Dipula Income Fund, a diversified, South-African focused and black-managed Reit, on Friday made a competing R9 billion share swop offer to acquire SA Corporate Real Estate (SAC) through a merger. 

The offer flies in the face of an offer earlier this month by Emira Property Fund, which proposed a tie-up with SAC to merge into a R15.5bn group. There have in recent months been a number of consolidation proposals among the smaller listed property groups. Fund managers have been arguing that smaller property groups should consolidate to be able to attract more institutional investors and also in response to declining returns from the listed property sector. Dipula’s offer of R3.55 per SAC share represented a 26 percent premium to the 30-day average price of R2.83 as at July 9, 2019. It also trumped Emira’s offer, which amounted to R3.45 per SAC share. “This is not just an opportunistic offer. We can see the synergies and we can see the fit. 

Dipula came to the market with a difficult portfolio, but we have cleaned it up and more than 80 percent of our portfolio in now Grade A and B clients,” Dipula chief executive, Izak Peterson said on Friday. He said Dipula also had stable and experienced in-house management teams, which, when combined with the SAC portfolio, would, for instance, bring down unit management costs. “A friendly merger will unlock significant value for both companies’ shareholders.” 

The merged entity would have a portfolio value of about R27bn and a market capitalisation of R13.6bn, positioning it as a mid-cap Reit on the JSE, focused on the South African property market. “We have deep experience in unlocking value from especially peri-urban areas with the ability to negotiate complex community issues,” said Peterson. “Synergies, diversity and scale extracted from the merged portfolio could result in a reduction in the cost of debt, as our ability to access better rated paper in the capital markets will improve. This will give us with additional headroom to act opportunistically in the current constrained market,” Peterson said. 

The sectoral split of the merged portfolio by value will comprise about 46 percent retail, 8 percent office, 29 percent industrial and 17 percent Afhco (a residential, retail and commercial property company, with the assets primarily located in Johannesburg’s inner city). “Dipula’s A and B capital structure is virtually unique in the SA Reit market. Our A shares have enjoyed strong demand from institutional investors. 

The liquidity created by the merged entity will likely result in a re-rating of the shares, to the benefit of shareholders,” he said. Assuming an effective date of December 1, 2019, and Dipula’s current equal weighting of A and B shares in issue, the switch ratio equates to about 0.19 Dipula A shares and 0.24 Dipula B shares for every 1 SAC share, equal to a combined switch ratio of 0.43 Dipula shares for every 1 SAC share. Dipula shares closed 1.84 percent lower at R10.15 on the JSE on Friday.