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PIC to compete with listed firms

Posted On Thursday, 16 August 2007 02:00 Published by eProp Commercial Property News
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The Public Investment Corporation (PIC), which plans to invest about R70bn in property assets over the next five years, is increasingly going to be competing with listed property companies for scarce property stock

Wayne van der VentHowever, the PIC has an advantage in that it does not have to worry about expensive property acquisitions diluting its earnings to the same extent as listed property companies , because it is not listed. This means it can afford to pay higher prices than listed property counters.

The heavyweight player, which is in the final stages of acquiring the R2,5bn listed property loan stock company CBS Property Portfolio, is planning to use CBS when it is delisted to grow its fixed property portfolio.

Already the PIC, which manages the Government Employees Pension Fund (GEPF), has massive property holdings with investments in most listed property companies, as well as substantial fixed properties. CBS, when it is delisted, is to become a wholly owned subsidiary of the GEPF.

Wayne van der Vent, head of properties at the PIC and new chairman of CBS, says the PIC’s property division owns property interests valued at R13bn- R15bn. It has a strong listed property presence, owning 32% of listed property unit trust South African Corporate Real Estate Fund.

The PIC also owns smaller stakes ranging from 1%- 5% in most of the listed property funds, including Growthpoint, Emira and Acucap.

Describing the PIC’s unlisted property investments, Van der Vent says it has a large, directly held property portfolio consisting mainly of offices. It also owns 40% of Pareto, an unlisted property loan stock company, which owns major shopping malls including the Tygervalley, Cresta, Southgate and The Pavilion centres. The PIC has a 40% interest in Sandton City, a landmark retail site .

“We have an exposure to the main regional shopping centres and we also have operational control of Advent Asset Management, which owns and manages 22 township shopping centres in eight of the nine provinces,” says Van der Vent.

But he says the PIC has not had that much exposure to industrial property. “We do have some exposure but we see that as one of the sectors we want to increase.”

Van der Vent says CBS’s property profile and strong management base were the main reasons for the acquisition.

Earlier this year, when it was announced that the PIC was bidding for CBS, listed property loan stock company Redefine Income Fund had also made overtures for CBS .

Rather than see CBS absorbed into Redefine, the PIC made a takeover bid in order to use CBS as a base on which to grow its fixed property assets.

One of the reasons the PIC has become more aggressive in the property acquisition arena is that the GEPF’s mandate has been revised with the PIC now required to place 8%-10% of total GEPF assets in property. This amounts to about R700bn.

“We must now take 8%- 10% and put it into a mix of fixed and listed property. That’s about R70bn invested in property over five years. We are at about R15bn now so that gives you a sense of the spend.”

Van der Vent admits the PIC is going to be a strong competitor for listed property companies. “The only listed fund larger than us is Growthpoint,” he says.

Now is not an opportune time for listed property companies to be buying fixed properties because they are so expensive and can dilute earnings.

“Four years ago I was buying properties at yields of 13% and 14%. Today you’re lucky if you can purchase anything with a yield of 8,5%,” he says.

Van der Vent says this places income returns for listed property companies under pressure.

The PIC has the luxury of not having to worry about dilution of earnings because it is not listed.

“ The listed market has to deliver earnings on a six-month basis. We have the luxury of taking a much longer view. ”

He believes the “paranoia and hype” that demands listed property companies must deliver constantly higher returns year on year has created a vicious cycle .

“The listed guys are caught in a conundrum where they are forced to give short-term returns which are better year on year. Property should be offering an investor consistently good long-term returns. If you give an investor 11% growth every year for 10 years, that must beat the volatility of a normal equity market.”

The PIC is also not too concerned about its competitors. “The problem with the big pension funds and life companies is that even though they are invested in property, they (want) short-term results. If there is a trickle- down in the market next year, they won’t be as aggressive (in seeking out properties).”

But Van der Vent says the PIC is not going to be “irresponsible”. “There are property deals where the yields are too low for us, an example being the (Victoria & Alfred) Waterfront,” he says.

The PIC made a joint bid with Pareto and Liberty Properties for the V&A Waterfront when it went up for sale last year, but an overseas consortium acquired the landmark Cape Town property for $1bn.

“We are not going to be irresponsible and buy at any price. Some of our detractors in the listed property sector say we are going to ruin the market by buying up everything we can find and at any price. That isn’t true.”


Last modified on Wednesday, 23 April 2014 17:43

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