Property merger stalls

2014-07-06 15:00

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Three-way fund union would have created the largest black-owned property ticker on the JSE

Last week, Sandile Nomvete and Sisa Ngebulana, the CEOs of the listed Delta and Rebosis property funds respectively, announced the proposed three-way merger with Ascension Properties was “not currently opportune”.

The deal would have created the largest black-owned property ticker on the JSE.

Both said this week that the merger did not fail, but was rather put on hold. Delta has sold its interest in Ascension to Rebosis for R349?million, which Nomvete said would be used to reduce Delta’s debt.

“The due diligences were concluded to all parties’ satisfaction, but the timing of the merger proved inopportune, especially as the listing of Delta International and our opportunities within this fund drew closer,” Nomvete told City Press.

“I would therefore be hesitant to call it a failed merger, since the merger negotiations have been shelved, not cancelled. When the time is right, Rebosis and Delta will initiate this conversation again.”

Ngebulana said: “Our funds have mutually grown enormously into large businesses of over R7?billion each, and continue to see numerous activities during the merger talks that make it difficult in the short term to consummate anything. It remains an aspiration in the long term.”

The two have applied the brakes on merger talks months after Ascension two-timed them.

However, contrary to reports, it was not control of Ascension its management was teasing them about, but rather its asset manager, the Ascension Property Management Company. The asset manager is 100% black-owned, allowing it to negotiate long-term, lucrative leases with the department of public works.

Ascension’s government portfolio accounted for 61.4% of its monthly contracted income in the six months to December, according to the company’s latest interim report.

It collected R176.8?million in contractual rental income in the year to last June. Delta and Rebosis collected R594?million and R522.7?million respectively in rent in their last reported periods, but 57% and 44.9% of their properties were occupied by the government. This made Ascension Property Management Company very attractive.

“Both Delta and Rebosis have exposure to government-tenanted buildings, and it therefore fits into both companies’ strategies,” said Anton de Goede, a property fund manager at Coronation Fund Managers.

Ngebulana moved first. “We approached its management and board with a view to take over the company through a scheme of arrangement,” he said. “We signed for a limited period of exclusive arrangements for a due diligence process in October 2013, which period lapsed [in] December 2013.”

Although exclusive talks had lapsed and Ngebulana heard Ascension was talking to other parties in January, he felt Rebosis “had good faith to carry on and close the transaction” because it had done a satisfactory due diligence at great cost.

One of the “other parties” he referred to was Delta.

“On January 28 2014, Delta entered into an agreement with certain of the shareholders holding a significant majority of the issued share capital of Ascension Property Management Company to acquire their stake in the company,” said Nomvete. “In terms of the provisions of this agreement, Delta was ensured exclusivity until February 7 2014.”

But it appears that Ascension director Shaun Rai pulled a fast one on him. According to JSE filings, Rai and his affiliates, who collectively owned 73.28% of Ascension Property Management Company, signed a R76.9?million deal with Delta to sell this majority stake to Nomvete’s company – valuing Ascension Property Management Company at about R105?million.

It was with surprise that Nomvete heard of Rebosis’ R150?million offer – for 100% of Ascension Property Management Company – when it was announced to the market in February.

“Delta has taken legal advice on this matter and is currently pursuing the R10?million break fee that it is entitled to in terms of the agreement it entered into,” said Nomvete.

Rai said he could not comment because agreements prevented him from doing so.

The merger talks were completely separate from the battle for control of Ascension Property Management Company, but the three parties signed a cooperation agreement later in February, saying they would explore a tripartite merger to create a property behemoth with a portfolio valued at R16.5?billion and with a market capitalisation of R9.5?billion.

Nomvete said a merger made a lot of sense, as Delta, Rebosis and Ascension are the only three listed BEE funds that have a significant exposure to the government.

Ngebulana said the merger had nothing to do with Ascension. “The merger was something we always considered as an ideal between Delta and Rebosis. However, given the Ascension transaction, we brought forward what was a long-term aspiration.”

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