3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item A framework for mergers and acquisitions due diligence: lessons from selected REITs in South Africa(2018) Mabece, YongamaIn April 2013, the South African listed property sector converted from Property Unit Trust and Property Loan Stock investment structures into a Real Estate Investment Trust (REIT) structure that is understood globally. This conversion spurred consolidations in the property market in the form of mergers and acquisitions. Research shows that mergers and acquisitions tend to have high failure rates as growth strategies. It remains unknown how sufficient traditional due diligence is and how it can be improved to enhance the chances of successful corporate marriages within the South African REIT market. This paper reviews the aspects of the traditional due diligence scope which generally comprises of financial, legal and commercial due diligence in order to determine its adequacy as a decision making tool that helps reduce the risk of failure in REIT merger and acquisition transactions in South Africa. There is consensus in the literature that due diligence is a means to reduce the risk of merger and acquisition failure, some studies suggest that failure occurs when due diligence is not done well. This paper uses interviews conducted with due diligence professionals from seven REIT companies listed on the Johannesburg Stock Exchange who were involved in large merger and acquisition transactions in the preceding four years. The interviews were used to ascertain how the professionals perform due diligence, whether or not they think that traditional due diligence is sufficient for REIT mergers and acquisitions and to solicit their views on how the due diligence scope can be expanded. Transcribed data from each of the interviews was analysed based on three concurrent sub-processes adapted from the works of Miles and Huberman (1994) which consist of data reduction, data display and drawing and verifying conclusions. The results show that the traditional due diligence scope is not sufficient for REIT merger and acquisition transactions, a majority of the respondents agree with this observation. Encouragingly the professionals within the South African REIT market have a due diligence scope which is already much wider than the iii traditional scope, be that as it may, there is still a high failure rate of 59% observed in the sample analysed. Due diligence professionals have a low regard for understanding and resolving the different companies cultural issues, this is cited in the literature as one of the contributing factors for merger and acquisition failure. This is an area that can possibly augment the due diligence cycle and professionals should focus on it in order to improve the chances of success. The research proposes expanding the due diligence scope by incorporating strategic due diligence which is forward looking and it overcomes the challenges of traditional due diligence of relying on historic information. Strategic due diligence assists the acquirers understand the target’s future prospects, and it allows the acquirers to determine if the target prospects fit with their own strategic objectives. This together with a higher focus on understanding and resolving cultural issues of the merging companies should augment the traditional scope and ultimately lead to transactions that yield higher shareholder value.Item REIT implementation and conversion in South Africa(2017) Pagiwa, Reneiloe LehlohonoloIn 2013 new legislation was introduced allowing for the creation of a new listed property entity called a Real Estate Investment Trusts (REIT). Previously the listed property sector was dominated by two main types of property which were Property Unit Trusts (PUT) and Property Loan Stock Companies (PLS). The introduction of the REIT entity allowed existing listed property companies to convert to REIT status and for new companies to list on the Johannesburg Stock Exchange as REITs. The purpose of this study is to evaluate the impact of REIT implementation and the conversion of PLS and PUT to REIT status on shareholder wealth in South Africa. The study evaluates the change in shareholder wealth through the use of abnormal return calculations during events that led up to the implementation of REITs and conversion to REIT status. The findings show that implementation and conversion to REITs did not result in significant industry gains in shareholder wealth. The events leading to the implementation of REITs however showed positive abnormal returns out lining positive sentiments in the market. For the companies that converted to REIT status their shareholder wealth had negative performance returns. Immediate gains in shareholder wealth are not present. This indicating that the use of REITs as an investment will have to be monitored in the long term.Item Tax legislation and unlisted real estate funds(2016) Zwane, Busisiwe JacobethOn the 4th of July 2013, the South African National Treasury introduced the Taxation Laws Amendment Bill. The purpose of the amendment bill was to introduce new anti-avoidance rules into the Income Tax Act No. 58 of 1962 (the Act) in order to reduce the formation of equity instruments that are falsely masked as debt instruments. The amendment bill contains sections 8F and 8FA which have unintended consequences for the real estate industry, more specifically for the unlisted real estate sector. The application of sections 8F and 8FA of the Taxation Laws Amendment Act, has been suggested to have a negative impact on the returns of unlisted real estate funds. The legislation appears to provide tax relief to real estate investment trusts (REITs) and this is perceived as grossly biased and discriminatory against unlisted real estate funds. The Investment Property Databank (IPD) South Africa estimates the unlisted real estate market in South Africa makes up 46% of the property market. When pension funds and banks, short term and long term insurers, private investors and government are included, the unlisted real estate market is possibly larger than the listed real estate market. Despite the numerous listings of real estate investment trusts South Africa has seen over the last ten years, the listed real estate market is still in its infancy stage and accounts for a very small percentage of the property market in South Africa. This indicates the important role unlisted real estate funds play in the South African property market. The purpose of this study is to find out whether the application of the tax legislation has had any effect on the performance of South African unlisted real estate funds. This study evaluates the investment performance of the unlisted real estate funds and real estate investment trusts (REITS) through the implementation of descriptive statistics, and the event study methodology to indicate whether there is a significant relationship in the returns of unlisted real estate funds and tax legislation. The study finds that tax legislation imposed on South African unlisted real estate funds has had no significant impact on the return performance of unlisted real estate funds. The study also finds that the returns of unlisted real estate funds are very competitive with the listed real estate returns listed on the Johannesburg Stock Exchange.