Due diligence supports Afhco acquisition by SA Corporate

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Roy Cokayne

The core rationale for SA Corporate Real Estate Fund’s proposed acquisition of leading Johannesburg residential conversion and inner-city improvement company Afhco Holdings has been strengthened during a comprehensive due diligence.

The listed property company, which intends acquiring Afhco through wholly owned subsidiary SA Retail Properties, said the proposed transaction was to gain exposure to this fast-growing component of the residential property sector.

This had been further strengthened through potential opportunities to consolidate and further develop existing owned city blocks into precincts.

This would significantly enhance the existing income-producing property portfolio.

Afhco is being acquired from Afhco shareholders comprising the IDEAS Managed Fund, a policy product of Old Mutual Life Assurance South Africa (50 percent); Wayne Plit (35.5 percent); and Renney Plit (14.5 percent).

The purchase consideration for the Afhco shares will be about R278 million, which has been determined based on a portfolio value of R953m and Afhco group debt of R675m.

In an update this week to the transaction announced last month, SA Corporate said the selection of properties to be acquired had focused on achieving critical mass in precincts strategically located due to their enhanced accessibility being in close proximity to major transport hubs.

But it stressed there were also opportunities to expand on the retail offering due to the density of the surrounding residential areas and the passing foot count.

The refined Afhco group portfolio is located in the general improvement areas of the Johannesburg inner city and central business district and consists of 27 properties valued at about R953m.

The majority of the portfolio consists of office buildings that have been revamped and converted into residential apartments with a retail element of about 30 percent comprising the gross leasable area on the ground floors.

The residential apartments include a mix of studios, bachelor flats, one bedroom and two bedroom units ranging from 18m2 to 80m2.

SA Corporate plans to fund 30 percent of the purchase consideration through the issue of new participatory interests at an issue price of R3.80 each, which equates to about R84m, and the R195m balance through its own debt facilities.

It also intends to take on about R159.8m of the Afhco group debt related to a facility from the French development finance institution Agence Française de Développement and refinance the R515.3m balance of Afhco’s group debt through new debt facilities.

SA Corporate has concluded an agreement with the Plits to retain their core competencies and skills to ensure the seamless integration of Afhco into SA Corporate and to develop or convert the available bulk included in the portfolio and explore further development opportunities.

The proposed transaction remains subject to the fulfilment of certain conditions.

SA Corporate shares rose 0.25 percent to close at R4.07 on the JSE yesterday.


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