Estienne de Klerk
As South Africa’s real estate investment trust (REIT) sector continued to outpace global performance, smaller players are likely to pursue consolidation to gain scale to compete in the sector.
Speaking at a South African Council of Shopping Centres-hosted breakfast discussion, former South African Property Owners Association president Estienne de Klerk said that, currently, 80% of market value resided within eight market players.
This opened up a “huge opportunity” for mergers and acquisitions (M&A), as smaller REIT players consolidated to secure traction and attract foreign capital, which was being absorbed by the “big 8” REITs, which included Growthpoint Properties, Redefine Properties, Hyprop Investments, Capital Property Fund and Resilient Property Income Fund.
De Klerk explained that it was a “trick” for property companies to attract investment interest, as scale and liquidity were required.
Increasing difficulties in sourcing quality investments and sufficient inexpensive capital to buy costly assets, in addition to a lack of economic appetite for developments, would lead to further consolidation, particularly among the smaller players.
The trend was reflected by the REIT sector emerging as the most active in terms of M&A of the listed industries on the JSE.
Growthpoint planned to buy out all the shares in Acucap Properties that it did not already own, after acquiring interests of 34.7% in Acucap and 15.6% in Sycom Property Fund in April.
Acucap holds 83.4% of Sycom and 100% of Sycom Property Fund Managers.
Premium and Octodec earlier this year merged to enhance the like-minded synergies of the two property groups.
Further, after withdrawing its offer in September to acquire controlling interest in Synergy Income Fund or its underlying assets, Vukile Property Fund brought its holding in Synergy to 39.97%. This had followed an investment in December to acquire around 34% of Synergy B-linked units.
Rebosis bought out a 32.1% stake in Ascension Property Fund and 100% of Ascension Manco.
Redefine Properties also embarked on acquisition activity this year buying an 11% stake in Emira Property Fund, as well as the entire issued share capital of Annuity Properties. However, Redefine had failed to take over Fountainhead.
This comes as the attractiveness of REITs improved, de Klerk said.
The REIT sector structure was increasingly attracting new listings, boasted a well-supported equity raising structure and had received interest from offshore investors on the back of its rising liquidity and tradability.
He pointed out that the capital raised in the sector had jumped from R16-billion in 2011 to the current R35-billion – and the year “was not even done”, reflecting the increased appetite for listed property.
The market capitalisation of listed property had grown to more than R300-billion by October, a hike from the below R250-billion at the start of this year.