News from – Cape Business – Who covets the Waterfront?

HAS the recent souring of sentiment in the listed real estate sector diminished attractiveness of the V&A Waterfront as an investment?

It's been nearly two months since Transnet CEO Maria Ramos confirmed that the controlling shareholding in Cape Town's premier tourist attraction was up for sale.

Transnet owns a 26% stake in the Waterfront with the Transnet Second Defined Benefit Fund holding 43.6% and the Transnet Pension Fund holding another 7.8%. The Transnet Retirement Fund, which owns the other 22.6% stake, has opted not to sell its stake at this point – although the bid for control may be attractive enough to change the retirement fund's mind.

The sale of the Waterfront has been advertised overseas in leading financial publications and other media with Transnet hoping to wrap up the sale by September.

But will a buyer emerge anytime soon?

While the V&A Waterfront attracts over 20 million visitors to its leisure and retail nodes every year, changing economic conditions in South Africa - especially the latest hike in interest rates – may see potential bidders adopting a more cautious approach.

Transnet, which needs capital for various expansion plans to its core transport businesses, is obviously a keen seller.

But Transnet will want a good price, which some punters reckon would be in excess of R5 billion. Others reckon between R3 billion to R3.5 billion is more realistic…

A number of property sources believe the sharp downturn in the JSE's Real Estate index after the latest 50 basis point interest rate increase could see local contenders looking at consolidation rather than taking on a major proposal like the Waterfront.

But the Waterfront is a property to covet, and there's no doubt that most property executives have mulled ideas around a potential deal.

Initially there was speculation that the bigger listed property companies like Hyprop (which owns the Canal Walk shopping centre), Apex-Hi or Growthpoint could spearhead an empowerment consortium in bidding for the Waterfront.

For most of the property groups a deal as large as the Waterfront would have massive implications for the risk profile of their existing property portfolios. Taking on such a huge debt load at a time when interest rates look certain to rise further could be taking too much risk in terms of securing appropriate yields.

Currently it would seem the chances of a listed property contender emerging as a serious bidder would be slim.

Private equity companies may find the Waterfront too sprawling a project to accommodate - although some of the bigger entities may be tempted to take a long term view.

One interesting bit of speculation is that empowerment company Hosken Consolidated Investments (HCI) – headed by former trade unionists Marcel Golding and Johnny Copelyn – as well as Tokyo Sexwale's Mvelaphanda Group could be bidders for the Waterfront.

More realistically, an offshore entity – especially in view of the weakening rand – could well be the most likely bidder.

Murmurings around Cape Town suggest that Irish property groups – some of whom have been involved in some interesting property developments in the Cape Town CBD – could emerge as front-runners.

The possibility of an American buyer has also been raised, which would be quite surprising since US investment in physical property in South Africa is relatively low.

It's worth remembering that Ramos indicated a preference for an outright sale to a single bidder with no disposal of individual properties.

As long as a valid empowerment partner is in tow, Ramos could score a double whammy by selling quickly to a cash flush foreigner and at the same time bolster foreign investment levels at a time when South Africa has again been lumbered with an emerging market tag.