Times they are a-changin’
HOW ????? QUICKLY THINGS CHANGE – particularly on the listed property front.
When Redefine’s 2008 annual report was signed off at end-October the fund’s market cap was sitting at just above R6bn. By the time shareholders receive its 2009 annual report there’s a good chance Redefine’s market cap could be more than triple that. The potential for Redefine to radically transform itself into a R20bn property giant within a matter of months follows the announcement in January of a multi-billion rand share swap arrangement whereby Redefine will acquire sister fund ApexHi Properties and its asset manager, Madison Property Fund Managers. ApexHi subsequently issued a cautionary, saying it’s in talks to acquire the rest of the shares it doesn’t already own in Absa-managed Ambit Properties. ApexHi currently has a 34,85% stake in Ambit.
A successful merger between all the parties involved will place Redefine in the same company as sector heavyweight Growthpoint Properties. The latter’s market cap was at R19,9bn last Wednesday. Growthpoint is currently the only SA property company in the JSE’s R95bn real estate sector with a market cap exceeding R10bn. Redefine’s management says a merger will lead to a re-rating of the stock, as increased size and liquidity should make the counter more attractive to tracker funds and international investors.
The number of buildings owned by Redefine will increase almost fourfold once it swallows ApexHi: from the current 101 to 390. An Ambit takeover will add another 40 properties to the mix. As a far larger entity, Redefine would have better access to capital market funding at more competitive rates. As management will be brought in-house there’s also a potential cost saving on fees.
It will be interesting to see to what extent – if any – the new Redefine outperforms the former sum of its parts. Both Redefine and ApexHi as separate listed entities have in recent years counted among the sector’s best performers, both in terms of income and capital growth.
Its annual report notes Redefine has delivered an average total return of 26%/year to investors since its listing in 2000. Distribution growth of 10,5% was reported for the year to endAugust 2008.
Although most property analysts are in favour of consolidation it’s not a given that a huge, diversified fund will deliver better returns to investors than a specialist fund. For example, ApexHi focuses exclusively on secondary locations and has a large exposure to office and retail buildings in Johannesburg and Pretoria’s CBDs. The stock also comprises three different unit classes (A, B and C), each aimed at specific investor needs. That level of choice won’t be available if the merger goes ahead. If shareholders and the JSE approve Redefine’s proposed deal the merger’s effective date will be 1 June 2009.