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Listed property is starting to look like a dating service. Everybody loves everybody else – so much so that most of the large companies in the sector own a piece of a neighbour. At the centre of it sits the Public Investment Corporation (PIC), the organisation that manages public money and makes investments, mainly for Government pension funds. The PIC looks like an octopus with tentacles stretching into a number of South Africa’s major listed property companies, which in turn hold a stake in another listed company (see graphic on p.17). It’s a bit of an incestuous mess.
This has implications for investors who have been well served by listed property in the past. It also raises the question of why these listed property mergers and acquisitions seem to slide through SA’s Competition Commission so easily (see separate report). Although the competition authorities provide an answer, as one property player says: “It’s not difficult getting a transaction through the Competition Commission if you provide it with a clean set of financial statements backed by a team of top lawyers.”
Listed property is now looking bloated and anti-competitive. The big five companies have fairly large market capitalisations, mainly through mergers and acquisitions. And then there’s the unlisted property sector, owned mainly by major South African-based life insurance companies. In terms of total value the listed and unlisted property sectors are similar in size.
What we have to ask is: Where is this going? Will we continue to see these large amalgamations? Surely that can’t be good for investors and shareholders? And, ultimately, not for listed property companies either. How do you seriously compete with a company of which you’re a major shareholder?
Let’s take a look at the large listed property companies, their size and who the large shareholders are. Leading the list is Growthpoint, with a market cap around R25bn. The PIC owns 27%, though that might have reduced slightly to just more than 25% since our research was conducted. Other institutional shareholders, all with less than 10%, include most of SA’s large asset managers.
Hyprop had a market cap of around R8,8bn, though its recent merger with Attfund will put it closer to R20bn. Redefine was the largest shareholder prior to the deal, with a holding of 33%. Once again, some of those large asset managers are minority shareholders.
Redefine has a market cap around R20bn. The Government Employees Pension Fund rather than the PIC has a 5% direct stake, with Stanlib and Old Mutual holding slightly larger stakes.
Capital Property Fund’s market cap is around R13bn, with Resilient Property Income Fund the largest shareholder with a 19% stake. Stanlib is also a large shareholder at 17%.
Resilient has a market cap of around R7bn. Minority institutional shareholders are some of SA’s large asset managers. SA Corporate Real Estate Fund has a market cap around R6bn. The PIC owns 33%.
Finally, Acucap Properties has a market capitalisation around R5bn. The Government Employees Pension Fund owns 14%, Stanlib 10%, Investec Asset Management 11,5% and Coronation Fund Managers 15%.
The purpose of the above review is to provide more detail than shown on our graphic. What it also shows is how some of SA’s listed property companies have expanded in size through mergers and acquisitions. And how the PIC is a large investor in many of these companies. Plus why asset management groups also like listed property.
The latter is important, because retail investors – often through unit trust funds run by asset managers – are also large investors in listed property. But for the reasons we’re arguing here, listed property is a changing sector. Will it still be a good investment for retail investors in the future?
Some property commentators are becoming a little bearish. First National Bank economist John Loos worries about rising inflation, likely rising interest rates, high vacancy rates and declining residential building trends. Rising inflation and interest rates will affect all equity investments. Listed property is different, because distributions to shareholders are influenced by vacancy rates.
That’s the first rule for investors looking at listed property: examine companies’ investment portfolios. How high, or low, are vacancy levels?
But the big question is: Why has the PIC become such an ardent investor in listed property? It probably goes back to the appointment of Wayne van der Vent as head of the PIC’s property division in 2006. Back then property was just 1% to 2% of its investment portfolio. Van der Vent, who joined the PIC from Futuregrowth Asset Management, wanted to take it to 10%. In five years he’s more than beaten that target.
At the time Van der Vent said he wanted to match liquidity needs for clients. That was being able to buy property and, importantly, sell it at a good price. Has he done that? We’d say yes and no. Yes because he’s made several good property investments. No because he’s probably made too many.
Rapidly growing portfolio, but still small
THE TABLE shows how the PIC has grown its property investment portfolio over a year. We have reservations, expressed in the main report, about listed property investments. But this is what the PIC wants to buy on behalf of the money it manages. That’s fine. But maybe it’s going a bit overboard on property. Over the past seven years the PIC has grown its property portfolio from R3bn to currently almost R27bn.
Norbert Sasse, CEO of Growthpoint, disagrees. “The PIC manages about R1 trillion of assets. That makes listed property 2,6% of its portfolio. That’s small. We think it should increase its exposure to listed property.”
Sasse says Growthpoint was approached by the PIC about the Waterfront acquisition. “The PIC owns 27% of us – but that makes no difference to the way we work with other shareholders, mainly asset management companies.”
Unlike many others in the listed property sector, Growthpoint doesn’t have cross-shareholdings in other companies. Sasse says that’s part of its strategy. “If we did take a stake in a property company, it would be with the end goal of owning 100% of the company. The cross-shareholdings in the listed property sector are suboptimal. I don’t think it gives international investors a great sense of comfort.
M&A
Competition Commission and the property industry
Despite the apparent ease with which numerous mergers and acquisitions are approved by the Competition Commission it would seem M&A activity in the property industry is actually being watched closely for any transgressions. The most recent news-making consolidation was Hyprop’s takeover of Attfund. Some analysts have criticised the commission for approving the deal, because we’re talking major shopping centres here, such as the Garden Route Mall, Clearwater Mall and Hyde Park.
When it comes to competition, there are only so many super swanky regional malls South Africa can handle. However, the commission also looks at the degree of exclusivity of those retail outlets. Is the Garden Route centre the only mall in the region with the right to lease property to Pick n Pay? No. Go forth and acquire.
Talking about anti-competitiveness, perhaps the commission should train its beady eye on SA’s large food retailers, which won’t sign a lease unless it’s guaranteed a competitor won’t be allowed to take up space in the same mall.
Back to Hyprop and Attfund: In the case of retail, there’s competition on every street corner. And the trend is set overseas – dual-listed Capital Shopping Centres’ acquisition of The Trafford Centre was approved by Britain’s authorities, effectively giving CSC a 100% market share of shopping centres in Manchester.
Yet every acquisition worth R18m or more needs Competition Commission approval. It also looks at the company in question’s underlying assets. So Hyprop’s 37% stake in Sycom was taken into account before its purchase of Attfund was ok’d.
“It’s virtually impossible for a landlord to dictate or dominate rentals. If tenants feel they’re paying too much they’ll move and vote with their feet,” a market player says.
Cape Town’s V&A Waterfront was carefully scrutinised, says the commission’s Oupa Bodibe, manager of advocacy and stakeholder relations. “We keep a close eye on the property sector.” But it still feels a little strange to see the biggest listed property player and its biggest stakeholder enter into the biggest property transaction this country has seen.
Leani Wessels
Who owns whom?
YOU NEED a big white board and some markers to make sense of who owns what in the property industry. Now who coined that vicious term that it’s incestuous? And then we haven’t even started unravelling the cross-board directorships.
Aside from the players in the diagram, there are a number of property groups using their listed funds as exit strategies for their property interests. It’s become very unfashionable – not to mention risky – for banks and insurance firms to own large property portfolios, what with new loan to asset ratios and property not counting as a liquid asset. Sanlam has said it will be getting rid of property worth around R9bn through the Vukile Property Fund over the next decade. Standard Bank has Fountainhead and Old Mutual has SA Corporate as exit strategies.
Leani Wessels
Doing deals on the Waterfront
ONE OF THE more contentious deals in South Africa’s listed property sector – and one that got through the competition authorities rather easily – was the R9,7bn deal to buy the V&A Waterfront in Cape Town. The buyers were Growthpoint and the PIC. The sellers were London & Regional and Dubai World, which bought the Waterfront Centre from Transnet in 2006 for R7,2bn.
The overseas owners have been described as uninterested investors. They didn’t do much and the property was starting to look a little shabby. Growthpoint and the PIC were seen as a welcome change.
Neill Bernstein, president of property company the Devland Group, together with property company Bayliss, have sent a letter of demand to Growthpoint, the PIC and Dubai World. It’s for alleged non-payment of advisory and brokerage fees going back four years for work they did on the Waterfront transaction.
In 2007 Bernstein reversed a shopping centre he owned into Growthpoint, thereby becoming a minority shareholder in the company. But he says he walked away from the Waterfront deal. “I suggested to Growthpoint that it de-gear completely. There would have been no dilution. Earnings are all paid out to shareholders as income or dividends. We were representing foreign shareholders at the time and the deal went to the PIC.”
Bernstein says he has great respect for Growthpoint and its management. But they owe him and Bayliss money and haven’t paid. Why not? “When it comes to advisory work there’s often a dispute when it comes to the amount. You never really know until money changes hands between the buyer and seller.”
How much money are the two companies claiming?
“I’m not sure. It’s on a R9,7bn deal. It may be hundreds of millions, maybe up to a billion. It’s all in the hands of lawyers now and I hope we can settle out of court. If not, we’ll serve summons on the parties.”
Bernstein hopes he’ll receive payment from Growthpoint and the PIC. “As for Dubai World, that’s another matter. It’s a foreign company with US$80bn of debt. I’m not sure how worried they’ll be about us.”
What was surprising about the Waterfront deal is it wasn’t classed as a Category One disclosure in terms of the JSE’s rules. That would have allowed all shareholders to vote on the deal. But it was not, though SA’s Competition Commission says it looked carefully at the transaction.
This has implications for investors who have been well served by listed property in the past. It also raises the question of why these listed property mergers and acquisitions seem to slide through SA’s Competition Commission so easily (see separate report). Although the competition authorities provide an answer, as one property player says: “It’s not difficult getting a transaction through the Competition Commission if you provide it with a clean set of financial statements backed by a team of top lawyers.”
Listed property is now looking bloated and anti-competitive. The big five companies have fairly large market capitalisations, mainly through mergers and acquisitions. And then there’s the unlisted property sector, owned mainly by major South African-based life insurance companies. In terms of total value the listed and unlisted property sectors are similar in size.
What we have to ask is: Where is this going? Will we continue to see these large amalgamations? Surely that can’t be good for investors and shareholders? And, ultimately, not for listed property companies either. How do you seriously compete with a company of which you’re a major shareholder?
Let’s take a look at the large listed property companies, their size and who the large shareholders are. Leading the list is Growthpoint, with a market cap around R25bn. The PIC owns 27%, though that might have reduced slightly to just more than 25% since our research was conducted. Other institutional shareholders, all with less than 10%, include most of SA’s large asset managers.
Hyprop had a market cap of around R8,8bn, though its recent merger with Attfund will put it closer to R20bn. Redefine was the largest shareholder prior to the deal, with a holding of 33%. Once again, some of those large asset managers are minority shareholders.
Redefine has a market cap around R20bn. The Government Employees Pension Fund rather than the PIC has a 5% direct stake, with Stanlib and Old Mutual holding slightly larger stakes.
Capital Property Fund’s market cap is around R13bn, with Resilient Property Income Fund the largest shareholder with a 19% stake. Stanlib is also a large shareholder at 17%.
Resilient has a market cap of around R7bn. Minority institutional shareholders are some of SA’s large asset managers. SA Corporate Real Estate Fund has a market cap around R6bn. The PIC owns 33%.
Finally, Acucap Properties has a market capitalisation around R5bn. The Government Employees Pension Fund owns 14%, Stanlib 10%, Investec Asset Management 11,5% and Coronation Fund Managers 15%.
The purpose of the above review is to provide more detail than shown on our graphic. What it also shows is how some of SA’s listed property companies have expanded in size through mergers and acquisitions. And how the PIC is a large investor in many of these companies. Plus why asset management groups also like listed property.
The latter is important, because retail investors – often through unit trust funds run by asset managers – are also large investors in listed property. But for the reasons we’re arguing here, listed property is a changing sector. Will it still be a good investment for retail investors in the future?
Some property commentators are becoming a little bearish. First National Bank economist John Loos worries about rising inflation, likely rising interest rates, high vacancy rates and declining residential building trends. Rising inflation and interest rates will affect all equity investments. Listed property is different, because distributions to shareholders are influenced by vacancy rates.
That’s the first rule for investors looking at listed property: examine companies’ investment portfolios. How high, or low, are vacancy levels?
But the big question is: Why has the PIC become such an ardent investor in listed property? It probably goes back to the appointment of Wayne van der Vent as head of the PIC’s property division in 2006. Back then property was just 1% to 2% of its investment portfolio. Van der Vent, who joined the PIC from Futuregrowth Asset Management, wanted to take it to 10%. In five years he’s more than beaten that target.
At the time Van der Vent said he wanted to match liquidity needs for clients. That was being able to buy property and, importantly, sell it at a good price. Has he done that? We’d say yes and no. Yes because he’s made several good property investments. No because he’s probably made too many.
Rapidly growing portfolio, but still small
THE TABLE shows how the PIC has grown its property investment portfolio over a year. We have reservations, expressed in the main report, about listed property investments. But this is what the PIC wants to buy on behalf of the money it manages. That’s fine. But maybe it’s going a bit overboard on property. Over the past seven years the PIC has grown its property portfolio from R3bn to currently almost R27bn.
Norbert Sasse, CEO of Growthpoint, disagrees. “The PIC manages about R1 trillion of assets. That makes listed property 2,6% of its portfolio. That’s small. We think it should increase its exposure to listed property.”
Sasse says Growthpoint was approached by the PIC about the Waterfront acquisition. “The PIC owns 27% of us – but that makes no difference to the way we work with other shareholders, mainly asset management companies.”
Unlike many others in the listed property sector, Growthpoint doesn’t have cross-shareholdings in other companies. Sasse says that’s part of its strategy. “If we did take a stake in a property company, it would be with the end goal of owning 100% of the company. The cross-shareholdings in the listed property sector are suboptimal. I don’t think it gives international investors a great sense of comfort.
M&A
Competition Commission and the property industry
Despite the apparent ease with which numerous mergers and acquisitions are approved by the Competition Commission it would seem M&A activity in the property industry is actually being watched closely for any transgressions. The most recent news-making consolidation was Hyprop’s takeover of Attfund. Some analysts have criticised the commission for approving the deal, because we’re talking major shopping centres here, such as the Garden Route Mall, Clearwater Mall and Hyde Park.
When it comes to competition, there are only so many super swanky regional malls South Africa can handle. However, the commission also looks at the degree of exclusivity of those retail outlets. Is the Garden Route centre the only mall in the region with the right to lease property to Pick n Pay? No. Go forth and acquire.
Talking about anti-competitiveness, perhaps the commission should train its beady eye on SA’s large food retailers, which won’t sign a lease unless it’s guaranteed a competitor won’t be allowed to take up space in the same mall.
Back to Hyprop and Attfund: In the case of retail, there’s competition on every street corner. And the trend is set overseas – dual-listed Capital Shopping Centres’ acquisition of The Trafford Centre was approved by Britain’s authorities, effectively giving CSC a 100% market share of shopping centres in Manchester.
Yet every acquisition worth R18m or more needs Competition Commission approval. It also looks at the company in question’s underlying assets. So Hyprop’s 37% stake in Sycom was taken into account before its purchase of Attfund was ok’d.
“It’s virtually impossible for a landlord to dictate or dominate rentals. If tenants feel they’re paying too much they’ll move and vote with their feet,” a market player says.
Cape Town’s V&A Waterfront was carefully scrutinised, says the commission’s Oupa Bodibe, manager of advocacy and stakeholder relations. “We keep a close eye on the property sector.” But it still feels a little strange to see the biggest listed property player and its biggest stakeholder enter into the biggest property transaction this country has seen.
Leani Wessels
Who owns whom?
YOU NEED a big white board and some markers to make sense of who owns what in the property industry. Now who coined that vicious term that it’s incestuous? And then we haven’t even started unravelling the cross-board directorships.
Aside from the players in the diagram, there are a number of property groups using their listed funds as exit strategies for their property interests. It’s become very unfashionable – not to mention risky – for banks and insurance firms to own large property portfolios, what with new loan to asset ratios and property not counting as a liquid asset. Sanlam has said it will be getting rid of property worth around R9bn through the Vukile Property Fund over the next decade. Standard Bank has Fountainhead and Old Mutual has SA Corporate as exit strategies.
Leani Wessels
Doing deals on the Waterfront
ONE OF THE more contentious deals in South Africa’s listed property sector – and one that got through the competition authorities rather easily – was the R9,7bn deal to buy the V&A Waterfront in Cape Town. The buyers were Growthpoint and the PIC. The sellers were London & Regional and Dubai World, which bought the Waterfront Centre from Transnet in 2006 for R7,2bn.
The overseas owners have been described as uninterested investors. They didn’t do much and the property was starting to look a little shabby. Growthpoint and the PIC were seen as a welcome change.
Neill Bernstein, president of property company the Devland Group, together with property company Bayliss, have sent a letter of demand to Growthpoint, the PIC and Dubai World. It’s for alleged non-payment of advisory and brokerage fees going back four years for work they did on the Waterfront transaction.
In 2007 Bernstein reversed a shopping centre he owned into Growthpoint, thereby becoming a minority shareholder in the company. But he says he walked away from the Waterfront deal. “I suggested to Growthpoint that it de-gear completely. There would have been no dilution. Earnings are all paid out to shareholders as income or dividends. We were representing foreign shareholders at the time and the deal went to the PIC.”
Bernstein says he has great respect for Growthpoint and its management. But they owe him and Bayliss money and haven’t paid. Why not? “When it comes to advisory work there’s often a dispute when it comes to the amount. You never really know until money changes hands between the buyer and seller.”
How much money are the two companies claiming?
“I’m not sure. It’s on a R9,7bn deal. It may be hundreds of millions, maybe up to a billion. It’s all in the hands of lawyers now and I hope we can settle out of court. If not, we’ll serve summons on the parties.”
Bernstein hopes he’ll receive payment from Growthpoint and the PIC. “As for Dubai World, that’s another matter. It’s a foreign company with US$80bn of debt. I’m not sure how worried they’ll be about us.”
What was surprising about the Waterfront deal is it wasn’t classed as a Category One disclosure in terms of the JSE’s rules. That would have allowed all shareholders to vote on the deal. But it was not, though SA’s Competition Commission says it looked carefully at the transaction.
