Mergers and Acquisitions on the agenda in property sector

Posted On Friday, 22 March 2013 07:35 Published by eProp Commercial Property News
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THE South African listed property sector has seen a number of new listings over the past 18 months with historically low interest rates creating a conducive environment for new property vehicles.

Laurence RappThe question now is whether the sector is likely to see any more new listings this year or whether it will rather see more consolidation as the newer, smaller listings look to merger and acquisition activity to attain size and liquidity to attract institutional investors.

Growthpoint Properties CEO Norbert Sasse says that as long the low interest rate environment prevails, there are opportunities for capital raisings for new listings.

"We saw six or seven new listings last year and I would expect to see another half a dozen this year," says Sasse.

"The challenge is finding quality assets to bring to the market as well as offering some kind of differentiation because in my mind those guys who came last year (with new listings) have sucked up some of the liquidity (in the sector). Those coming to market this year will find it incrementally more difficult to raise capital and would therefore need to differentiate themselves either through the quality of the assets, management expertise or maybe sector specialisation," he says.

Sasse believes that size will also be important for new players.

"I think you need assets of at least close to R2bn to be attractive to the institutional investors. If you can differentiate yourself you will get the capital, but if you are just another ‘me-too’ with a small diversified portfolio of average quality you are going to struggle."

Frank Berkeley, managing executive of Nedbank Corporate Property Finance, says there are "quite a large variety of stocks to invest in" in the South African property universe. Nevertheless investors must be cautious.

"Two of the most important things to look at are the quality of the underlying properties and the quality of management," he says.

Redefine Properties CEO Marc Wainer says that as far as the possibility of new listings this year are concerned "there are a number of new interesting listings being talked about".

"There is speculation that large private portfolios could be listed and there is talk of an Australian fund being listed. We think that is great for the sector because the bigger the sector, the more relevance it has," says Wainer.

He says there should also be some consolidation among the smaller property funds that listed on the JSE over the past 12 to 18 months. He says a lot of them "don’t have liquidity and they need to get critical mass".

Angelique de Rauville, fund manager at Investec Asset Management, says the market is likely to see some new listings in the listed property sector and some quality assets with strong management teams who "we have been hoping will come to the listed property sector for some time".

"We are also expecting an abundance of merger and acquisition activity in the next couple of years. Smaller funds will be encouraged to merge and rerate to levels of their larger peers and to try to stave off predators, and larger funds will see value in taking out smaller funds given the shortage in quality direct assets and access to premium equity and debt," says De Rauville.

But Vukile Property Fund CEO Laurence Rapp says while he agrees that sector consolidation should happen, he is not as optimistic about major consolidation actually occurring. He says while a lot has been said about potential consolidation in the property sector, increasingly the external management companies of some of the property funds create an impediment to corporate activity.

Says Rapp: "This stems from a misalignment of interests between management of the manco (management company) and the shareholders of the fund."

While a large proportion of listed property funds are internally managed, there are still some property players who are managed by an external company. These external management companies earn fees every time a property acquisition is made so there is a potential conflict of interest because the external management companies may prefer to continue growing a property fund for the sake of earning fees instead of seeking a merger with another property fund.

Source: BD

Last modified on Friday, 18 April 2014 10:27

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