Johannesburg – The tug of war between the country’s two
major listed property groups, Redefine Properties and Growthpoint Properties [JSE:GRT], for the Fountainhead
Property Trust [JSE:FPT] assets is an untested area.
The outcome could break new ground for the property sector.
The tussle could even go to court because so much is at
stake for Redefine if Growthpoint’s bid should succeed.
At issue is the R684.5m that Redefine has forked out for
Fountainhead’s asset management company to acquire the trust’s
If its competitor’s better counter-bid for the assets should
succeed, the asset management company runs the risk of losing future management
fees. The annual management fee normally amount to about 0.5% of the enterprise
value (market value plus debt).
Previously acquisitions of a property trust’s property
portfolio have been accompanied by acquisition of the asset manager. Where the
test now comes is that Growthpoint has no plans to compensate the asset
management company for loss of future income should its offer prove successful.
Growthpoint chief executive Norbert Sasse says that because
they manage their assets internally they don’t need an asset manager.
Redefine chief executive Marc Wainer says if the asset
manager sells the assets and fails to replace them with other
revenue-generating assets, from a legal standpoint the asset manager has to
ensure that both unitholders and the asset manager are adequately compensated.
Sasse says the asset manager is obliged to manage the
trust’s assets at all times in a manner that benefits unitholders.
The asset manager must therefore avoid conflict with the
unitholders and not use its role as manager to promote its own independent
He says the asset manager’s potential loss of future
management fees does not affect the interests of Fountainhead unitholders and
should by rights therefore not be a factor when considering Growthpoint’s
Wainer says the final decision on which bid should be
accepted will rest with the asset management company’s board, which consists of
five independent directors and two Redefine directors.
Advisers have been appointed to compare the offers, after
which the board will make a recommendation to the Fountainhead unitholders.
He says the Financial Services Board will not pronounce on
the matter as it is not a regulator.
He believes that Growthpoint will have to overcome several
obstacles to have its bid accepted. Despite the counter-offer Redefine is
leaving its bid unchanged because it believes it to be reasonable.
Redefine's indicative offer involves three Hyprop units and
62.5 Redefine units for each 100 Fountainhead units held, and Growthpoint’s
provisional offer 35 Growthpoint units for each 100 Fountainhead units.
Sasse says the offer will be favourable for both
Fountainhead and Growthpoint unitholders and be positive for future
He says what makes Fountainhead’s assets so appealing is that more than 70% of them are based on attractive shopping
centres in terms of value.
Although Growthpoint has successfully grown over the years,
it has been difficult to find worthwhile quality assets in the retail
environment as these seldom come to the market, Sasse says.
A deal such as this could considerably enlarge its retail
Fountainhead’s property portfolio has 67 properties. The
best known include Centurion Mall, Southgate Mall and Westgate in Gauteng, as
well as Blue Route Mall and the N1 City shopping centre in the Western Cape.
Property analysts are unsure how the battle between the two
giants will play out, especially as there is no legal precedent to which one
can refer and no clarification in the trust deed.
Paul Duncan, an investment analyst at Catalyst, says there
are various scenarios, including a realistic one that the asset management
board makes a recommendation to unitholders that neither of the bids is
sufficient to compensate them for the assets. That would also be the easiest
He says Growthpoint is serious about its offer and can
afford to increase it as it does not need to pay for the asset management
Redefine, on the other hand, will find if difficult to raise
its offer because it has higher capital costs than Growthpoint has.
Duncan believes that, should Growthpoint succeed in
acquiring the assets, this could cause a shakeup in the property industry,
especially for other property funds which are also managed by external asset
“The biggest impact could be the funds becoming targets for
corporate activity, he says.
Evan Jankelowitz, a director at Sesfikile Capital, says it's
a difficult situation but, if Growthpoint succeeds, the loss to Redefine will
be greater than the benefits unitholders will derive from their Growthpoint
What is concerning, he adds, is that Standard Bank
Properties and Liberty Holdings walked away from the asset management company
with R684.5m, leaving unitholders to their fate after Fountainhead had
underperformed for years.
Three Hyprop units and 62.5 Redefine units for each 100
Fountainhead units held. Offer per unit: R7.52
35 Growthpoint units for each 100 Fountainhead units.
Offer per unit: R8.36
(Fountainhead closed at R7.90 on Friday.)
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