Times they are a-changin’

Finweek English Edition - - Companies & Markets - JOAN MULLER joanm@fin­week.co.za

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.

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