Fairvest’'s Sebokeng Plaza, near Vereeniging. N
Fairvest’'s Sebokeng Plaza, near Vereeniging. N

The listed property sector looks set to finally see some consolidation, after two retail-focused real estate funds, Fairvest and Safari Investments, announced on Thursday they had opened merger talks.

There are more than 60 property companies listed on the JSE and fund managers have been calling for consolidation among the smaller, less liquid stocks. This would provide more choice for investors and create growth opportunities for the merged companies. 

Fairvest CEO Darren Wilder said an unnamed shareholder had prompted the two property companies,  which invest in shopping centres that serve the working class in peri-urban and rural areas, to consider joining forces and merging to create a larger and more liquid fund for investors.

Numerous fund managers say a merger between the two will be successful, given how they invest in similar assets and how the two management teams will be able to enhance each other’s operations. Fairvest is Cape Town-based but invests throughout SA while Safari is situated in Pretoria and invests largely in Tshwane and in Namibia.

“We believe that there is room for consolidation among the smaller funds with similar portfolios and/or strategies. They could benefit from scale and improved liquidity,” said Keillen Ndlovu, head of listed property funds at Stanlib.

Fairvest has been one of the best performing property stocks but it has been hesitant to buy or merge with other companies. The company has delivered inflation-beating dividend growth every interim period for more than six years, growing its dividend 8.3% in the six months to December.

It was the JSE’s fourth-best performing property stock in terms of total returns, including share price and dividend growth, in 2018 , giving investors 25.7% back.

“This is a very exciting opportunity for us and talks have been positive so far. Both sides are so far on the same page. Neither company is making a play for the other. Instead, a shareholder had suggested we talk, which we did and we soon found that we are a natural fit for one another,” said Wilder. 

A number of companies have tried to buy or merge with Safari in the past but the previously family-owned and run company has been cautious about merging with other companies. Its founder Francois Marais has retired and now its shareholders can pursue a merger which increases liquidity.

Safari CEO Dirk Engelbrecht said the merger would help to solve the company’s current challenges.

“We have needed to increase the liquidity of our shares for a while. This has placed pressure on our share price. I think a merger would help to fix these problems and help Safari to invest with more scale,” he said.

Fairvest has a market capitalisation of about R2.1bn while Safari’s market capitalisation is around R1.46bn, meaning the merged entity would be worth about R3.56bn. 

Wilder said he would become CEO of the merged company while Engelbrecht would be its COO. Fairvest would retain its head office in Cape Town and Safari would remain headquartered in Pretoria.

Engelbrecht said the companies intended to keep their management teams and executive committees and then merge them over time as they work out where the synergies are and how to get the best out of them.

“It makes sense to have two main offices. We are also geographically nearer many of Fairvest’s assets than they are. We see many synergies between the two companies,” Engelbrecht said.   

Wilder said he hoped to finalise the merger by July 2019.

andersona@businesslive.co.za