Tie-ups in store at listed property

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This could spur consolidation, which has been largely absent for nearly two years. Investors have wanted to invest in larger and more liquid property companies with a market capitalisation of about R5bn, instead of many small R1bn and R2bn funds, which listed over the past four years.

"Our view is that as certain companies come under duress, it is highly likely that stronger companies will engage in corporate action to take advantage of these opportunities," said Garreth Elston, fund manager at Golden Section Capital.

He said this would include opportunistic moves, such as 2016's unsuccessful offer by Arrowhead Properties to acquire Emira Property Fund, as well as more synergistic strategic corporate action that would improve companies' scale, diversification and resilience.

But acquiring companies would have to have the balance sheet strength to ride out the negative cycle, integrate the portfolios and emerge able to reap the benefits of the acquisition synergies.

Emira has been struggling with certain vacancies. The company said its dividends were expected to fall in the year to June 2017.

Its financial results are due next Thursday. The forecast for weak guidance may deter companies from making takeover offers.

Stanlib portfolio manager Ahmed Motara said even though Emira had a fairly good retail portfolio, its office portfolio had some problems.

"Their board was hostile to Arrowhead's intention for a takeover. I think at this point, funds won't make offers for Emira. The forecast for the sector in general is also too murky," he said.

One potential takeover target could be Tower Property Fund, which has strong Cape assets, but at R2.6bn market cap is a small stock relative to its peers.

The company last week released its financial results for the year to May, wherein it rebased its dividend and also highlighted uncertainty about the payment of rentals of its largest Croatian tenant, supermarket chain Konzum.

Another possible target could be Safari Investments.

The group, which owns shopping centres in underserved towns and also has exposure to Namibia, has doubled its portfolio by value from R1.3bn at listing in 2014, to R2.6bn.

Its retail portfolio would fit into a number of specialised mall owners very well, according to fund managers.

Vukile Property Fund, for example, has considered taking over Safari but Safari's shares are tightly held and its management has not wanted to entertain any offers. But as there are relatively very few high quality malls on the market for funds, Safari may be able to attract an attractive price for its whole portfolio.

Source: Business Day