Johannesburg - With mega property mergers taking place, shareholders may lose out on the advantages of more specialised property companies, say experts.
But the advantages of larger, diversified property companies may make it all worthwhile.
"In smaller, more specified companies, a combination of a few properties with exposure to a specific property sector may have the potential to outperform a larger, diversified portfolio," said property portfolio manager at Coronation Fund Managers, Anton de Goede.
"But on the other hand if they do badly, those shareholders will suffer. Mega-mergers bring risk diversification - they are less dependant on the success or failure of specific properties or sectors."
De Goede's comments come as JSE-listed property company Redefine Income Fund in mid-January announced its intention to buy ApexHi Properties and Madison Property Fund Managers in a R12.3bn transaction.
Executive director of Madison Property Fund Managers, Wolf Cesman, said the benefits of combining different property companies, like the potential Redifine-ApexHi-Madison merger, "far outweigh the perceived advantages of the specific portfolios".
ApexHi's property portfolio comprises 153 properties in Gauteng's central business districts, and a further 150 properties around the country.
Madison manages properties for JSE-listed property companies Hyprop, ApexHi and Redefine.
Bigger property companies allow for greater liquidity, exposure to international markets and wider groups of investors, say commentators. They also tend to spread risk, allowing companies to be more resilient during tough times, and they are generally big enough to get on to the indices which will allow unit share prices to increase.
"The three most important benefits include the spread of risk, better growth and higher earnings" said Cesman.
To put it in perspective: in order for the merged Redefine distributions to decline by 1 cent per unit, Redefine would have to lose R25m: "This is a big number, and chances are this will not happen barring severe unforeseen circumstances," said Redefine Income Fund CEO, Brian Azizollahoff.
Should the merger be completed, it's expected that ApexHi's rating will improve, which will allow it to compete for acquisitions and enhance its yields. "We have spent time and money on the improvement of our [ApexHi's] portfolio with the goal of always enhancing our yield. The merger would allow us to continue to achieve that goal," said ApexHi managing director, David Rice.
There is a case for both larger and specialised property companies, said de Goede. "What potential shareholders must look at is the strategy of the fund and how it fits into one's entire investment portfolio. There is value to be added by both. One needs to look beyond the 'bigger is better' strategy".
Ultimately, shareholders will need to assess their reasons for buying property shares. "If they buy shares because they want to target a specialised area then no, bigger is not necessarily better. If they want exposure to property as asset class then yes, bigger is better." said de Goede.
- Fin24.com