Real Estate Investor Magazine South Africa March 2013 | Page 52
LISTED
BY IAN ANDERSON
The Listed Property Sector
2013 will be an eventful year
S
outh Africa’s listed property sector
gained 1% during the first month of
2013. The sector was up almost 4%
heading into the final week of the month before
the significant sell-off occurred – a result of the
weaker rand and higher bond yields. A number
of investors were also looking to take profits
following last year’s rally, which yielded a return
of almost 36% for investors.
During January, Capital Property Fund
reported full year results to 31 December 2012.
Total distributions increased by 6.3%, slightly
below market expectations, highlighting the
diff icult operating environment for off ice
land lords. Management has g uided for
distribution growth of between 4% and 7%
in 2013, despite a signif icant reduction in
borrowing costs from 10% to 8.5%. Lower
borrowing costs across the sector are expected to
make a meaningful contribution to distribution
growth in 2013 and 2014 (if interest rates stay
lower for longer).
The Fountainhead Propert y Fund saga
rema i ns on goi n g. B ot h R e def i ne a nd
Growthpoint are vying for Fountainhead’s
propert y portfolio. Redef ine is currently
the owner of Fountainhead’s management
company and initiated an offer for the
property portfolio last year after acquiring
the management company from Standard
Bank. Redefine, together with the market,
was surprised when its all share offer for
Founta in head ’s proper t y por t fol io was
countered by a slightly higher all share offer
from Growthpoint. It was a long-held view,
rightly or wrongly, that a collective investment
scheme in property could not be the target of
50
March 2013 SA Real Estate Investor
an offer unless the management company was
included in that offer. Growthpoint has not
made an offer for the management company
and if its offer is successful, this would set a
new precedent in South Africa for dealing with
collective investment schemes in property.
As it stands right now, Fountainhead is
dealing exclusively with Redef ine until 22
February 2013. The Financial Services Board
(FSB), as the regulator of collective investment
schemes in South Africa, may well have
the final say. According to the most recent
announcements from both Redef ine and
Growthpoint, discussions with the FSB are
ongoing. Further complicating the issue is the
fact that Fountainhead’s major shareholders are
also major shareholders of both Redefine and
Growthpoint, so the offer that adds the most
value from a shareholder perspective (and not
necessarily the highest offer) is likely to prevail.
While January is usually an extremely quiet
month in terms of market-moving news,
February is very busy with a number of industry
heavyweights set to report results, including
Growthpoint, Hyprop and Resilient. After
last year’s phenomenal price performance,
investors will be looking to February’s results
announcements to conf irm the sector’s
resilience in a tough economic environment.
Management guidance for 2013 will also be
closely watched, with most analysts forecasting
a modest acceleration in distribution growth
rates for the sector as a whole.
Although there may be one or two surprises,
the various management teams are likely to
confirm that conditions in the office market
remain extremely diff icult, particularly in
secondary locations and lower grade properties.
At the same time, the market should get
confirmation that borrowing costs continue to
decrease, the retail property market remains
buoyant, particularly in higher quality shopping
centres that dominate the listed property
landscape and that there are opportunities to
continue acquiring property portfolios from
private investors.
Over the past year, the sector has evolved
into a two-tier market. The larger, more liquid
listed property companies have been targeted
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