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Property sector under pressure to transform

MONEYWEB / 12 DECEMBER 2018 - 00.14 / SUREN NAIDOO

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.

Transformation at executive level in South Africa's property sector is still sluggish. Picture: Supplied

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 both Delta Property Fund and Dipula Income Fund, which are 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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LINK : https://www.moneyweb.co.za/news/companies-and-deals/property-sector-under-pressure-to-transform/

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