Reshuffling the property pack

Posted On Friday, 04 November 2005 02:00 Published by eProp Commercial Property News
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It's no secret that the Marriott group's 50% shareholder, Grindrod, has been unhappy with the performance of its property arm for some time - indeed, Grindrod CEO Ivan Clark said as much after the most recent results briefing.

Ivan ClarkOn the other hand, Mutual has been wanting to bulk up its property management business.

So on the face of it, the get-together satisfies both parties' objectives. Indeed, as Marriott manages more property (R20bn) than Mutual (R12bn), the renamed Old Mutual Property Group will almost treble in size, and will manage 19% by value of the JSE's listed property sector. 

What's less clear is how two very different corporate cultures will mesh.

The two Marriott property units, Marriott Asset Management and The Income Specialists, are to remain a standalone business within the Mutual group, and will add management of Mutual's listed property trust to their own unit trusts. 

Another business unit within the Mutual group will manage Mutual's institutional portfolios and the property loan stocks (PLSs) - Marriott's Martprop and SA Retail, and Mutual's Ambit and Oryx.

In effect this takes away Marriott's management of its PLSs, which have been a problem area. 

Martprop is generally thought to have underperformed, while SA Retail is under siege from Hyprop.

So now it's up to Mutual to show it can do better. 

Old Mutual Property Group will contain two other units: one to drive international expansion and one to house all third-party service businesses - including, presumably, Marriott's historic property management activities. 

To an outsider, it seems that the old Marriott units are losing more than they are gaining, which reflects relative bargaining power.

Mutual goes out of its way to stress that retaining the Marriott units as separate entities is consistent with its philosophy in the US, where Old Mutual Asset Management (US) has several investment house style brands. 

This may not be exactly reassuring to those who have followed the attrition of some of the brands Mutual bought in its US buying spree.

However sincere Mutual may be today, it won't surprise if the Marriott units are gradually brought closer under the Mutual umbrella.  Two obvious questions remain. 

The first is the price of this transaction. It's not clear why it hasn't been disclosed, and presumably it will have to be some time.

Market talk has settled on a range of R350m-R500m.  Well, I wonder. According to Grindrod's latest report, its investment in the Marriott group cost R47m, and its share of current profits was R15m.  This implies that Marriott's total profits are R30m.

There's no way of telling how much of that comes from property; but, on the one hand, R500m wouldn't be an outrageous price for the whole group, while on the other I wouldn't think contracts to manage R20bn of property assets were worth that much. 

The second question is what happens to the rest of the Marriott business. We're told only that this is under discussion. Until clarity emerges, there will be a few worried faces around Marriott.  

Last modified on Monday, 05 May 2014 09:50

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