The announcement said the proposed transaction, to be implemented in terms of section 440 of the Companies Act, had the backing of unit holders holding 70% of the SA Retail linked units. The offer is subject, among other conditions, to SA Corporate procuring acceptances from those holders of at least 90% of the SA Retail linked units in issue.

SA Retail unit holders who accept the proposed offer will receive 3.05 new SA Corporate  units for every one offer linked unit held.  Based on SA Corporate’s  intraday market price of  R3.55 per  linked unit on  January 12, the business day on which the offer was made, this represents a premium of 8,3% to the 1 000c for a SA Retail linked unit on the same day.

If the offer is successful, SA Retail will be delisted and become a wholly-owned subsidiary of SA Corporate. SA Retail linked unit holders will participate in SA Corporate distributions declared in respect of SA Corporate financial years commencing January 1, 2007, with future SA Retail distributions accruing to SA Corporate.

SA Corporate was ranked last year by the Investment Property Databank (IPD) as one of the top five listed funds for its total return on direct property – with an average of 22% per year over three years for offices and 27% per year over three years for industrial premises.

Craig Ewin, head of listed property asset management at Old Mutual Property Group, which manages both SA Corporate and SA Retail, says that the acquisition will benefit both sets of unit holders in creating a more substantial, diversified and liquid fund. “It will also resolve the difficulties that SA Retail has experienced in recent years as a consequence of poor liquidity, with five holders of 98% of the total SA Retail linked units in issue and average tradeability at around 14% of linked units in issue for the last three years.  As a consequence of being so tightly held by a limited number of unit holders, SA Retail has recently been removed from the SAPY index.

In contrast, SA Corporate has more than 4 000 unit holders and average tradeability of more than 50% of units in issue for the last three years.” Ewin says consolidation in the listed property sector is becoming the order of the day and that fewer, larger funds will dominate.

”We believe that a consolidated portfolio in SA Corporate will be the platform upon which a substantially larger fund will be built and that SA Corporate is ideally positioned to compete with the largest funds in the sector in delivering superior returns to unit holders.  There is also the prospect that unit holders could benefit from meaningful capital appreciation.  Should the consolidated SA Corporate yield firm in line with its peers which have market caps in excess of R5 billion this will introduce attractive value upside for both sets of unit holders.”

Roger Perkin, managing director of SA Corporate, says the acquisition of SA Retail will give rise to a portfolio profile that has a greater alignment with the IPD indices and which will offer greater tenant and property diversification. “SA Retail has a high quality portfolio of retail properties, valued at some R2,3 billion which will complement the existing R2,7 billion SA Corporate portfolio.   SA Corporate currently has a premium quality industrial portfolio, which constitutes some 62% of the fund.  Retail properties make up 28% of the fund, with offices the remaining 10%.

The greatly enhanced market capitalisation of SA Corporate will further improve the fund’s liquidity and elevate it to one of the largest counters in the sector. This will position SA Corporate well in respect of future investment demand and ideally result in the successful raising of both domestic and foreign capital as the portfolio is expanded,” says Perkin.  “There are obvious cost economies that accompany such an acquisition and SA Corporate unit holders will benefit from these savings, as well as from the opportunity for the fund to access more competitively priced securitised debt.”

He says the two funds are co-owners of several properties, including Musgrave Centre, Umlazi Megacity and Knowles Centre in Durban, Highlands Mews in Witbank, and Tokai Junction in Cape Town.

Peter Sparks, managing of SA Retail, says the board has appointed an independent sub-committee to assess the offer.  An independent adviser will advise whether the terms and conditions of the offer are fair and reasonable to SA Retail linked unit holders.

He says SA Retail which lifted interim distributable income to September 2006 by 13.7%, will continue to pursue transactions it has in its pipeline.  This includes the R1 billion Sharemax portfolio which it expects to take ownership of in March 2007.

“If the offer is accepted, then proposed developments and transactions will unfold with SA Retail as a wholly-owned subsidiary of SA Corporate.“