Size can make all the difference for listed property

Posted On Monday, 22 January 2007 02:00 Published by eProp Commercial Property News
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The market can expect to see even more consolidation in the South African listed property sector this year, with bigger players acquiring smaller companies and friendly mergers between others.

Norbert SasseFrom the second half of last year the movement towards consolidation in the sector started gaining momentum. Most property commentators are in favour of consolidation in the sector because it creates larger property companies and funds, which are more liquid and attractive to investors.

Barely three weeks into the new year there are moves afoot by SA Corporate Real Estate Fund (SA Corp), formerly Martprop Property Fund, to acquire SA Retail Properties and create a listed property entity with a market capitalisation of about R5bn. On Tuesday Hyprop Investments said it had agreed to sell its 46% interest in SA Retail Properties to the Public Investment Corporation (PIC) for R1,135bn.

This is expected to pave the way for the acquisition of SA Retail by SA Corp. Meanwhile, Allan Gray Property Trust (Grayprop) is being courted by listed property asset managers Madison, which manages ApexHi Properties, Hyprop Investments and Redefine Income Fund. Last week Grayprop confirmed that Allan Gray, which owns 76% of the management company of Grayprop, had been approached about selling its controlling stake.

Madison has since confirmed it is one of the parties interested in acquiring the managing company. If Madison is successful in its bid, it would most likely want to merge Grayprop’s retail assets with Hyprop’s portfolio.At the end of last year Redefine Income Fund acquired Spearhead Property Holdings in a deal valued at R1,3bn. The acquisition has boosted Redefine’s property assets to more than R7bn.

In December Emira Property Fund announced it planned to buy Freestone Property Holdings for as much as R223m, to be paid for in stock and cash. Growthpoint Properties, the largest property company on the JSE with a market capitalisation of about R13,3bn, is in the process of taking over Paramount Property Fund. Growthpoint, which owns about 65% of Paramount, will have assets worth about R18bn on a consolidated basis once the transaction is completed.

Growthpoint CEO Norbert Sasse says he believes this year will be a “year where you will see continued consolidation in the sector”. Sasse believes there are a number of mergers that “should flow naturally” because of cross-shareholdings between various companies. “I think this will be the year when a lot of these mergers, if not all of them, will take place. With more than 30 listed property counters and a total market capitalisation of about R80bn, there are too many counters. It doesn’t make sense. There should be a reduction in the number of listed property counters, which will naturally lead to an improvement in liquidity of the larger funds,” says Sasse.

Angelique De Rauville, MD of Investec Listed Property Investments, says the company is an “ongoing advocate” of merger and acquisition activity within the South African real estate sector, given the “obvious advantages” of consoli- dation.

“These include bigger, more liquid and diverse portfolios that will attract further interest from local institutions, as well as start to make inroads into attracting global retail and institutional investors,” says De Rauville. She says the potential transaction with Allan Gray is “just the start of things to come in the SA real estate sector”.

Over the past decade there has been more corporate activity in listed property than in any other sector on the JSE, she says. She expects this trend to continue.

“Investec Listed Property Investments are expecting aggressive corporate activity in the listed property sector in 2007. This would include not only the usual local players, such as Madison and Growthpoint, but possibly some international investors,” says De Rauville.

Macquarie First South property analyst Leon Allison says he expects the consolidation trend to continue and he will not be surprised if only 20 property companies exist on the JSE by the end of the year.

“I believe consolidation is necessary. When we had 30 funds with a total market capitalisation of R60bn-R70bn, the sector was too fragmented, with small illiquid companies,” says Allison.

Publisher: Business Day
Source: Nick Wilson

Last modified on Saturday, 26 April 2014 16:57

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