Sycom buys Woodlands Office Park

Sycom already owned 40% of the office park in Sandton‚ and said it sought opportunities to enhance its unit-holder value, which included buying additional shares in co-owned assets.

Its retail portfolio includes Fourways Crossing‚ Southgate Value Market‚ Vaal Mall‚ Paarl Mall‚ N1 City Mall and Somerset Mall.

The latest acquisition remains subject to approval from competition authorities.

Ndabe Mkhize‚ an investment analyst at Stanlib‚ said the acquisition was a great opportunity for Sycom as low-risk investment where it knew the asset's forecast rental income and potential.

"In addition‚ it gives Sycom more reward for the effort it already expended in managing this asset. Sycom has an opportunity to use its highly rated shares to acquire an asset valued at an initial yield of 7,9%‚" Mkhize said.

He said the acquisition was a good move on Sycom's part as the Woodlands Office Park was a high-quality‚ well-tenanted asset.

"It is paying full price for it but this a low-risk investment for Sycom because it is already well versed with this asset. Furthermore‚ we believe it will finance the acquisition with a mix of debt and equity such that the transaction becomes yield-enhancing‚" Mkhize said.

He said he expected a similar transaction between Sycom and AECI in the near future given the fact that they co-owned the Somerset Mall in Cape Town.

"Recently‚ we have seen some large pension funds converting from their exposure to the illiquid direct property investments into listed properties. And this is a trend that we expect to persist for a while‚" he said.

Evan Jankelowitz‚ fund manager at Sesfikile Capital‚ said that considering the cost of funding‚ in both debt and equity markets‚ the deal made sense.

"With an existing 40% holding‚ it is an asset they have partly owned for some time‚ which is better than any due diligence‚ so they really do have an insiders' view on the value proposition‚" Jankelowitz said.

He also said that with such cheap capital‚ the physical property market had become extremely competitive.

"When an opportunity presents itself to acquire a quality asset like the Woodlands Office Park and make it earnings enhancing‚ I don't think it could be passed‚" he said.

Last month‚ Sycom said it planned to increase its low gearing level to 30% from 13,1% in anticipation of significant acquisition activity expected in the 2013 financial year.

It said at the time it was comfortable in increasing its overall gearing level‚ which would allow it to be "well placed" to fund acquisitions and redevelopment opportunities.

It also said underlying rental growth remained sound in the retail portfolio‚ but office rentals remained under pressure‚ with downward reversions on renewals dampening contractual rental growth.

Last year‚ Sycom made a similar acquisition when it increased its shareholding in the Paarl Mall shopping centre to 100% from 70% for R183-million‚ in a deal with Grapnel Property Investments.

Commenting on the South African listed property sector‚ Mkhize said it was performing phenomenally well relative to other asset classes‚ delivering a total return of 22,9% in the year to date.