Rebosis and Delta consider merging
Consolidation could help the two property funds scale up and diversify
Delta Property Fund and Rebosis Property Fund are considering a merger as this would help the landlords to scale up and weather the tough trading environment, they said in a joint announcement on Tuesday.
Both real estate investment trusts (Reits) have seen sharp declines in their share prices over the past two years, with SA’s economic slowdown taking its toll on commercial property and mall owners. Rebosis, whose shares are down about 96% from their 2017 highs, has had to contend with the additional pain of a failed bet on the UK market and high debt levels.
Consolidation is taking hold in the listed property sector, with Safari Investments considering a tie-up with Fairvest Property Holdings and Arrowhead Properties moving towards a deal with Gemgrow Properties. But SA Corporate Real Estate said on Monday it was not interested in any of the offers it had received in recent months.
“The merger represents a natural consolidation of the parties’ shared vision and strategy for the South African real estate market and represents a mutually beneficial step in unlocking value for shareholders,” Delta and Rebosis said.
“At first glance, the merger is a good idea,” said Jay Padayatchi, executive director of Meago Asset Management. “You would expect some cost synergies and a strengthened ability to finalise most of the long-outstanding government leases as well.”
Keillen Ndlovu, head of listed property funds at Stanlib, said the move was “long overdue”. “Hopefully with a bigger entity it will be easier to manage the balance sheet. The key priority in the short term will be to reduce debt levels,” Ndlovu said.
Delta and Resosis said a merger could help them to scale up and diversify, and would probably “enhance the parties’ relationship” with the department of public works and the government. A deal could also help them to reduce their costs of capital and improve liquidity for shareholders by creating “a significant player of scale”.
The landlords said they would conduct a due diligence process and discuss the potential deal with stakeholders. They would consider the deal’s structure and make decisions about the new management team and board composition.
Rebosis CEO Sisa Ngebulana said the timing of the talks “is opportune because the market is ready for consolidations as a way of preserving value for shareholders given the decline of value in the sector”.
The market currently values both Delta and Rebosis at R1.3bn.
Ngebulana said Rebosis would no longer have to sell some of its mainstay retail assets at suppressed prices to reduce debt. The landlord has already sold several properties as part of its debt-reduction plans.
Rebosis’s shares surged 20.4% in early trade to 59c, while Delta’s were 1.1% up at R1.82.
Delta CEO Sandile Nomvete, who said the same deal was explored five years ago, said the current trading environment was “necessitating consolidations”.
“We believe the economies of scale and appropriate capital structure of the combined fund, offer an advantage in the prevailing tough economic climate,” Nomvete said.
Correction: August 6 2019
A previous version of this article said Rebosis’s market capitalisation was R408m. The correct figure is R1.3bn.