Veteran investment property executive, Alex Phakathi, is back on top, well kind off, after it was announced on Friday that Phakathi has taken over as CEO of JSE listed property company, Fountainhead.
Were it permanent, Phakathi’s appointment would have been seen as an advancement of transformation in the JSE listed property sector which is thought to have lagged other sectors in terms of Black Economic Empowerment (BEE). Whether the appointment will trickle down into broad based BEE, stands to be seen with rising concern that the appointment of black executives has in general failed to benefit the BBBEE scorecard.
Phakathi will become the third black CEO of a JSE listed property fund, following the emergence of black controlled listed funds Dipula Income Fund and Rebosis Property Fund led by Izak Petersen and Sisa Ngebulana respectively.
Phakathi rose to fame during his tenure as the CEO of Pareto, an unlisted property loan stock company that manages the investment property interests of the Eskom Pension & Provident Fund (EPPF) and the Public Investment Corporation. Pareto has stakes in some of the most priced commercial property assets like 100% of the Cresta Shopping Centre, 25% of Sandton City, 67% of Southgate Mall, 100% of The Pavilion Shopping Centre, 58% of Tyger Valley Shopping Centre and 50% of Menlyn Park. Phakathi stayed at the helm of Pareto for six years between 2004 and 2010. He served as the president of the South African Association of Property Owners (SAPOA) in the 2005/06 period. He then moved to the Barclays Africa/Absa stable where he was head of property strategy and planning.
Phakathi was appointed Redefine Properties’ executive director towards the end of last year. This brought him back to the top echelons being in the mist of managing the second largest JSE listed property portfolio. The Fountainhead announcement comes after Redefine Properties acquired the Fountainhead Management Company for about R660m. The latter is a third party type property asset management company which takes care of the management of Fountainhead’s underlying assets. Fountainhead boasts a property portfolio valued around R10.3bn and its underlying assets include Centurion Mall, Westgate, The Boulders, Blue Route Mall, Kenilworth Centre and N1 City Mall.
Redefine concluded this acquisition with an eye of gobbling Fountainhead’s underlying assets into its asset base. This could mean Phakathi who was recently appointed as executive director of Redefine is only a temporary caretaker of Fountainhead up until the proposition of merging Fountainheads assets with those of Redefine has been concluded. This proposition still needs to be put to Fountainhead shareholder’s for approvals.
After securing all regulatory approvals for acquiring the Fountainhead Management Company at the beginning of August, Redefine said it “will take immediate control of the Fountainhead Management Company and will simultaneously undertake a due diligence investigation into the affairs of the Trust”.
“Once the due diligence has been completed, Redefine will make a decision as to whether it intends making an offer for the underlying assets. The price which will be offered to Fountainhead unit holders will comprise a combination of Hyprop and Redefine units”.
In that early August statement Redefine CEO, Marc Wainer, said “Since the initial announcement was made the prices of all three counters have increased substantially resulting in Fountainhead trading at a significant premium to its net asset value. Notwithstanding the fact that this is intended as a scrip for scrip transaction, we still have to be satisfied that there is value for us in the underlying assets at the current price and there is sufficient growth potential to justify the premium to NAV. We will only be in a position to assess this once the due diligence investigations have been completed. There is also a considerable amount of capital which will have to be spent on some of the existing centres defensively and this is also a factor which will have to be taken into account when the assets to be acquired are priced.”
“Redefine remains convinced that the Fountainhead assets will complement those of Redefine and increase its direct exposure to quality retail assets while at the same time exiting its indirect stake in retail via Hyprop”.