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Up for an expensive grab

Posted On Monday, 05 February 2007 02:00 Published by eProp Commercial Property News
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Standard Bank has the key to winning control of Grayprop, the blue-chip property unit trust (PUT) - not through the 24% share in Grayprop's management company (manco),but via the pre-emptive right to buy Allan Gray's 76%, which has so far gone unnoticed.


Allan Gray Allan Gray announced two weeks ago that somebody was interested in buying the Grayprop manco. It turned out to be Madison, asset managers of Hyprop. Legislation provides that each PUT has a manco with effective control over it - so the first step in buying Grayprop would be to buy its manco.
 
Allan Gray need not have publicised the approach but did - clearly a "for sale" sign to a few big, voracious property fund predators stalking the sector. There are four of them with the money - and the desire to get to a size that will open SA to the global property market.

The four are:

  • Growthpoint, managed by Investec property group;
  • Sycom (Attfund);
  • Hyprop (Madison); and
  • Old Mutual's listed property arm.

Standard Bank's pre-emptive right makes it the gatekeeper to any deal. Whoever bids will know that if they pitch at a reasonable market price acceptable to Allan Gray, Standard will snap up the 76% holding and choose who swallows Grayprop. Investec, Attfund and Madison are too canny to overpay grossly.

They could pay over the odds, though, because many of Grayprop's prime properties are ripe for re development - at which all three are masters - resulting in some juicy extra income.
"There's massive value to be extracted from Grayprop," says Investec listed property investment manager Angelique de Rauville. All three funds have forward yields of between 6,7% and 7%. De Rauville thinks they would not want to dilute their shareholders' income, but surely they could drop to a price for Grayprop that gives, say, a 6,5% yield?

A few years ago Old Mutual could have used its policyholders' money to buy Grayprop at, say, a 5,5% yield, and would not even have had to explain to its policyholders. But things have changed under property portfolio chief Colin Young, who is committed to transparency for a R10bn portfolio. So it would bid on behalf of its listed funds, and would not over bid.
Who would Standard choose, all things being equal?

Growthpoint is SA's biggest listed property fund, with a market capitalisation of R12bn. Grayprop would bring it up to R20bn. Its highly effective management would absorb the expansion easily. Investec has never rid itself of a nagging suspicion among fund investors that it is more interested in its income than its shareholders, but why would Standard Bank give business to a competing bank?

Atterbury and its unlisted fund, Attfund, have developed a reputation as astute and ambitious developers, good partners to have, excellent managers and professional misers who can keep costs low and income high. But they are firmly in the Nedbank stable, which has financed and partnered them in many of their deals. Standard Bank is unlikely to reward them for disloyalty.

Madison rules the property sector roost for innovation. It has itself successfully listed and can buy the manco at a yield of around 10%, says De Rauville. Old Mutual is in the early stages of absorbing Marriott and its fund doesn't yet have the status of the competition. And it controls Nedbank, which doesn't help.

But the clincher is probably this: Standard Bank Properties is a large shareholder in Grayprop, Hyprop and Redefine. Madison and its funds are long standing clients. Standard Bank Properties and its CEO, Stewart Shaw Taylor, funded the formation of Madison and made a lot of money out of its listing, and out of financing most of the fund's debt. For some time in the past five years it looked like Shaw Taylor and Madison executive director Marc Wainer were joined at the hip.

Madison could lose the Grayprop manco deal; Standard Bank could buy it itself, Allan Gray might not accept any offer, and a foreign investor could finesse them all with an outrageous offer. But it is clear where the story is heading - and why Wainer is probably the top property dealmaker around.

Last modified on Saturday, 26 April 2014 15:29

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