Octodec and Premium Properties have reached agreement on a proposed merger of the two listed companies.
Subject to the approval of shareholders in each of the companies and outstanding regulatory approvals, it will result in the merged fund having a portfolio valued at R10 billion and offer investors significant exposure to the residential sector.
In terms of the proposed transaction, Octodec will offer 88.5 Octodec shares in exchange for every 100 Premium linked units held.
The swap ratio was determined by taking into account historical volume-weighted average prices, forecast distributions and the net asset values of both companies.
The proposed transaction is expected to be effective in September and will result in Premium and IPS Investments, which is owned 50 percent each by Premium and Octodec, becoming wholly owned subsidiaries of Octodec.
The Wapnick family, which holds 43 percent of Octodec, and directors collectively owning 2.4 percent of Octodec have indicated they will vote in favour of the transaction.
In line with the Companies Act, the Wapnick family will not be voting in respect of their 29.9 percent shareholding in Premium. Octodec currently owns 14.19 percent of the Premium linked units in issue.
Jeffrey Wapnick, the managing director of both Octodec and Premium, said yesterday it was not an acrimonious but friendly takeover and followed requests from shareholders over a long period of time for the firms to be consolidated.
Wapnick said the two firms believed it made good business sense to consolidate, but had been prevented from doing so because of the potential threat of capital gains tax.
This threat was removed by the introduction in May last year of the real estate investment trusts (Reits) dispensation, which provided many benefits to listed property companies, particularly tax certainty.
Sharon Wapnick, the chairwoman of both Octodec and Premium, said that following the conversion of both companies to Reits, the boards believed it was an opportune time to seek a merger, especially since they already shared a number of administrative and operational services and had complementary portfolios.
Jeffrey Wapnick said the combined entity made strategic sense and would create a sizeable company with a strong asset mix providing investors with significant exposure to the residential property sector relative to any other Reit listed on the JSE.
“The simplified structure will also enable substantial cost savings while freeing up management time to focus on the delivery of our strategy to provide shareholders with above average returns and growing distributions,” he said.
The combined portfolio will comprise 325 properties valued at about R10bn and offer investors exposure to an attractive mix of retail, office and industrial assets plus significant exposure to the residential sector.
Most of the portfolio is concentrated in the high-growth areas of the Pretoria and Johannesburg central business districts. The enlarged company will have a market capitalisation in excess of R5bn.