The Nova Property Group continued to sell its investment properties during its latest financial year, and only 11 of the 28 properties it inherited from Sharemax remain in the portfolio today.
Nova’s latest annual financial statements (AFS) (for the year ended February 29, 2020) shows Nova sold three properties for R79.5 million during the particular period. The company also sold two additional properties after the year-end.
This is concerning as Nova’s auditor, Mkiva, qualified the AFS and expressed its concern as to whether the company can continue to operate as a going concern because the company is seemingly using the cash proceeds of the sale of “capital assets” to fund operational expenses.
It was the third consecutive year that Nova’s auditors had qualified the financials and expressed concerns that material uncertainty exists for the company to continue to operate as a going concern.
Properties linked to debentures
This selloff is concerning, as the overwhelming majority of the former Sharemax investors received Nova debentures in place of their shares in the former Sharemax properties. These debentures were linked to the underlying properties.
The sale of the properties means that the debentures have to be repaid from the profits and proceeds of the remaining properties.
Moneyweb’s calculations show that from 2012 to the end of the 2020 financial year on February 29, 2020, Nova sold 16 of the original 28 investment properties it inherited from Sharemax for a total of R576 million.
During this period, Nova repaid debentures of only R176 million.
The selloff became more pronounced in its 2018 and 2020 financial years. An analysis of Nova’s financial statements shows the company sold properties to the value of R290 million, while settling only R96 million worth of debentures.
The selloff is also ongoing. Nova sold two additional properties in its 2021 financial year, which ended on February 28, 2021.
Nova sold Shoprite Secunda for R14.2 million and its Polokwane-based Cold Creek development. Moneyweb could not establish the sale amount of Cold Creek, but it was valued in the 2020 AFS at R56 million. Cold Creek was not a former Sharemax property. Nova acquired it in 2013 for R55 million from a company of which Nova chair Connie Myburgh was a director. Nova has sold a portion of this property in the past.
More than half the investment portfolio has been sold
If the sale of these two properties is included, of the 28 investment properties Nova inherited from Sharemax, 17 were sold.
Today, only 11 investment properties remain in the portfolio.
The collective valuation of the remaining properties in the 2020 AFS was R2.14 billion, of which more than half (R1.33 billion) is locked in the Villa and Zambezi malls.
The tables below show details of the properties that were sold and which remain in the portfolio:
|Investment properties Nova sold between 2012 and 2021|
|Amount sold for||Calendar year sold|
|1||Benoni Hyper||R39 675 000||2018|
|2||Checkers Virginia||R36 500 000||2017|
|4||De Marionette Shopping Centre||R40 000 000||2019|
|5||Die Meent||R19 500 000||2014|
|6||Hazel Court||R6 500 000||2012|
|7||Homemakers Village||R7 410 000||2013|
|8||Leeupoort Street||R7 000 000||2014|
|9||Magalieskruin Mall||R28 500 000||2019|
|10||Nelspruit Hyper||R53 500 000||2014|
|11||Oxford Gate||R27 689 074||2014|
|12||Parkside Shopping Centre||R17 000 000||2013|
|13||Rivonia Square Shopping Mall||R115 000 000||2012|
|14||Secunda Plaza||R10 800 000||2019|
|15||Shoprite Secunda||R14 200 000||2020|
|16||Silverwater Crossing Centre||R92 500 000||2018|
|17||The Fern Shopping Centre||R45 000 000||2014|
|18||Town Square (Lydenburgh Shopping Centre)||R46 500 000||2018|
|R607 274 074|
Remaining investment properties:
|Valuation of the remaining properties at February 29, 2020|
|1||Zambezi Retail Park||R480 000 000|
|2||The Villa Retail Park||R848 000 000|
|3||Amogela Mall (Liberty Mall)||R26 700 000|
|4||Athlone Park||R30 000 000|
|5||Carletonville Centre||R20 000 000|
|6||Carnival Centre (Rangeview)||R15 700 000|
|7||Del Judor Mall (Witbank Highveld)||R186 710 448|
|8||Flora Centre||R188 826 530|
|9||Tarentaal Centre/Courtside||R69 980 000|
|10||The Village Mall||R43 440 000|
|11||Waterglen Shopping Centre||R232 500 000|
|Cold Creek Development*||R56 109 235|
|Shoprite Secunda*||R14 200 000|
|Total value||R2 212 166 213|
* Sold after year-end
Breach of trust deed
The significant selloff of assets raises concerns, expressed by Mkiva, that Nova uses the proceeds of the sale of properties to fund operational expenses.
The implementation of the Section 311 Scheme of Arrangement is guided by the Nova Debenture Trust, an integral part of the scheme. Its trust deed sets out stringent responsibilities, among others, the conditions under which the immediate repayment of debentures become due. It stipulates that all debentures would become immediately payable if “the company disposes of or attempts to dispose of the whole or substantially the whole of its undertaking or the whole or the greater part of its assets other than in the normal course of business”.
This is relevant as Nova has sold off 18 of its 29 investment properties for at least R607 million (excluding Cold Creek).
This means Nova has sold 62% of its investment properties in number and 27% in value.
In response to a question on whether this selloff represents “the greater part of its assets”, Nova CEO Dominique Haese told Moneyweb: “The Group sold 14 of 35 properties (including a portion of Cold Creek), equating some 40% in number and in value, R576.2 million, equating to some 23%, which does not constitute “the greater part”. (Haese’s full response to Moneyweb’s questions can be seen here.)
Haese did not respond to questions to explain the apparent discrepancy with Moneyweb’s calculation.
However, the additional properties included in Haese’s calculation presumably refer to residential and commercial properties held for development. The properties are classified in the AFS as inventory and include Berg & Dal, Country View, Mont Rouge, Steenbok Crossing, Stonewood, Theresapark and Waterfall Estate. These properties were collectively valued at R266 million in the 2020 AFS.
But even if these properties are included in Moneyweb’s calculation, Nova has sold more than half (18) of the 35 properties, which represent (excluding Cold Creek) 24.5% of the property values. (It should also be kept in mind that the auditors have questioned the valuations of several properties.)
An analysis of Nova’s 2020 AFS shows that despite a 7.2% decline in revenue to R63.8 million, the group reported an operating profit of R2.7 million (2019: loss of R27.9 million).
The cash flow statement shows Nova’s operating activities consumed R1.3 million of cash and that the group had cash resources of R5.1 million remaining at the end of the year.
This is despite cash of R79.5 million flowing into the group from the sale of properties during the period.
The cash flow statement also shows that Nova repaid liabilities of R61 million. Approximately R40 million in cash was paid to the bridging finance group Beneficio to settle loans and interest, which was charged at 1% per week. The parties are currently in a legal dispute. (See below.)
The payment of interest on loans is an operational expense and based on that it is clear the proceeds of the sale of properties were at least in part used to fund operating expenses.
Nova did not respond to a question to segment how the proceeds of the sale of the properties were spent. The group did however indicate that it intends to start repaying debenture holders this year.
The 1%-a-week Beneficio loan
During the financial period, Beneficio instituted legal action against Nova.
Nova borrowed R55 million between 2017 and 2018 from Beneficio at an interest rate of 1% a week or 52% per annum.
Nova said it was forced to borrow money from Beneficio after it could not source funding from traditional finance institutions, which generally fund property companies at much lower interest rates.
It emerged from court papers that Nova registered bonds over two of Nova’s Nelspruit-based properties, the Tarentaal Centre and the Village Mall, as security for the loan.
However, a legal dispute arose between the parties after Nova stopped repaying the capital and the interest in March last year.
Beneficio subsequently sued Nova for the non-payment of R16.4 million and interest of 1% per week on the outstanding amount. In response, Nova lodged a counterclaim for R19.7 million, which it claims is due because of an overpayment Nova made to Beneficio, as its 1%-a-week interest rate is allegedly unlawful.
Nova alleges in court papers that this rate is “excessive, unconscionable and against public policy” and should be declared invalid.
The case will be heard in November this year.
Nova seems pretty confident that it will win the case. In the AFS, Nova has already accounted for the R19.7 million as “other financial assets” and states that it “is a virtual certainty that the amount will be recovered”.
The AFS does not expressly mention that this case is still to be heard.
If Nova loses the case, the company may be forced to sell the Tarentaal and Village malls to settle the outstanding debt, failing which they may be sold in execution.
Haese did not want to provide additional comment apart from the statement in the AFS on the case as it is sub judice.
Despite the audit opinion and the group’s cash flow pressures, the board continued to pay themselves lavish salaries. The three executive directors collectively earned R12.1 million during the year in basic salaries and 13th cheques, representing 19.7% of the cash Nova received from customers.
Myburgh and Haese received above-inflation increases of 6.8% and 6%, respectively.
|Basic salary||13th payment||Taxation paid||Other deductions||Net salaries|
|D Haese||R4 274 835||R359 370||-R1 891 988||-R29 328||R2 712 889|
|C Myburgh||R4 312 440||R359 370||-R1 937 342||-R1 785||R2 732 683|
|MJ Osterloh||R2 592 000||R216 000||-R1 090 881||-R1785||R1 715 334|
|R11 179 275||R934 740||-R 4 920 211||-R32 898||R7 160 906|
Haese defended the salaries, saying they were market-related.
She also said the board did not receive increases in the previous financial year.
“Your calculation of arriving at 19.7% is nonsensical, as it bases your ratio on cash receipts from customers vs gross executive remuneration. This is not a prudent comparison. The ratio ought to be based on total Revenue & Recoveries invoiced (whether received in cash or not), vs gross executive remuneration, equating to some 8%.”
Nova and Moneyweb
In a communiqué Nova published on its website in November last year, Nova refers to the Press Ombud’s rulings related to a range of complaints Myburgh laid with the Ombud regarding several articles published by Moneyweb last year.
Despite stating that Nova has always tried to be “transparent … for the benefit of all stakeholders”, it failed to inform stakeholders of the full extent of Ombud rulings.
In the communiqué, Nova selectively cites two rulings which resulted in Moneyweb correcting a factual error (the number of Sharemax investors) and the amendment of a sub-headline. Despite Nova’s stated commitment to transparency, it failed to state that all the other complaints (which include six main complaints and more than 30 sub-complaints) were dismissed.
The board also failed to inform stakeholders that the Ombud wrote a special addendum to summarise the rulings. The addendum states that Moneyweb should be “congratulated on its fair and balanced reportage, and to be encouraged in its efforts to continue holding public figures accountable to society – which is the reason for the existence of the media in the first place.”
Nova also did not inform stakeholders that the Broadcasting Complaints Commission of South Africa dismissed Myburgh’s complaint against a broadcast on RSG Geldsake and the fact that he bluntly refused to be questioned by this author during the hearing.
Links to the rulings – and the articles they relate to – appear below:
Complaint 7792 – Irba reports Nova to Sars and CIPC
Complaint 7795 – ‘Where is Hans Klopper?’
Complaint 7804 – Seven reasons Orthotouch’s dismal failure must be investigated
Complaint 7828 – Covid-19 halts Sharemax auditors’ disciplinary
Complaint 7829 – Three former Sharemax auditors, 413 improper conduct charges
Complaint 7830 – Nova: Insolvent, or in a sound financial position?
The Press Ombud’s Special Addendum can be seen here.
Correspondence between Moneyweb and Nova.