Volatility sinking property deals

Posted On Friday, 20 June 2008 02:00 Published by eProp Commercial Property News
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Listed property sector can expect a quiet year due to property price volatility.

Ian AndersonThe South African listed property sector can expect a quiet year as listed property price volatility and the growing cost of capital have made it near-impossible to conclude property transactions.

The announcement by the Madison stable of companies yesterday, that merger talks between Madison Property Fund Managers, Redefine Income Fund and ApexHi Properties had been called off, was just one of a number of similar announcements made by other property players this year.

In April, SA Reit said it had decided to pull out of a transaction that would have seen it acquire properties from Super Group for R918,2m.

The company said its board had decided against the transaction as it did not want to expose the company to any undue pressure. Also, one of the banks that would have provided funding for the transaction had decided to withdraw funding at the last minute, SA Reit said.

In the same month, SA Corporate Real Estate Fund said its R636m black empowerment deal with Wipken Trust collapsed due to price weakness.

Ian Anderson, director of Re Connect, said yesterday that the likelihood of property transactions this year in the listed sector had “diminished greatly”.

Anderson said the cost of capital for the sector had risen dramatically, because interest rates had climbed and listed property prices had fallen. This had made both debt and equity financing more expensive.

“In fact, it has made it almost impossible to do transactions given that physical property yields have not adjusted as quickly as the debt and listed property markets have,” he said.

Another reason transactions were not likely to proceed was that investors’ appetite for listed property securities had fallen off dramatically, making it difficult to place new units.

“Even if you could find a property deal to fund with equity, the market is unlikely to take up the shares.

“No one wants listed property at present. The market is definitely selling.”

Anderson said the only property transactions still occurring were those where a property company acquired another in a unit swap transaction in which no new units had to be issued and no new capital raised.

He said examples of this were Pangbourne Properties’ takeover of iFour Properties, and Siyathenga Property Fund and Resilient Property Income Fund’s takeover of Diversified Property Fund.

Mariette Warner, MD of Corovest Property Fund Managers, said yesterday that it would be a quiet year for listed property “because of the extent of the volatility as a result of uncertainty in financial markets”.

“Mergers will only happen if they make sense from the aspect of leveraging value for unitholders as a result of a merger,” she said.

“The Madison deal, for instance, was such a mix of different risk-profiled investors that conceptually it was flawed from the beginning.”

Paul Duncan, the investment manager at Catalyst Fund Managers, said the market would probably see a significant slowdown in property transactions, as it was very difficult to structure terms that were acceptable over the period it took to implement the transaction.

Last modified on Monday, 21 April 2014 15:49

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