Emira Property Fund, the owner of premium offices such as Bryanston’s Knightsbridge Manor and Hyde Park Lane, plans to buy out SA Corporate Real Estate in a deal that would create a group worth about R15.5bn, showing that consolidation is gathering momentum in the listed real estate sector.
Emira has spent the past two years getting rid of its older, poorly performing SA offices and expanding into the US, which has resulted in a better share price and dividend growth. Its share price grew nearly 10% in 2018 while the SA listed property index lost 32%.
While a group of property funds had expressed an interest in buying SA Corporate, as it trades at a high discount to net asset value, it was anyone’s guess who would make the first formal bid, Keillen Ndlovu, head of listed property funds at Stanlib, said.
Emira said it plans to offer 0.25 of its shares for every issued SA Corporate share. That ratio implies a 23.2% premium based on the companies’ closing prices on June 6, it said.
Emira’s COO, Ulana van Biljon, said Emira believes it and SA Corporate have synergies that will benefit shareholders at both companies.
“We feel that we can add value through this takeover. We have expressed our intention and will now wait for SA Corporate’s board to respond. Both Emira and SA Corporate will do due diligences as the process continues. We will present a clear strategy should our bid prove successful, explaining what we would do with the different businesses within SA Corporate,” Van Biljon said.
SA Corporate, which owns a mix of small retail centres, a large portfolio of inner-city housing, a storage business and smokestack factories, has been through challenges recently.
Its CEO, Rory Mackey, and financial director Antoinette Basson resigned suddenly in May, but the company has not provided shareholders with reasons. They are currently serving three-month notice periods and no replacements have been announced.
The company’s most recent financial results were also disappointing, with its dividend shrinking 6% in the year to December to 42.22c per share compared with 44.92c per share for the 2017 financial year, thanks largely to negative rental reversions across its portfolio.
Mackey said in March the company would need to sell some of its underperforming offices, which had high vacancies.
The rent for the company’s new industrial leases fell 13.5% on average, while it dropped 4.6% on average for its retail and 1.5% on average for its office leases. However, its new retail leases were signed at rents of 7.7% higher on average.
Ndlovu said the proposed takeover is positive for the market.
“It helps to tidy up the sector and creates a fund with more scale and better liquidity,” he said.
Emira’s market capitalisation is R7.1bn while SA Corporate’s is R8.3bn.
Institutional investors have been encouraging smaller property funds to consolidate in 2019, as they say there are too few large funds and numerous small ones.
Emira’s shares closed 2.88% lower at R13.49 on Wednesday while SA Corporate closed 2.74% higher at R3.37.
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