Octodec and Premium announced today that they have signed an agreement with IPS Investments Ltd and City Property Administration Ltd, with an aim of doing possible efforts of merging both the funds during 2014.
The agreement will include the IPS repurchase City Property’s Shares in IPS for a cash consideration of R127.5 million and the repayment of City Property’s shareholder loan in IPS of R48.1 million.
Currently Octodec and Premium, each of them hold 40% of the issued shared capital of IPS with City Property which holds the remaining 20%. Repurchase will result in Octodec and Premium holding 50% of IPS each of them through a clear and simplified corporate structure which in turn will make possible the merging of the two funds during 2014.
Adding a few words on the announcement, Jeffrey Wapnick - the Managing Director of Octodec said that “This agreement can be considered as a first move towards the possible ways of merging Premium and Octodec, once the Premium becomes a REIT next year.”
“This combination would surely make some noteworthy changes that will simplify the corporate structure, support the management time and create vast company with increased liquidity.”
According to an agreement of Octodec with the City Property, Octodec will issue 9,122,981 linked units to City Property in exchange of a cash of R175.6 million comparing R19.25/Octodec linked unit. The capital increased by Octodec will be used to reduce debt in the short term and to increase the fund for future development and achievements.
Wapnick further continued that “We have designed the business as a simple exchange of shares with no impact on distributed earnings. Similar method was also used in Octodec and IPS. We are highly motivated by the support from our shareholders to date with 36.68% of the suitable linked unit holders who are confirmed that they will vote in favour of the proposed deal.”
Primarily Octodec invests only in retail, industrial and office property sectors, with a growing risks to the residential property especially in Pretoria and Johannesburg CBDs. Premium Properties,the only other JSE listed company which offers compelling residential sector exposure. Premium, Octodec and IPS portfolios will be managed by City Property.
Ending up the discussion Wapnick said “From the financial results it can be very well understood that IPS has been performing steadily over the years and with a 60% exposure to the residential sector. Both, Premium and Octodec will be more and more exposed to the market which is characterised strong demand and less vacancies.”
However the agreement is based on various conditions including regulatory and shareholder approvals.
