The market has once again warmed to MAS Real Estate, despite disclosure concerns and a potential conflict of interest arising from recent management changes.
The company, which in November appointed Nepi Rockcastle co-founder Martin Slabbert at the helm as CEO — its third CEO in less than two years — bounced back more than 15% at one point last week following the release of a robust set of results.
MAS declared a 12.1% dividend increase for the six months to December, placing it as the JSE’s best-performing property stock in the year to date in terms of dividend growth. Most SA-focused counters are expected to deliver close to zero growth in income payouts this year.
Slabbert, a former SA investment banker, and fellow former Nepi Rockcastle director, Victor Semionov, formed Romanian-based development company Prime Kapital in 2015, which in 2016 entered into a development joint venture with MAS to speed up the company’s shift from the UK, Germany and Switzerland to Central and Eastern Europe (CEE).
Their appointments as CEO and CFO respectively followed a deal in terms of which MAS bought Prime Kapital’s interest in the development joint venture as well as its assets and property management platform.
The deal is subject to a three-year lock-in.
Not all shareholders backed the deal (77% voted in favour), as some believed MAS paid too much for Prime Kapital’s interest in the joint venture while others feared that the appointments of Slabbert and Semionov could lead to a conflict of interest given their ongoing affiliation with Prime Kapital.
However, in an interview with the FM, Slabbert says measures have been put in place to protect shareholders against any potential conflict of interest.
For instance, MAS’s shareholder approval will be needed if changes to the joint venture funding commitments were to be made or if MAS were to buy any of Prime Kapital’s assets.
According to Slabbert, the board has also been reconstituted "to manage any other potential conflicts and oversee MAS’s transition to a fully fledged CEE-focused property investment company".
The plan is to sell MAS’s entire Western European property portfolio, worth €544m, and reinvest the proceeds in Central and Eastern Europe.
The company already owns a €467.4m portfolio of more than 10 shopping centres in Romania, Bulgaria and Poland, as well as a development pipeline comprising at least six malls and three residential developments.
Slabbert says the decision to focus exclusively on Central and Eastern Europe is more than justified by the stellar returns generated by the company’s Romanian, Polish and Bulgarian assets.
"We think there’s still 10 to 20 years’ worth of growth left in Central and Eastern Europe before the region will catch up with Western Europe," he says.
Asked why SA investors should own MAS shares, Slabbert says: "You are co-investing with a management team that understands the CEE markets very well and whose interests are well aligned with those of shareholders. And we have little competition from other developers with established relationships with the retailers."
However, Slabbert stresses that MAS shouldn’t be an option for anyone who wants to make a quick buck.
"We are a long-term play," he says, though he admits that MAS is "not pretending to be a pension fund. There will be short-term choppiness, as we are entrepreneurial."
It seems that for the time being the straight-talking Slabbert has allayed doubts about whether he is the right person to lead the company’s restructure.
Kelly Ward, investment analyst at Metope Investment Managers, says: "We believe Slabbert is best placed to run the MAS business in future. MAS needs Slabbert and his team to obtain access to deals and to execute on the CEE development pipeline."
She says MAS remains one of Metope’s top picks. "We are comfortable that over the medium term the counter will offer excellent growth, both in distributions and in capital returns. However, this is not expected to be in a straight line."
Garreth Elston, chief investment officer of Reitway Global, shares Ward’s views.
"MAS has been dogged by disclosure and alignment issues in recent years, but it appears that management is listening to the market’s concerns. The company is now more focused and aligned than at arguably any time in its history." Elston expects investor confidence to increase further given improved financial disclosure.
Earlier this week, MAS was trading at a euro-based dividend yield of about 9.5%.
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