Property acquisitions can be overdone

Posted On Monday, 24 March 2014 21:13 Published by
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Smaller property funds are finding it difficult to compete in making acquisitions because of the increased cost of funding, this makes them targets for takeover by larger rivals.

Maurice Shapiro

This makes them targets for takeover by larger rivals. But there is concern that in the bid to increase their portfolios, larger property funds may be tempted to make acquisitions for the sake of it.

Alternative Real Estate fund manager Maurice Shapiro believes too much consolidation may even frighten off investors.

"Some of the bigger funds will buy things I would not have touched, and yet I am exposed to the big funds," says Mr Shapiro.

A deal that has received criticism is Redefine Properties' proposed acquisition of the much smaller Annuity Properties. Some believe Redefine should rather focus its attention on acquiring the entire unit-holding of the much larger Fountainhead Property Trust.

As it stands, Redefine owns a material stake in Fountainhead. Meago Asset Managers director Jay Padayatchi says the price offered for Annuity also appears too high.

But the smart money must be on Redefine Properties CEO Marc Wainer, who is no slouch in the dealmaking department.

While on the board of Hyprop Investments some years back, Mr Wainer played a leading role in the acquisition of Canal Walk Shopping Centre, seen at the time as a white elephant, with many vacancies. He was part of the team that turned it into one of the listed property sector's flagship assets.

It would not be a stretch to imagine him doing the same with the Annuity portfolio.  NOT every strategic tilt by the adventurous PSG Group makes perfect sense — at least at the outset.

Take PSG Private Equity's decision to take an interest in turning an overlooked staffing and contract servicing specialist, M&S Holdings, into the bigger (and one hopes better) CSG Holdings. The staffing segment is not popular with investors, and if anyone wanted to delve into this segment it would arguably be through the well-diversified Adcorp.

But, as is usually the case, PSG seems to have an intriguing plan for the long term. So we should not have been surprised to see a press release describing a catering agreement between CSG and a large school operated by PSG-controlled education venture Curro Holdings.

The contract will be serviced through CSG's Ukweza, which supplies catering and cleaning services to schools and private hospitals. No doubt Ukweza will look to stretching this service to other Curro schools, which are going up at a rate of knots and could reach 100 by 2020.

CSG could even extend "outsourced" services to other PSG subsidiaries and associates. Here one thinks of companies like Capitec Bank and Kaap Agri that have a large "retail" presence, as well as sprawling operations like fruit and logistics group Capespan.

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