the line about that offer

Property-Housing-ResidentialLINDSAY WILLIAMS: You seem a little bit dubious about this offer - could you tell us why?

SIMON PEARSE: Sure. In my opinion - from an SA Retail unit holder point of view - it’s actually quite attractive, because they’ve now made a cash offer at R8 a unit. What surprises me is that the Hyprop unit holders would choose to do this - I’ll see whether they support the offer or not! To pay R8 a unit for SA Retail units - it’s an expensive price to pay, at what is probably the peak of the market.

LINDSAY WILLIAMS: So you’re advice to SA Retail unit holders is go for it - if the deal holds firm! On the other hand you would be saying to Hyprop ease back a bit?

SIMON PEARSE: Absolutely. Paper for paper is one thing - but a cash offer is very different. For the Hyprop unit holders to offer cash at that price - we think they really are paying up for those assets!

LINDSAY WILLIAMS: You’re the first person from the property industry - or from the market at all - that’s said: “This is the top of the market.” That’s quite a statement - what’s your rationale behind that?

SIMON PEARSE: It’s always very difficult to determine where the top of any market is, but it seems that inflation is probably about as low as its going to go - the general feeling is that we’re at the bottom of the interest rate cycle, and you find property, and bonds for that matter - the yields tend to move pretty much in line with interest rates.

LINDSAY WILLIAMS: So if you’re a shareholder in a listed JSE property company - what would you be doing now? Let’s say you wanted to stay in the sector - would you look at companies that are exposed more to the retail, industrial, or the office market?

SIMON PEARSE: I think probably industrial and office is the place to look - retail has done exceptionally well as a result of a booming economy, and a booming retail sector. I’m not sure going forward - particularly if interest rates rise - the retail market will be as buoyant. But there’s definitely a place for industrial - and industrial rentals are growing strongly.

LINDSAY WILLIAMS: Can you give us which particular companies you would go for - given your opinion on the industrial market?

SIMON PEARSE: So many of the listed companies tend to be diversified across retail, industrial and office - but certainly Martprop, and Pangbourne have more of an exposure to industrial. The likes of Grayprop have good industrial and office exposure as well. Most of the listed property funds tend to be diversified across all sectors.

LINDSAY WILLIAMS: Back to our original theme - the Hyprop takeover of SA Retail - do you think it’s going to go ahead?

SIMON PEARSE: There’s a strong feeling that it will go ahead - but before it can the Hyprop unit holders have to support their board in this proposal. I think if they look at it very carefully, the paper offer makes a certain amount of sense - because the Hyprop paper is highly rated relative to anything else in the sector. Offering a cash payment at R8.00 a unit is paying, in many respects, probably a 20% to 25% premium for those net assets - one begs the question why a Hyprop unit holder would choose to do this? 

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