Resilient would pay R1.94bn to acquire the 90% it did not already own, although the company would receive R548.6m back from the transaction by a Resilient family company, Fortress Income Fund, which was acquiring the remaining stake in the centres.
The separate transactions would result in Resilient owning a 75% interest in The Galleria and Arbour Crossing in Amanzimtoti, while Fortress would own the remaining 25% in the centres.
The sizeable centres, which are separated by a small piece of land, "were oversized when they were built, but the node has continued to gather momentum. We think a big game-changer is Makro moving to the node," Resilient CEO Des de Beer said.
A substantial new Makro store was expected to open across the road from the centres within the next few months. Mr de Beer said this would "bring a lot of momentum to the node".
At 88,443m², The Galleria mall is Resilient’s largest retail asset by size. Arbour Crossing, which is a value centre, is also fairly large, at 39,786m².
Resilient, which owns 10% of the issued share capital of Arbour Town — the company that holds the two centres — has agreed to acquire the remaining 90% of the shares in Arbour Town that it does not already own.
Meanwhile, prior to this transaction, Arbour Town disposed of a 25% undivided share in the centres to Fortress, subject to conditions. Macquarie Securities analyst Leon Allison said that based on the expected yield on the acquisition and the cost of funding, the near-term effect on Resilient’s distribution per share growth "is expected to be limited".
But if management could replicate the success achieved at other centres in the portfolio, particularly The Grove, "this could be another major and dominant centre, adding to the strength of the existing portfolio".
Mr Allison said the new Makro store across the road from The Galleria and Arbour Crossing would be the biggest store in KwaZulu-Natal. "This will effectively make this the third super-regional retail node in the broader Durban region, with Gateway in the north, The Pavil ion in the west and Arbour in the south."
Vacancies were "quite high at 12% and these developments probably added too much retail for the area when completed in 2008 and 2009". But management saw "good potential to reduce vacancies", in the same way it had when Resilient acquired The Grove mall in Gauteng from the same developer, he said.
"Based on their assumptions on declining vacancy, they estimate a forward yield of 8.1%. Another reason for their optimism is the growing footfall at the centres," Mr Allison said. Macquarie estimated the cost per square metre to be below average, although average rentals were also less than average.
"The acquisition will raise Resilient’s gearing from 29% to 34% on our estimates, which is a more optimal level of gearing given the low risk, growing income stream of Resilient, in our view," he said.
Source: BD
