Octodec and Premium today announced that they have entered into an agreement with IPS Investments (Pty) Ltd (“IPS”) and City Property Administration (Pty) Ltd (City Property) that will see IPS repurchase City Property’s shares in IPS for a cash consideration of R127.5 million and the repayment of City Property’s shareholders loan in IPS of R48.1 million.
Currently, Octodec and Premium each hold 40% of the issued share capital of IPS with City Property holding the remaining 20%. The repurchase will result in Octodec and Premium holding 50% of IPS each through a simplified corporate structure that will support a possible merger of the two funds during 2014.
Commenting on the announcement, Jeffrey Wapnick, Managing Director of Octodec said: “This transaction marks the first step towards a possible merger between Premium and Octodec, once Premium becomes a REIT next year.”
“The combined entity would make strategic sense in that it will simplify the corporate structure, free up management time and create a more sizeable company with increased liquidity.”
Octodec has also entered into an agreement with City Property in terms of which Octodec will issue 9,122,981 linked units to City Property in exchange for a cash consideration of R175.6 million, equating to R19.25 per Octodec linked unit. The capital raised by Octodec will be utilised to reduce debt in the short-term and to fund future developments and acquisitions.
“We have structured this transaction as a simple swap of shares with no material impact on distributable earnings. A similar methodology was used in valuing both Octodec and IPS. We are encouraged by the support from our shareholders to date with 36,67% of the eligible linked unit holders having confirmed that they will vote in favour of the proposed deal,” continued Wapnick.
Octodec primarily invests in the retail, industrial and office property sectors, with a growing exposure to residential property, mainly in the Pretoria and Johannesburg CBDs. Premium Properties is the only other JSE listed company to offer significant residential sector exposure. City Property will continue to manage the Premium, Octodec and IPS portfolios.
“As demonstrated through our financial results, IPS has performed consistently well over the years and with a 60% exposure to the residential sector, both Premium and Octodec will gain increased exposure to a market which is characterised by strong demand and low vacancies,” concluded Wapnick.
The transaction is subject to various conditions precedent including regulatory and shareholder approvals.