The Cavendish building on Jeppe Street owned by AFHCO properties. Picture: Chris Collingridge 389

Johannesburg - SA Corporate Real Estate, the listed property company, has acquired leading Johannesburg residential conversion and inner city improvement company Afhco Holdings for about R439 million.

Afhco has been acquired through SA Corporate’s wholly owned subsidiary, SA Retail Properties, from Afhco shareholders comprising the Ideas Managed Fund, a policy product of Old Mutual Life Assurance SA (50 percent), Wayne Plit (35.5 percent) and Renney Plit (14.5 percent).

Afhco, founded in 1996 by Wayne Plit, has a portfolio of more than 5 000 residential apartments in 33 buildings valued at about R1.47 billion.

Most consist of office buildings that have been revamped and converted into residential apartments with a retail element of about 20 percent of gross lettable area on the ground floors.

The portfolio is held through a combination of wholly owned and jointly owned subsidiaries of the Afhco Group and includes 20 461m² of undeveloped bulk valued at R29m.

The proposed acquisition includes 100 percent of the joint Afhco subsidiaries, which own about 16 properties and 2 040 residential apartments in the Afhco portfolio worth about R542m.

SA Corporate has entered into discussions with minority shareholders about entering into sale and purchase agreements to allow it to acquire their shareholdings in the Afhco joint subsidiaries.

The purchase consideration was based on an Afhco portfolio value of R1.476bn and Afhco group debt of R1.037bn on the date the agreement was signed.

It will be funded by SA Corporate through R308m of debt and the issue of new units at R3.80 a unit – equating to about R132m.

In terms of JSE listing requirements, the proposed transaction is a category 2 transaction and does not require SA Corporate unitholder approval. However, the SA Corporate trust deed requires unitholders’ approval for the issue of new units.

The transaction is still subject to a number of conditions, including the completion of a due diligence to the satisfaction of SA Corporate, the approval of the relevant regulatory authorities and the raising of the necessary debt funding.

SA Corporate has entered into an agreement with Wayne and Renney Plit to retain their skills to ensure the integration of Afhco into SA Corporate. They will also help to develop the bulk sites included in the portfolio and to explore further development opportunities.

The fund believes that with its access to capital, the excessive demand for affordable inner city residential apartments and the Plit brothers’ expertise it will be able to pursue attractive opportunities.

SA Corporate said the proposed transaction provided the fund with an opportunity to acquire an established platform and experienced management team in the residential property sector, which was arguably the most attractive Johannesburg inner city central business district residential portfolio because it offered scale, quality and diversity.

It believed affordable housing as an asset class presented a compelling investment opportunity for a number of reasons, including attractive contractual rental escalations compared with the commercial property sector; a history of low vacancies due to a significant supply shortage; and the sector enjoying concessional support through grants, incentives and attractive funding terms.

SA Corporate yesterday reported an 8.6 percent growth in distributions a unit to 32.75c in the year to December from 30.15c the previous year.

The value of the fund’s portfolio of 134 retail, industrial and commercial properties increased R715.45m to R8.87bn by the end of December.

The total portfolio had a vacancy rate of 4 percent, with vacancies the highest in the commercial (11.8 percent) and retail (8.9 percent) sectors.

SA Corporate units closed 2.61 percent up at R3.93 on the JSE yesterday but ended off the day’s high of R4.19. - Business Report