Sandile Zungu looks to turn around struggling office portfolio
Sale concludes Emira’s’s programme of exiting lower-grade office buildings
In an ambitious move, president of the Black Business Council Sandile Zungu has bought 25 lower-grade office buildings, which he is hoping to revitalise, for R1.8bn from Emira Property Fund.
Listed property group Emira has spent the past three years restructuring its domestic property portfolio and has been selling its older office assets, which included a number of B-grade and C-grade offices.
Zungu, who runs Zungu Investment Company, formed a BEE consortium — Shankly Property Investments — which bought the portfolio. The assets include offices in major nodes including Bryanston, Woodmead, Rivonia, Centurion and Pretoria, with the largest asset being the R232m Corobay Corner offices in Menlyn.
Shankly will be 51% majority-owned by Zungu Investment Company, while Boyno Trade and Invest, a subsidiary of ONE Property Holdings, will take a 29% stake in the new business. ONE is Emira’s partner in Enyuka Property Holdings, a retail property fund focused on lower-income consumers.
Emira, whose remaining office portfolio is now worth about R3bn, will own the remaining 20% of Shankly. The Shankly portfolio is currently earning a yield of 10.47%.
"The deal is a win-win for Emira and for us. They wanted to get out of these older, noncore offices. These offices will be core for us. We see ourselves as a vehicle which can help rebalance the portfolios of others and this is an example of this. It's our first foray into property and we believe in, say, five years' time property will be a prominent part of our business like mining and energy is now," Zungu said.
Shankly would settle R1.48bn of the acquisition consideration in cash on a property-by-property basis as each one transfers. The final transfers would take place by no later than September 2019, Emira said.
The payment of the remaining R319.8m, for which Emira will earn a 1% capital raising fee, will be deferred for five years on condition that Shankly remains at least 51% black-owned.
The deal is Emira’s largest sale to date. It concludes the diversified real estate investment trust’s programme of exiting lower-grade office buildings and provides funding for its strategy to build its offshore and residential footprint.
This includes a deal announced earlier this week in which Emira invested a further R45.9m in Transcend Residential Property Fund, bringing its stake to 9.9%. In addition, Emira has committed to advance between R290m and R395m of funding for Transcend’s planned property acquisitions in the next 18 months.
Ahmed Motara, an analyst at Stanlib, said using the majority of the proceeds from the Shankly deal to acquire offshore assets "could be viewed positively by the market, depending on the type of assets acquired and the structuring underpinning such acquisitions".