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PIC could ruffle some feathers

Posted On Wednesday, 04 April 2007 02:00 Published by eProp Commercial Property News
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Government-owned pension fund manager Public Investment Corporation (PIC) is expected to shake things up a tad in the listed property sector following its surprise takeover bid for Cape-based loan stock company CBS Property Portfolio

Mr Panos ZagaretosGovernment-owned pension fund manager Public Investment Corporation (PIC) is expected to shake things up a tad in the listed property sector following its surprise takeover bid for Cape-based loan stock company CBS Property Portfolio.

Redefine Income Fund, managed by Marc Wainer and Wolf Cesman's Madison Property Fund Managers, was also vying for control of CBS. Redefine has been one of the most aggressive players in the sector's ongoing consolidation drive. But Redefine's bid was obviously no match for the cash-flush PIC, which offered CBS shareholders R12 in cash per linked unit - a 16% premium to the closing share price on 1 February before CBS issued its cautionary. PIC already holds a 13% stake in CBS.

This is the second major listed property deal that PIC has been involved in this year, sending a clear signal to the market that it intends becoming a significant player in this R90bn sector.

In January, PIC bought Hyprop Investments' 46% stake in SA Retail for R1,135bn. That deal paved the way for Old Mutual-managed SA Corporate Real Estate Fund (previously Martprop) to merge with sister fund SA Retail via a R2,54bn buyout offer. PIC will own 30% of the new SA Corporate entity once the merger is approved.

PIC has also quietly upped its stake in various other listed property funds in recent months. Apart from its stake in SA Corporate/SA Retail and CBS, PIC has built up a 6% interest in sector heavyweight Growthpoint. It has also taken small positions in Emira, Diversified and Resilient.

PIC property asset manager Panos Zagaretos says they spotted a buying opportunity when the sector dipped sharply between May and August last year, picking up stock in a number of funds. Zagaretos says PIC is keen to increase its exposure to listed property "if and when further opportunities arise". He says that the time is right to increase exposure to listed property with the sector starting to offer the size and liquidity required by large pension fund managers.

PIC, which invests funds on behalf of public sector entities, is one of SA's largest investment managers, with assets under management of around R600bn. PIC's recent foray into listed property is part of its asset allocation strategy to increase its exposure to property - both directly held and listed.

Zagaretos says PIC's property portfolio - currently worth around R7bn - represents just more than 1% of the close to R600bn of funds under management. Zagaretos says its goal is to increase property to between 5% and 8% of total assets over the next five to 10 years.

Much of that growth is expected to come from listed property acquisitions. Until recently, growth came mostly via PIC's directly held portfolio; major deals include the creation of a new, R1bn unlisted retail-focused property fund with Futuregrowth Asset Management as well as buying 20% of the Airports Company SA for R1,67bn.

PIC's emergence as a new player on the listed property sector's corporate activity front has taken the market by surprise. Paul Duncan, investment analyst at Catalyst Fund Managers, says the proposed buyout of CBS indicates that PIC is likely to be a far more aggressive player than previously anticipated. "Until now, PIC has been a fairly passive listed property investor. But we no longer expect it to sit on the sidelines. PIC is likely to start making its presence felt, even if it's just in terms of shareholder activism."

Duncan says it's encouraging to see more independent players enter the fray as the listed property sector is currently controlled by only a handful of institutions and family groupings.

Without taking the recent round of corporate activity into consideration, figures from Catalyst show that only four players "control" more than 60% of the listed pro-perty sector by market cap. They include the Madison stable, with 27% of the sector via ApexHi, Hyprop, Redefine and Madison Property Fund Managers; Investec Property Group (18%, via Growthpoint); Des De Beer's Resilient Group (8%, via Resilient, Capital and Diversified) and Pangbourne (8%, via Pangbourne, iFour, Siyathenga and Calulo).

PIC's latest annual report shows that just 10% of its R5,5bn property portfolio (end-March 2006) was in listed property, with the balance being directly-held - notably rural and township shopping centres - and unlisted unitised properties.

Of course, the then R550m listed property exposure has increased quite dramatically since. PIC's 30% stake in the merged SA Corporate fund, which is expected to have a market cap of around R7bn, should alone be worth R2,1bn, while its 6% stake in Growthpoint adds close to R1bn to its listed portfolio (based on Growthpoint's market cap of R15,8bn). A successful buyout of CBS will be valued at another R2,3bn, though it's not yet clear whether PIC will delist the latter.

Last modified on Friday, 25 April 2014 17:38

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