Octodec, Premium merger on track

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Johannesburg - The proposed merger between listed property companies Octodec Investments and Premium Properties was moving “full steam ahead”.

Jeffrey Wapnick, the managing director of both companies, said the proposed merger would create a property fund with the largest residential real estate component of any property firm listed on the JSE.

Residential assets owned by Premium accounted for almost 29 percent of the fund total rental income of R514.8 million in the year to February and for 6.4 percent of Octodec’s total rental income of R195.2m in the six months to February.

The value of Premium’s property portfolio was externally valued at R4.6bn and Octodec at R3.3bn in February.

Wapnick added that Premium Properties was granted real estate investment trust status from March 1 this year, which paved the way to drive the merger. Details would be provided in the coming weeks and he was unable to disclose information about the timing or the swop ratios.

However, he said they were working “full steam ahead” on the proposed merger and to have it concluded before the end of this year, provided nothing happened to trip up the process.

He said there was more than sufficient support for the merger from major shareholders and stressed it was not a hostile merger or takeover but it still had to make sure nobody was prejudiced by the merger.

Wapnick said the support for the proposed merger came from discussions with major shareholders in the funds every time they had a road show or spoke to major shareholders about a capital raising.

“As previously indicated, we believe that a combined entity makes strategic sense in that it will simplify the corporate structure, free up management time and create a more sizeable company with increased liquidity and clout in the sector.”

The first step towards a possible merger occurred last October when Octodec and Premium entered into an agreement with IPS Investments and City Property Administration in which both increased their holding in IPS to 50 percent.

On Tuesday, Premium reported a 19.4 percent growth in distributions to 150.7 cents a linked unit in the year to February from 126.2c in the previous year. Octodec reported a 13 percent increase in distributions a linked unit to 88.60c in the six months to February from 78.70c in the previous similar period.

Wapnick said it was pleased to have once again delivered on its strategy to enhance the existing portfolio’s profitability and provide growing returns to investors. “The increase in distributions of 19.4 percent for the year is well ahead of sector average growth and represents an excellent performance.”

Vacancies, excluding properties held for redevelopment, improved marginally to 13.2 percent from 13.9 percent of total lettable area.

Wapnick said Octodec outperformed expectations in delivering a 12.6 percent growth in distributions despite subdued trading conditions and consumer confidence. “The increase in revenue was mainly due to contractual escalations and improvements achieved through letting efforts, the recovery of utility and assessment rate charges, as well as an increased focus on energy management initiatives.”

He said growth in the economy was expected to remain subdued. Octodec’s percentage growth rate in distributions a linked unit for the second half of the year was expected to be in line with the first half.

Octodec shares soared 5.76 percent to close at R22.20 on Tuesday; Premium shares rose 2.70 percent to close at R19.


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