Redefine all set for August takeover of Fountainhead

Redefine is aiming to expand its portfolio in a market with few acquisition opportunities.

Redefine CEO Andrew Konig said on Friday that processes were in place for the takeover, which would help to expand Redefine's domestic portfolio. Konig, who is also Fountainhead's CEO, spoke on the sidelines of the release of Fountainhead's results for the six months to February.

Redefine's initial bid to buy the company failed last year as it did not win enough unit holder support. However, at the end of last month, the group secured support for the deal to be finalised.

Redefine is in the process of buying the 34.1% of Fountainhead that it does not already own. Redefine also owns Fountainhead's management company.

"I have a high degree of confidence that a unit holder meeting can be arranged for late July. So we should be able to finalise everything by August. We currently manage Fountainhead's assets so the takeover should be seamless," Konig said.

Fountainhead owns 39 properties valued at R11.9bn, comprising 70% in metropolitan shopping centres, 17% in office space, 10% in industrial buildings and 3% in specialised properties.

Konig, who replaced Len van Niekerk as CEO of Fountainhead at the end of last year, said being CEO of both companies would not lead to any corporate governance contraventions.

"Redefine is the largest shareholder and the asset manager. Ultimately, we will amalgamate Fountainhead into Redefine and I will remain CEO," he said.

Meanwhile, portfolio manager at Grindrod Asset Management Geoff Noble said current Fountainhead unit holders might feel that too much of Konig's attention was drawn to Redefine and its unit holders' needs, as Redefine made efforts to take over Fountainhead's assets.

Fountainhead declared an interim distribution of 30.6c per unit for the reporting period, representing growth of 5.5% on the same six months last year.

The fund expects to deliver on full-year distribution growth expectations of 5%-6%.

Konig said that Fountainhead had made significant progress in building a sustainable growth platform. Over the interim reporting period, the company took transfer of assets totalling R584m and approved redevelopment projects of R578m. "We have also disposed 18 non-core properties worth R1.1bn," Konig said.

Seven more properties will be sold for R264m in the next six months, the largest of which is Brightwater Commons. Formerly Randburg Waterfront, it had performed poorly. "We could not work out a plan of how to redevelop it for it to work for us. It does not fit into the Fountainhead portfolio."

Various factors had caused the distribution growth to be recorded at 5.5%, which is lower than other funds in the industry, he said.

Other funds have managed growth of 8% and more in distribution over the same period.

"Drag areas include development work at Centurion Mall. We have vacant space there which is not being re-let. Our offices have struggled. There was some dilution in our earnings from repositioning the portfolio," Konig said.

In addition to rationalising the Fountainhead portfolio, he was pleased to have significantly improved both cost margins and exposure to risk.

"We are well placed to exploit new revenue opportunities beyond retail, as illustrated by the acquisition of the Robor building in Elandsfontein and the redevelopment of the AMR office park in Bedfordview during the period," Konig said.