Johannesburg - Listed property firms Octodec Investments and Premium Properties have taken the first step towards a possible merger.
The two companies reported yesterday that they had entered into an agreement with IPS Investments and City Property Administration in terms of which IPS would repurchase City Property’s shares in IPS for R127.5 million in cash and repay City Property’s shareholders’ loan to IPS of R48.1m.
Octodec and Premium each hold 40 percent of the issued share capital of IPS, with City Property, the manager of the Premium, Octodec and IPS portfolios, holding the remaining 20 percent .
The repurchase will result in Octodec and Premium each holding 50 percent of IPS through a simplified corporate structure that will support a possible merger of the two funds next year.
Jeffrey Wapnick, the managing director of Octodec and Premium, confirmed yesterday that this transaction marked the first step towards a possible merger between the two companies but stressed this would happen only once Premium Properties had converted to a real estate investment trust (Reit) next year.
Wapnick said the combined entity would make strategic sense. It would simplify the corporate structure, free up management time and create a more sizeable company with increased liquidity.
He told Business Report earlier this year that the regulatory environment when dealing with the JSE was difficult for Octodec, Premium and IPS Investments because there had to be three separate board meetings and three separate audit committee meetings.
This meant management time was consumed by activities that did not produce income. This was a strong indicator of the need to merge.
In the first step towards this, it was reported yesterday that Octodec had entered into an agreement with City Property in terms of which Octodec would issue 9.1 million linked units to City Property in exchange for R175.6m cash, equating to R19.25 an Octodec linked unit.
The capital raised by Octodec will be used to reduce debt in the short term and fund future developments and acquisitions.
Wapnick said the companies had structured this transaction as a simple swop of shares with no material impact on distributable earnings.
“A similar methodology was used in valuing both Octodec and IPS. We are encouraged by the support from our shareholders to date, with 36.67 percent of the eligible linked unit holders having confirmed that they will vote in favour of the proposed deal,” he said.
The transaction is subject to various conditions, including regulatory and shareholder approvals.
Octodec linked units lost 0.45 percent to end at R22 on the JSE yesterday. Premium Properties retreated 0.22 percent to close at R18.45. - Business Report