Johannesburg - Property funds Vukile, Arrowhead and Synergy have reached an agreement on a transaction that will result in Vukile becoming a mainly retail fund and Arrowhead using Synergy as a vehicle for implementing its strategy of a separately listed high-yielding, high-growth fund.
Synergy will be renamed GemGrow Properties, with its portfolio reconstituted with properties from both Vukile and Arrowhead for its asset base. As a result its property portfolio will be valued at about R4.4 billion and its market capitalisation will increase to R3.4bn.
The transaction follows Synergy last year becoming a subsidiary of Vukile, which owns 65 percent of the fund. This is expected to re-energise and differentiate Synergy and give it a new platform for growth with yield-enhancing acquisitions.
Growth
Gerald Leissner, currently the chief executive of Arrowhead Properties and who will become chief executive of GemGrow, said yesterday that the transaction was a unique meeting of minds.
Leissner said it would address the strategic objectives of the three separate entities and in turn create a vehicle that offered shareholders exposure to a unique dual-class share structure with a focus on acquiring assets at attractive yields that would enhance earnings and growth prospects for the company.
Laurence Rapp, the chief executive of Vukile, said its goal for some time had been to craft Vukile’s direct South African assets into a specialist retail property fund.
“With this transaction, Vukile will achieve our goal, placing over 90 percent of our assets in the most defensive and preferred property sector,” he said.
Mark Kaplan, the chief operating officer of Arrowhead Properties, said the transfer of Arrowhead’s high-yielding properties into a separate listed subsidiary that was positioned for yield-enhancing growth was a strategic objective for the fund.
“We are thrilled to achieve it with this transaction, which creates an income-focused fund that invests in a niche space currently ignored by most listed property funds, where its dedicated management can add real value. In terms of the proposed transaction, a R2.45bn asset swop will result in Synergy exchanging its entire portfolio of 14 retail shopping centres in return for 29 of Vukile’s higher-yielding office, retail and industrial properties.
This will transform Vukile into a specialised retail property fund in South Africa, with more than 90 percent of its portfolio comprising high quality retail assets. Vukile will also benefit from a passive stake in GemGrow.
Synergy’s asset and property management will be internalised, with it acquiring its asset manager, Vukile Asset Management, in return for the issue of Synergy B-shares to Vukile.
Synergy will also acquire 100 high-yielding office, retail and industrial properties valued at R1.9bn from Arrowhead subsidiary Cumulative in return for the issue of Synergy B shares to Arrowhead.
This will realise Arrowhead’s strategy of placing its high-yielding properties in a separate JSE-listed subsidiary and Arrowhead property portfolio consisting of large quality properties.
Share capital
The implementation date for the transaction has been set for October 1, at which date Arrowhead will hold about 62 percent of Synergy B-shares and 55.22 percent of Synergy’s share capital.
Vukile will hold about 29 percent of Synergy B-shares and 26.38 percent of Synergy’s share capital.
Synergy’s A and B share structure offers investors a different risk and reward profile, with the A-shares offering more risk averse investors preferential dividends capped at 5 percent growth a year, and its B-shares receiving the remaining distributable earnings.
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