Safari, an investor in shopping centres in rural areas and small towns, plans to buy out Fairvest. Picture: 123RF/MTAIRA
Safari, an investor in shopping centres in rural areas and small towns, plans to buy out Fairvest. Picture: 123RF/MTAIRA

Safari Investments, which invests in shopping centres in rural areas and small towns, will buy out Fairvest Property Holdings in a share-swap deal worth R3.5bn, the landlords said on Tuesday. The two had  previously outlined plans for a “friendly merger”.

The proposed tie-up will create a company with R6bn worth of assets and adds impetus to consolidation in the local real-estate market, which lost more than R120bn of its value in 2018 due to a sell-off in shares amid governance concerns, especially around the Resilient stable of property companies.

There has also been weak dividend growth across the sector with landlords struggling with tenant failures and rental reductions.

Fund managers have been encouraging smaller property companies to consolidate so that they can become more liquid, larger and able to attract capital from a wider range of institutional investors who will not look at counters whose market capitalisations are too small. 

Earlier in 2019, smaller counters Arrowhead Properties and Gemgrow Properties announced merger plans, while SA Corporate Real Estate said in June that several suitors were keen on merging with or acquiring the company.

Safari and Fairvest, which both focus on lower-income retail properties, said on Tuesday that a deal will “unlock enhanced efficiencies in the management of both companies’ property portfolios”.

The combined entity will be managed by Darren Wilder as CEO, Dirk Engelbrecht as COO and Jacques Kriel as CFO.

“We are ironing out a few details but it looks like we should be able to complete the merger in about four months,” Wilder said.

“It makes sense for both parties. I think a merger would lead to a well deserved re-rating for Fairvest. We operate in the same markets and can create a more liquid fund with a market capitalisation close to R4bn following some share price growth and assets of about R6bn.” 

Wilder said the merger will be accretive for both parties and the combined entity will deliver market-beating dividend growth. 

Fairvest’s market capitalisation on Tuesday morning was R2bn, while Safari’s was R1.3bn.

If approved, the scheme will involve Fairvest investors exchanging their Fairvest shares for a stake in Safari, using a swap ratio of 0.45 Safari shares for each Fairvest share.

Similar assets

“Implementation of the proposed transaction is expected to allow for some immediate cost savings and the realisation, over time, of improved funding costs and other efficiencies as a result of greater critical mass,” the companies said in a joint statement.

Fund managers have said a merger between the two would be positive, given that they invest in similar assets and have scope to enhance each other’s operations. Fairvest is Cape Town-based and invests throughout SA while Safari is situated in Pretoria and invests largely in Tshwane and Namibia.

Keillen Ndlovu, head of listed property funds at Stanlib, said there is room for consolidation among the smaller funds with similar portfolios and strategies.

“They could benefit from scale and improved liquidity,” he said. 

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.

hedleyn@businesslive.co.za