Call in the wreckers in commercial property

Posted On Friday, 15 April 2011 02:00 Published by eProp Commercial Property News
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The merger of ApexHi and Madison into Redefine in August 2009 was meant to create a flagship SA property fund.

Marc Wainer

Investors unhappy with management changes. Sandton properties are being accumulated

“It does not make sense for Redefine to hold small properties. Even if you put time and effort into an R8m-R10m property it will not help the portfolio much”


The merger of ApexHi and Madison into Redefine in August 2009 was meant to create a flagship SA property fund. What could go wrong? Property analysts had for years treated CEO Marc Wainer as the top entrepreneur in listed property — he was the man credited with buying the Canal Walk shopping centre in Cape Town for R1,1bn and seeing it rise in value to R3,3bn in less than five years.

Now, however, Redefine is out of favour with most investors, and trades on a historical yield of 8,6%, well above Growthpoint’s 7,1% and in line with the worst-performing property share of the past five years, SA Corporate

Keillen Ndlovu, head of listed property at Stanlib, says several factors have contributed to Redefine’s fall from grace. One has been the management changes. Wolf Cesman, the joint CEO, left last May for personal reasons and his close ally, financial director Janys Finn, left a few months later. Cesman’s resignation triggered the end of a lucrative consulting contract from Hyprop.

Mike Flax and Brian Azizollahoff, who had been billed as the next generation of management, left this year, as there was not enough for them to do.

Ndlovu says that, even though Redefine’s income has grown — and he expects a further 5% income increase in 2011 — the fund has been penalised as its earnings guidance has been too optimistic. Perhaps the new FD, Andrew Konig, who ran the finances at Independent Newspapers, will prove to forecast better. Property investors are unforgiving when income is even fractionally below forecast.

The other concern among investors is with the quality of the portfolio. Two-thirds of the property by value came from ApexHi, which also had a higher proportion of smaller properties, many of them in the Johannesburg and Pretoria CBDs. Wainer says there is room for a substantial B-grade building in the portfolio, at the right price and with the right tenants, but he has been keen to dispose of smaller properties. “Even if you put time and effort into an R8m-R10m property it will not help the portfolio much.”

There were 400 properties at the beginning of the financial year in Redefine. Wainer says he would like to see the portfolio reduced to 300 and the average property value to increase from R40m to R60m.

Most of the 20 properties disposed of since September 2010 have been for less than R20m, and it is unlikely analysts would regret the disposal of such crown jewels as Cassey’s Auto Benoni, 245 Voortrekker Road and the Name Plate Centre in Gauteng.

The only large property being disposed of is De Bruyn Park in Pretoria, home of Stats SA.

All six properties acquired last year and in the year to date have been priced at more than R100m. And these properties are as different from the typical ApexHi investment as possible.

Analysts and journalists were given a tour of the up-market properties that are supposed to represent the new Redefine.

Certain smaller properties have been spared from the cull, such as the Pro Shop in Woodmead, which is worth R33m (a nice return on the cost of R13m in 2001) but has a visible location and a single tenant.

Another one designed to make analysts forget the hustle and bustle of buildings such as 11 Diagonal Street in Johannesburg and Poyntons in Pretoria CBD is the Accenture building in Woodmead, which has a park-like setting and koi ponds to allow the consultants to think.

Redefine is awaiting transfer of the R230m 22 Fredman Drive in Sandton, head office of attorneys Eversheds, which is described as a typical example of the property Redefine is acquiring.

One of its first forays into these prestige properties was the 6000m² 82 Maude Street, for tenants who want a less anonymous office building.

The 90 Rivonia Road site will be vacated by tenant Alexander Forbes before the end of 2012 and could be rebuilt — to more than twice its current size — or refurbished, depending on what the incoming tenant wants.

Redefine has also been criticised for owning a limited number of large industrial properties.

It is changing this with the expansion of its Pepkor warehouse in Isando, which will be increased from 40000m² to almost 110000m² It will be the second most valuable property in the Redefine portfolio, worth R500m, just behind the Golden Walk shopping centre in Germiston, worth R670m.

Wainer can still find creative solutions to poor properties. Sable Square in Woodstock, Cape Town, has been turned into a viable centre after a 6000m² Chinatown was set up.

“Ladies don’t like buying tat from normal shops, but they are happy to search for it in Chinatowns. We have another successful venture in Ottery in the Cape Town southern suburbs,” says Wainer.

Redefine’s management team is much more focused on the nuts and bolts of property management. It has brought this in-house — a task previously performed by Broll.

Wainer says there will be savings, of about R40m/year, but the main reason for the change was to improve management information.

“We could have waited a week to get information on a tenant from Broll. And we have brought in an up-to-date IT system to make finding information even faster.”

David Rice, the chief operating officer — and in effect the next in line — is a details man without the flamboyance of dealmakers such as Flax. Wainer says he still needs a good assistant (to replace Cesman) but the next generation of management, such as Pieter Strydom and Aaron Suckerman, who run property management, is coming through.

Redefine was designed as a hybrid fund and it controls 45,7% of Hyprop, which will be diluted when Hyprop merges with Attfund later this year. Redefine is likely to dispose of its Hyprop shares in due course, but it will earn a consulting fee, perhaps R100m, for bringing Hyprop and Attfund together. If you exclude its stake in Hyprop, Redefine is trading at a yield close to 10%.

Because Wainer and Cesman had management control of Hyprop, all the super regional shopping centre developments were focused on Hyprop, to the exclusion of the old Redefine and ApexHi. The direct retail portfolio is certainly not as up-market as Growthpoint’s suite, which includes Constantia Village in Cape Town, La Lucia Mall north of Durban and Brooklyn Mall in Pretoria.

Fund managers probably don’t shop in Redefine centres such as Golden Walk, Cleary Park in Port Elizabeth and Maynard Mall in Cape Town — and no doubt would like to see more Growthpoint-style centres — but the secondary centres are often more profitable than their glitzy cousins, Golden Walk being the prime example of this.

In looking at the sum of the parts that make Redefine, its controlling interest in UK-listed Redefine International also had to be considered. Its stake is worth at least R1,5bn. Evan Jankelowitz, a partner in Sesfikile Capital, says the share is too small and illiquid to attract UK investors, but with a yield of 6,5% it should attract interest from SA.

“The portfolio is inferior to Capital Shopping Centres (on a 4% yield) but there is lots of potential, particularly from its investment in the Australian property fund Cromwell.”

There is also the likely rationalisation of Redefine International with Wichford, a company it manages. Redefine SA will control 64% of the enlarged business, which will undoubtedly attract more fund management interest — though it will still be tiny compared with CSC and other monsters such as British Land and Land Securities.

Growthpoint’s international strategy has proved a lot cleaner. It bought warehousing businesses used by large supermarket chains in Australia on long leases. Dull but effective.

But then, where would Wainer and Redefine be without drama and intrigue? They took a longer and more complex route, and international assets will still be no bigger in their NAV than they are in Growthpoint’s NAV. Redefine still needs time to catch up with its archrival.

Last modified on Wednesday, 23 April 2014 13:31

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