Fortress Income Fund is expected this week to make a firm offer to Capital Property Fund’s shareholders to take over the fund after expressing an interest in a takeover since May. This would be the biggest property transaction of the year and the fund would be worth R44.5bn, make it the third-biggest SA-based fund by market capitalisation in the sector. Growthpoint is the JSE South African property index’s largest company with a market capitalisation of R74bn, followed by Redefine with a market cap of R46bn, with New Europe Property third at R42bn.

Fortress focuses on retail centre assets situated near transport nodes, such as taxi ranks and bus and railway terminals, targeting the growth in these markets. Fortress has an A and B unit structure, catering for different risk appetites. Investors in the A units have a preferential claim to earnings and receive a 5% increase in distributions from earnings. The remainder of distributions are attributable to B-unit investors. Fortress, whose CEO is Mark Stevens, was the best-performing property stock last year.

The B unit achieved a total return of 100% last year. Capital owns a large portfolio of industrial and office properties. Analysts say a takeover of Capital by Fortress would be supported as it would create a large, liquid counter for investors in South African-listed property. Stanlib head of listed property funds Keillen Ndlovu said yesterday the transaction, if successful, would be positive for the industry. “We like the transaction, It will create a bigger and more liquid entity. It will also help to simplify the structure and reduce crossholdings among the different entities within the group,” he said.

The two companies, both part of the Resilient stable, have bought shares in one another in the past. Resilient Property Income Fund, led by Des de Beer, has launched various property groups over the past few decades.

Analysts have said a recent recovery in the South African-listed property sector had meant consolidation was becoming more likely to begin to happen again this year. “I’m not aware of any imminent news but given the recent recovery in SA’s listed property market, you can’t rule anything out right now,” Grindrod chief investment officer Ian Anderson said.

The sector grew 6.61% in rand terms in the first six months of this year, according to research by Catalyst Fund Managers. In the month of July to date, it has grown 2.52%, according to data supplied by Iress. Fortress said on June 1 that in terms of a takeover, Capital would first be likely to list its office portfolio as a separate real estate investment trust. Capital shareholders would then exchange their Capital shares for Fortress. Besides owning more industrial and logistics property than any other property listed in SA, Capital has a sizable office portfolio worth more than R4bn.

Its industrial properties are worth about R369m and its logistics properties are worth about R9.5bn. It also owns a relatively small portion of about R2bn worth of retail property. The industrial portfolio offers strong potential to grow in value for investors. There is a lot of potential for warehousing in SA because more and more goods are being imported into SA, according to Equites CEO Andrea Taverna-Turisan.

Source: Business Day