SA Corporate CEO, Craig Ewin, said that while it was originally planned to part fund the transaction by debt, the increased cost of debt funding had led to the decision to issue new equity.

“By fully funding the acquisition through new equity, existing unitholders will benefit as distributions will be enhanced, albeit marginally, and risk of interest rate movement ahead of the property transfers has been avoided, “ said Ewin.

“With the placing of almost R1 billion in new equity, the market capitalisation of the fund will increase to about R8 billion, with further debt funding capacity created for appropriate future opportunities. Importantly we also expect the issue of new units to enhance free float measurements as determined by the JSE.

The new units have been placed at a premium to the current trading price. Since there is arguably almost a full six-month distribution in the current price, this translates to a premium on the 14-day volume weighted average price in the order of 7%.”

Ewin said there had been good demand for the SA Corporate equity with an 18% over-subscription of R170 million.  SA Corporate’s forward yield based on the 2008 audited forecasts was in the high sevens, he said.

“This transaction follows the recent placing of R1 billion of new equity to fund the acquisition of the Sharemax portfolio of 10 retail properties.  One of SA Corporate’s stated objectives is to expand the portfolio and increase the market capitalisation.  To raise R2 billion in the space of a few months with earnings-enhancing portfolio acquisitions falls firmly in line with this strategy.”

Peter Sparks, executive director of SA Corporate responsible for investments, said that because tenants had exercised pre-emptive purchase rights over 12 properties for R87,7 million, the Buffcol portfolio to be acquired had been reduced and the purchase price revised to R964,5 million.  An additional retail property in East London, valued at R38 million, had been included in the revised portfolio.

“The properties no longer being purchased are nine Shell service stations and three Tiger Wheel & Tyre fitment centres which we would have looked to trade out of the portfolio in view of their generally smaller size in any event,” he said .

“The remaining Buffcol properties are large and of a high quality which enhance the overall quality of SA Corporate.  The investments are in sustainable and growing nodes in the major metropoles or large towns, with an excellent lease profile and tenancy. They epitomise the investment philosophy of SA Corporate – long leases with some of South Africa’s leading national retail, industrial and office tenants with favourable rental growth prospects. ”

Sparks said the transaction would re-align the sectoral spread of the fund, increasing the industrial component to 33% from 28% and reducing the retail component to 58% from 66%. The office component would be 8%. 

“Management is actively pursuing the acquisition of office property to increase the fund’s weighting in that sector.”