Johannesburg - Delta Property Fund is in advanced discussions to acquire listed Redefine Properties’ multibillion-rand government-tenanted property portfolio.
Delta is a listed specialist black-managed and substantially black-owned real estate investment trust.
Delta chief executive Sandile Nomvete confirmed this yesterday, adding they believed this acquisition represented a step change for the company.
Redefine Properties chief executive Andrew Konig confirmed at a briefing on its annual financial results that Redefine was in talks “with a party that could result in a transaction”, but did not identify the potential buyer.
“When we have ink on paper we will be sharing it with everyone,” he said.
Redefine Properties executive chairman Marc Wainer said Redefine had “sold” this portfolio about 10 times before, but the deal fell through each time.
Konig said one of the biggest issues with the potential deal was that a portion of it was financed through debt funding and the banks were reluctant to finance it because the leases were short term in nature.
However, Nomvete said the transaction would be settled through the issue of Delta shares to Redefine, which would reduce Delta’s loan-to-value ratio.
Konig said the book value for the portfolio was about R2.5 billion on a forward yield of 14.5 percent based on an independent portfolio valuation.
But Konig stressed no portfolio in South Africa was sold on a forward yield of 14.5 percent and at a 10 percent forward yield “you are probably looking at an about R5bn transaction”.
Wainer believed Redefine would probably sell about half its government-tenanted portfolio.
Rental arrears
Redefine previously signalled its intention to sell this portfolio because of non-payment of rentals.
Wainer said yesterday that about a third of Redefine’s arrears were from the Post Office and the government.
Nomvete said Delta was one of only a very few listed specialist government funds and had the know-how, infrastructure and track record to manage and unlock value from government-tenanted assets.
“Approximately 54 percent of our current portfolio by gross lettable area is tenanted by government and we intend to increase this to approximately 60 percent while reducing our gearing,” Nomvete said.
Nomvete said the planned transaction, once successfully concluded, was expected to be significantly yield accretive.
Redefine yesterday reported a 7.3 percent growth in distributions to 80c for the year to August. The distribution was in line with its forecasts.
The company forecast distribution growth of 6 percent to 7 percent for this financial year.
Konig said this was based on economic fundamentals and “what was not happening on the ground”. “There is no compelling reason for things to change dramatically in the short to medium term. We know about the slow economic growth but there is the looming prospect of interest rate hikes while administered costs, including electricity, water and rates and taxes, are increasing,” he said.
Wainer said there was a strong possibility of income tax hikes or an increase in the VAT rate, which would hurt retailers.
Group total assets increased by 22 percent in the year to R70bn, with the portfolio of global property assets currently managed by Redefine and spread across South Africa, Europe and Australia now valued at R64.5bn.
Konig said Redefine’s international operations provided geographic diversification and accounted for 17 percent of distributable income, but were anticipated to grow to between 20 percent and 25 percent in time.
Redefine shares lost 0.26 percent yesterday to close at R11.50.
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