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Property sector under pressure to transform

New BEE deals and a raft of new black appointments could boost transformation.

South Africa’s property sector seems to be picking up the pace on the transformation front with more stringent Property Sector Charter BEE codes coming into effect last year, but transformation at executive level is still sluggish.

A few new BEE deals in the sector have been announced recently, while others are in the pipeline through new BEE-linked listings planned for the JSE. There has also been a raft of new appointments of black professionals to the boards of several JSE-listed and unlisted property companies.

The most significant BEE deal in SA’s listed real estate investment trust (Reit) space this year was announced by Emira Property Fund in October. It plans to sell R1.8 billion in office property assets to a BEE consortium led by Zungu Investments Company (Zico) boss Sandile Zungu. The deal is likely to boost Emira’s BEE rating, which is languishing at Level 7 in terms of the sector’s revised BEE charter.

Emira CEO Geoff Jennett says the Zico-led consortium’s strong B-BBEE credentials were a key driver behind the deal. “Once concluded, the deal will significantly improve Emira’s effective percentage of black ownership.”

Of Emira’s 11-member board, none of its executives are black, however four non-executives are black. Jennett said Emira was working on transformation within its internal management.

Atterbury and Talis

In the unlisted space, property heavyweight Atterbury signed a landmark BEE deal with Tebogo Mogashoa – the entrepreneur behind Alexandra’s Pan Africa Shopping Centre. Mogashoa’s Talis Investment Partners secured a 30% stake in Atterbury Property Fund (APF). The deal was first reported by Moneyweb in October, but officially announced by Atterbury last month.

While the value of the deal was not disclosed, APF notably houses all of Atterbury’s South African investment assets with a gross value of R4.1 billion and a development pipeline estimated at over R6 billion. Atterbury has been looking for the right BEE partner for APF for years and even tried to woo billionaire Patrice Motsepe. It has plans to list APF on the JSE as well as listing inner-city focused Divercity Urban Property Fund, in which APF has a 28% stake.

Mogashoa, who has become APF’s chair following the deal, told Moneyweb: “It’s great for Talis to become BEE partners with Atterbury, as they are one of SA’s leading property developers and investors. Atterbury has a proven track record in property and setting up companies that have listed on the JSE. Talis, APF and Divercity are fully committed to Broad-based BEE in SA’s property sector.”

Atterbury CEO and co-founder Louis van der Watt says APF has developed a plan that goes beyond the required maximum in all applicable areas of the new Property Charter. APF’s board comprises a majority of black directors, including Mogashoa, Van der Watt, Phuti Mahanyele and Seilatsatsi Tshabalala. Atterbury has declared that once the Property Charter is fully implemented in the industry, it anticipates that APF will be one of the best-rated black empowered players in the market.

Growthpoint and Redefine

SA’s two largest primary listed Reits, Growthpoint and Redefine, are also paying more attention to transformation. At its latest results presentation in August, Growthpoint announced that it was negotiating a R5.8 billion asset sale to a BEE consortium that it planned to list on the JSE. In June it also decided to make its head of human resources post an executive role, which saw Olive Chauke becoming the first black executive director on its board.

Of Growthpoint’s 14-member board, six are black, three of whom are females. Besides Chauke as its new HR director, Growthpoint also confirmed Zukie Siyotula as a new non-executive black female board appointment this year.

Growthpoint has managed to secure a Level 3 B-BBEE verification under the amended Property Sector Codes. This is despite one of its BEE shareholders, Southern Palace Properties, selling its 5.4% stake in the group in March. Southern Palace had secured the stake in 2014 through a deal with the Public Investment Corporation (PIC), which saw it become Growthpoint’s largest non-institutional shareholder.

Responding to Moneyweb queries, Growthpoint Group CEO Norbert Sasse explains: “As a public listed company, a substantial portion of Growthpoint shares are held indirectly via financial institutions as mandated investment schemes. Therefore, pension funds, collective investment schemes and life policyholder funds were assessed as part of the verification in terms of analysing the extent of black benefication within these schemes.”

Sasse says Growthpoint holds as much as 31.3% black ownership and 19.62% black female ownership, which is the highest in the sector. BEE shareholders that hold sizeable stakes in Growthpoint include Quick Leap Investments, Thesele Group and Miganu Investment Holdings. He added that Growthpoint has also, in the last five years, been disposing of properties to companies that have a BEE level between 1 and 3.

Sasse says Growthpoint’s latest BEE verification confirms that it is “making strides” in transformation. As part of transforming the business, the group has formulated a transformation strategy, with specified targets to meet by 2020.

He says one of the areas Growthpoint is excelling at is around enterprise and supplier development, through its award-winning Property Point programme. The initiative supports black-owned businesses in the property sector and has created R1.14 billion in market linkages since its establishment a decade ago. Growthpoint says the programme has seen 168 small businesses integrated into its supply chain and fellow Reit, Attacq, which has come on board as a Property Point partner.

Redefine has played a role in the listing of Dipula Income Fund, which is significantly black-owned and managed. Still, Redefine CEO Andrew König made a surprisingly forthright statement about the listed property sector’s slow pace of transformation at executive level during the group’s results media briefing in November.

“We have our work cut out for us in terms of transformation at the top level, which is still too white,” said König.

Responding to Moneyweb, Redefine CFO Leon Kok said Redefine is currently rated as a Level 4 B-BBEE contributor under the revised sector codes. This was a level lower than the Level 3 status it had achieved under the prior codes.

He says Redefine has “significant performances” in terms of ownership, economic development and skills development targets. However, Redefine recognises that the two interrelated aspects of employment equity and management control require improvement.

“Redefine has three executive directors and none of these are black,” says Kok. “Transformation at Redefine’s executive and senior management is not at the desired level and remains a top priority.”

Hyprop

Specialist shopping centre Reit Hyprop, which owns Canal Walk and Rosebank Mall, has a poor BEE rating at Level 8. Hyprop’s 11-member board has only two black board members, while no black executives. However, Hyprop stressed in its response to Moneyweb that its shareholders are mainly state pension funds as well as investment funds, with the PIC’s investment amounting to around 15%.

“Hyprop’s strategic plan for transformation is to achieve incremental and sustainable improvements that align with the company’s strategy,” said outgoing CEO Pieter Prinsloo.

“One of the challenges is that shareholders mainly consist of parastatal pension funds and investment funds. Often large shareholders are not able to supply B-BBEE certificates, which makes it difficult to calculate an accurate BEE ownership score. Hyprop has considered various B-BBEE deals over the past few years, but has not managed to implement any of the proposed transactions due to economic reasons,” he explained.

Prinsloo says securing the right applicants for Hyprop’s board is “challenging due to the limited number of qualified and experienced candidates” within the property and retail industry.

Attacq and Broll

Waterfall City developers Attacq secured a noteworthy Level 2 B-BBEE rating related to the new sector codes. Attacq bolstered the diversity of its board with the appointment of Ipeleng Mkhari as an independent non-executive eirector in March and Raj Nana as CFO in June.

This increased the number of black directors on Attacq’s 11-member board to four. Mkhari – one of the pioneering black empowerment players in the property services industry – is founder and CEO of Motseng Investment Holdings, as well as president of the South African Property Owners Association.

Privately-owned property services giant Broll also announced last week that it was in talks to sell a stake in the company to a BEE player.

* Rebosis Property Fund, Delta and Dipula, all majority black-owned and managed Reits, did not respond to Moneyweb’s queries by the time of publication.

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TRANSFORMATION, yup, gotta love that ‘T’word. Just like the Estate Agents Affairs Board has recently been transformed into an all but in name arm of the state answering in the main to the minister of human settlements.I kid you not.
I personally give this industry about 12 months and they will have totally eliminated ANY PRIVATE property sales, in that ALL homes will then HAVE to be sold by a so-called Property Professional (That’s sommer an old estate agent to you and I) who is answerable to the EAAB who are in turn governed by….GEDDIT?
I find there is a sort of movie script that applies in this country post ’94: As soon as you hear Transformation or Charter, here comes twubble.
But what would a 73 year old male know anyway?

Transformation is here to stay. like it or not like it.

What dirt poor south africans like is not the issue. It’s what foreign investors do not like…and this is evidenced by real estate prices ,the Rand and JSE prices.

@Dazee. I fully agree: transformation will remain 🙂

That’s why I’m not worried at say Eskom’s so-called financial trouble. The main thing since the 90’s, Eskom has managed to achieve their vision of a transformation leader. Their B-BBEE level is exemplary. Credit must be given. Successful transformation is achieved. That should remain their main focus.

Same with municipalities: credit is given to great strides & achievements made in this regard. (..the majority is not worried about service delivery issues, as the majority remains happy).

Don’t care, but transformation has a sick record in South Africa. It is another name for reverse racism.

Sounds as if you still have all your marbles with senile dementia a long way off.

What is happening is value intercept not transformation.

No doubt foreign investors see this as a huge buy signal.signal . They cannot wait to pile into these companies. ..The clue added by these deals surely warrants at least a 50% rerating

Do I care what color the executive is? Not really. I would prefer to see evidence of sustainable FCF growth.
When you see the plethora of BEE compliance reports on SENS, you start to think about the cost to these companies, never mind the cost to shareholders due to continual refinancing of these deals. Fortunately I can invest in companies which are not distracted by these constraints, and can focus of value creation.
ZA inc = uninvestable.

That’s also how I view companies: the higher their B-BBEE score, it means higher ratio of EE-cost is factored into the company’s product or service offered.
So as a potential client/customer, this is indicative of (generally) poorer value in their offering.

Cape Town shows the way. Electricity, the old way, comes from a supply called Eskom. The city regulate availability by shedding on their, Eskom, demand. Comes the free for all sun. Shining uncontrolled free. Transforming rays in electricity, as a way to circumvent council shedding, is without a license, forbidden. The excuse is your safety. Watch the informal living with a infrastructure, council and BEE, approved.

But, but … The property sector has declined so much in recent years already. House prices, even, have declined in real terms. Property shares fell so much over the last year. So need for transformation 😉

I meant to say: there’s NO need for transformation.

You mean, it’s already frucked so they can’t fruck it upn any further?

ANC experts in fracking up everything and further.

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