Fight still on

Posted On Wednesday, 19 October 2005 02:00 Published by eProp Commercial Property News
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Further Corporate activity is on the cards for the listed property sector as funds become increasingly aggressive in their drive to bulk up assets under management. The sector has seen a number of mergers and takeovers over the past year, with the Madison managed stable of funds being one of the key players.

Brian AzizollahoffRecent action by Madison includes ApexHi acquiring Prima (another Madison fund), as well as 25% of MICC; while Hyprop acquired 44,4% of Marriott-managed fund SA Retail following an unsuccessful bid to gain 100% control. The hostile action between Marriott and Madison dragged on for more than five months but recently ended with Hyprop gaining 44,4% of SA Retail.

Another round of hostile action could materialise between the two property asset management companies, with talk of Madison-managed Redefine now targeting Marriott fund Martprop. Rumours emerged that Redefine is eyeing Martprop after Redefine's recent acquisition of 1,5m units in Martprop, lifting Redefine's shareholding in Martprop to around 3,5%.

Old Mutual Properties' (OMP) intention to buy Marriott - it's expected that the deal will be announced within two to three weeks - has no doubt repositioned Martprop as a value proposition.

Redefine management this week confirmed that they're still on the acquisition trail and intend building up a "significant" stake in Martprop, as it offers yield-enhancing opportunities. Martprop is currently trading at a forward yield of 8,7%, slightly higher than Redefine's 8,5%.

Madison executive director Marc Wainer says that the OMP deal could unlock potential value in Martprop. He says it's also likely that OMP will use Martprop as a vehicle to list some of its directly held property stock, which would boost Martprop's size.

Though Redefine's management says that Martprop is a "sitting duck" target for corporate action, they concede that Redefine isn't currently able to stage a takeover. However, Redefine CEO Brian Azizollahoff says that if Martprop's management doesn't meet expectations, they'll be forced to consider intervening. He doesn't exclude the possibility of hostile action, similar to that followed by Hyprop in its bid for SA Retail.

Azizollahoff says that unit holders are no longer prepared to accept a lacklustre performance from Martprop in the current buoyant commercial property environment. Martprop, which has a large exposure to the industrial sector, has recently underperformed the market, with distribution growth of 3% against a sector average of 8%.

Marriott CEO Simon Pearse says that he doesn't know what Redefine's intentions are, if they're only interested in Martprop as a yield-enhancer there is no need for hostile action, as they're free to buy units in the market.

Pearse doesn't believe that management control will come into play, as Martprop is a property unit trust (PUT), which unlike property loan stock companies, is regulated by the Collective Investment Schemes Control Act.

Pearse says that in terms of the Act, unit holders in a PUT don't have a say in the management of the fund, whether they own 10% or 100% of the units. However, analysts say that if the majority of unit holders of a PUT approach the Financial Services Board, permission may be granted to change control.

The possibility of more corporate action in the listed property sector raises the question of whether acquisitions and takeovers, particularly hostile bids, are good for shareholders. First, South Securities property analyst Leon Allison says that though they're in favour of further consolidation, hostile action can destroy upside for unit holders.

But Allison says that friendly action isn't always possible. Shareholders should be aware of the terms of any takeover action, particularly as far as management fee structures are concerned, as double fees come into play. Allison expects more corporate activity in the sector as it becomes increasingly difficult for listed funds to buy physical property without diluting yields.

Catalyst Securities MD André Stadler says that underperforming funds will become increasingly vulnerable to a takeover in line with the trend internationally, which is seeing fewer but larger funds emerge.

He says that if a higher-rated fund takes over a lower-rated fund, shareholders would generally benefit, as increased size and liquidity should drive share price growth. But he argues that hostile action should be taken for the right reasons: to increase shareholder value and not to increase management's fee base (property fund managers' fees are usually calculated as a percentage of the value of assets under management).

Stadler expects some hostile action to flow from the OMP/Marriott tie-up, because the combined entity holds significant influence over the sector, jointly managing close to 30% of SA's listed property funds.

But he argues that mid-sized players, such as Resilient, Capital and Acucap, shouldn't be discounted as takeover activity is bound to come from their ranks.



Last modified on Monday, 05 May 2014 11:39

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