There’s been a flurry of dealmaking in the JSE’s real estate sector in recent weeks as property stocks emerge from a prolonged downturn with shored-up balance sheets and renewed appetite for corporate action.
The market will keep a particularly close watch on what could turn out to be a battle royale for control of Eastern Europe mall owner MAS PLC.
The JSE-listed rand hedge property counter has become the subject of competing bids between Rosebank Mall owner Hyprop Investments and unlisted Romanian PK Investments (PKI).
PKI already (indirectly) owns a 21.8% stake in MAS and is backed by shrewd dealmaker Martin Slabbert, a former investment banker in South Africa.
Slabbert and JSE-listed Resilient Reit co-founded Nepi Rockcastle in 2007, now the biggest shopping centre owner in Central and Eastern Europe (CEE) and the JSE’s largest property stock with a market cap of R97bn.
Slabbert has lived in Romania for the past 18 years and was instrumental in Nepi’s rapid growth before he — and other directors — left in 2015. In 2016, Slabbert and fellow ex-Nepi director Victor Semionov founded developer Prime Kapital, which then became MAS’s joint venture partner.
After three CEOs came and went at MAS in short succession between 2017 and 2019, Slabbert temporarily took over the reins until Irina Grigore’s appointment as CEO in April 2022. Grigore also comes out of the Nepi stable.
MAS, whose portfolio in 2017 comprised a €558m mixed bag of fewer than 10 assets, mostly in the UK and Germany, has been transformed into a meaningful CEE-focused player, with properties worth €1.56bn. These include more than 30 shopping centres, offices and residential developments, the bulk of them in Romania and a few in Bulgaria and Poland.
Slabbert and Semionov are credited for much of MAS’s transformation, but there’s been growing unease about related-party transactions that have created corporate governance issues and a convoluted structure. Two years ago, MAS suspended dividends, which didn’t please everyone.
While their intention to gain control of MAS via PKI doesn’t come as a surprise, the market has been caught off-guard by Hyprop’s competing bid.
PKI’s first bite at the cherry came on May 16, when its intention to make a voluntary bid to acquire all the shares in MAS at €85c (R17.33) a share was made public.
Ten days later Hyprop entered the fray, stating its intention to acquire a controlling shareholding in MAS through an exchange for Hyprop shares or cash at a slightly higher €90c (R18.11) a share.
Within two days, PKI significantly upped its offer to €1.10 (R22.35) and doubled its initial cash outlay for the buyout from €40m to €80m.
Late last week PKI again amended its proposal, after the successful completion of Hyprop’s oversubscribed capital raise of R807.5m, which will potentially be used to acquire a controlling stake in MAS.
PKI has now increased its offer from €1.10 to €1.40 a share and raised the maximum it will spend on the transaction to €110m. It also amended the terms of its “consideration instruments”, which will be five-year nonvoting redeemable preferred shares, which PKI plans to issue in the ratio of 100 per MAS share sold.
PKI maintains it does not intend to delist MAS or acquire further shares once it and it acquires more than 50% of the company
In a detailed letter published on Sens, PKI maintains it does not intend to delist MAS or acquire further shares once it and its associate parties acquire more than 50% of the company.
It says its objective is to maximise returns for MAS shareholders. It seeks the “commercial realisation of the assets”, a process that should be completed within five years, and it wants to ensure MAS embarks on additional asset management initiatives, improvements and extensions to its directly held properties.
Neither PKI nor Hyprop has yet made a formal offer to shareholders. Analysts expect the battle for control of MAS, which is no minnow at a market cap of R14.6bn, to intensify in the next few weeks.
The market is no doubt waiting to see if Hyprop will counter PKI’s latest proposal. It’s also not inconceivable that a third bidder could join the party, with Nepi Rockcastle an obvious potential suitor.
Interestingly, Hyprop CEO Morné Wilken was briefly at the helm of MAS in 2018 after he resigned as CEO of Waterfall City-developer Attacq, which was a shareholder in MAS until last year. Wilken left MAS after 11 months and returned to South Africa as CEO of Hyprop.
Wilken tells the FM that the rationale behind Hyprop’s voluntary bid to acquire at least 50%+1 of MAS talks to its offshore diversification strategy and intention to expand its Eastern Europe footprint.
Hyprop already owns a €620m portfolio of four shopping centres in the region, representing about 32% of assets — one in Sofia, Bulgaria, one in Skopje, Macedonia, and two in Zagreb, Croatia.
Its R26bn South African portfolio includes Rosebank Mall, Hyde Park Corner, Clearwater Mall and The Glen in Joburg and Canal Walk, Table Bay Mall and Somerset Mall in the Western Cape.
Wilken says MAS offers an opportunity for Hyprop to significantly scale up its exposure to Eastern Europe in one fell swoop and enter Romania, where it doesn’t yet have a presence.
The deal could be a game-changer for Hyprop — if we can pull it off at the right price
— Morné Wilken
Besides, Wilken is familiar with some of MAS’s assets from his tenure there. “We’re comfortable that MAS’s shopping centres tick the boxes in terms of quality and value-unlock potential. The deal could be a game-changer for Hyprop — if we can pull it off at the right price. The numbers must stack up.”
Wilken cites the structure of MAS and PKI’s “development joint venture” as a potential hurdle. “We don’t have insight into the exact nature of the partnership and have asked MAS for clarity,” he says.
If Hyprop gains control of MAS, it could add at least R7.3bn to its market cap, taking it to more than R23bn (at this week’s share price of R43 and MAS’s R20).
Wilken notes that management has already consulted several institutional shareholders to gauge support for the potential share swap and overall transaction.
He says the terms of PKI’s latest bid won’t drive Hyprop’s proposal. Still, management is considering a revised cash offer, details of which Wilken can’t disclose. “There are lots of moving parts,” he says.
The key question is which bid, if any, is likely to be supported by MAS’s South African shareholders, which include major institutional investors such as the Public Investment Corp, Ninety One, Catalyst Fund Managers and Anchor Capital.
Fund managers are tight-lipped about where their votes could go given how “fluid and sensitive” the process is, as one shareholder puts it.
MAS shareholders face an important decision because the two offers could have very different outcomes.
Garreth Elston, property analyst and MD of equity research firm Golden Section Capital, says shareholders are presented with distinct alternatives: “a potentially higher cash exit via PKI’s revised offer or the opportunity to become part of a larger, more liquid JSE-listed entity with continued exposure to the CEE market through Hyprop”.
Elston believes Hyprop’s proposition will likely appeal to South African shareholders who prefer liquidity and regulatory familiarity. Some investors may also favour new ownership given concerns about MAS’s recent performance and governance issues.
In addition, PKI’s offer is quite complex. Elston says the nonvoting nature of the “consideration instruments” could be an important factor for shareholders evaluating the offer.
Still, he says there’s no clear winner at this stage as others might be more cautious, weighing the benefits of potential growth under new ownership against the risks associated with change.
“PKI’s offer provides a relatively secure, yield-like instrument with NAV redemption linkage but no participation in long-term growth or governance.”
Elston adds that the PKI offer could be seen as better for shareholders prioritising capital protection, near-term return certainty, and an exit path.
While the MAS board has yet to make a recommendation to shareholders, the general view is that it may favour PKI’s bid given its historic relationship with Slabbert and Semionov.
Elston says it will be important — and a legal and ethical requirement — for MAS directors to exercise independence and act in the best interests of all shareholders.
In a response to questions from the FM, Grigore says the board is still considering its position. “Given that neither [bid] has yet materialised in formal offers to MAS’s shareholders with detailed timelines, MAS is not in a position to comment at this time.”
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