FEW DEALS EXPECTED
Why analysts expected a quiet year for listed property
Analysts are expecting few new listed property takeovers and acquisitions in 2017 amid unconducive conditions.
Property fund managers, who want to acquire other funds, are struggling to agree on prices with potential sellers. This
is despite some investors still urging for more liquidity in the listed property sector.
Instead, various transactions announced last year will be completed including the merger of Eastern European groups Rockcastle Global Real Estate and New Europe Property Investments. The two are set to become the largest real estate company on the JSE, with a market capitalisation of R79.07bn.
Some transactions may also come to fruition in 2018.
"We don’t see imminent consolidation in the small-cap space at this stage. It’s the same story abroad. It will happen over time because most of these funds are small and may struggle to grow given both local challenges as well as offshore challenges, which include Brexit and EU political uncertainty," said Stanlib’s head of listed property funds, Keillen Ndlovu.
But Evan Robins, listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, said while some expected merger activity may have already taken place, opportunities could still exist.
"There is scope for consolidation in the sector. The operating environment remains challenging and many funds are looking for angles to boost earnings. Many of the obvious consolidations have taken place," said Robins.
Peter Clark, a portfolio manager at Investec Asset Management, agreed.
"We expect consolidation to increase in the coming year as the environment in the direct market becomes more challenging and presents less acquisition opportunities. Consolidation may allow some of the smaller funds to achieve critical mass and ultimately help to decrease their cost of capital," said Clark.
"We do not support consolidations for the sake of it and like to see specialisation, synergies and value-add in any transaction," he said.