Listed property groups struggling to find takeovers

SA’s listed property companies have struggled to find wellpriced acquisition opportunities, and takeovers are becoming more difficult to achieve now as there are no easy targets.

The majority of property companies that listed in the past two years have grown organically, and not many are valued at less than R3bn.

Private developers have been hesitant to sell some of their properties, waiting for higher prices. This has seen many of the large listed funds turning their attention to assets abroad in Europe and Australia.

A number of South African property companies are hunting for deals in the US for the first time, especially in light of the uncertainty around investing in Europe after the Brexit vote.

Maurice Shapiro, the head of Ma’alot Investments, said on Tuesday he expected more consolidation to happen between medium-sized property companies as opposed to the absorption of the small ones by large companies.

A few underperforming real estate companies could also be the targets of other funds who feel they can manage the assets better.

Emira Property Fund last week became the first real estate investment trust (Reit) to forecast negative distribution growth in the coming results season. Its CEO, Geoff Jennett, said in February that it had reached a size at which it could pursue takeovers. But it may itself be a takeover target.

Emira has a market capitalisation of R6.4bn. In February, it was about R8bn. On a year-todate basis, the diversified property group’s share price has lost just less than 21% of its value.

The company, nevertheless, has a pipeline worth about R2.5bn and owns a stake in Growthpoint Australia, worth just less than R800m.

The company’s bosses had a mandate to increase Emira’s Australian exposure in 2015 but decided not to. In September 2015 Jennett said the prices of Australian Reits had gone up so high that the sector had become too expensive.

Redefine Properties, one of the top five Reits on the JSE, already owns about 11% of Emira, and may try to gain a more significant stake.

Redefine has been one of the few property companies on an acquisition hunt, having done a multibillion-rand deal in Poland in April.

Tower Property Fund, with a market capitalisation of about R2.6bn; and The Pivotal Fund, whose market capitalisation is about R5.bn, have also been touted as buys.