JSE-listed Emira Property Fund wants to acquire the rest of Transcend Residential Property Fund’s shares in issue for the price tag of R525 million, whereafter it would delist the group and pursue growth as a specialised residential real estate investment trust (Reit).
If all goes Emira’s way the group, which also has a direct investment in The Bolton in Rosebank, will purchase the 97.2 million shares it doesn’t already own for R5.38 per share – a 17% premium of shareholder’s perceived value of the company of R4.60, it says.
The property group, which already has a 40.69% stake in Transcend, says it sees this as the only solution to the Reit’s slow growth, which according to Emira has stalled since its 2020 listing.
“We firmly believe that operating Transcend in the unlisted environment is the only realistic alternative for the future, given its limitations,” says Emira CEO Geoff Jennett.
“Controlling it as an Emira subsidiary makes sense from a cost, access to capital and investor interest perspective.
“Emira is not supportive of Transcend issuing new equity capital to the extent that it results in a dilution of either Emira’s shareholding in Transcend or its NAV [net asset value] per share, which, other than via increasing the LTV [loan-to-value] ratio, is the only way to meaningfully fund acquisitive growth.”
Stanlib fund manager and head of property Nesi Chetty tells Moneyweb that although he agrees with Emira that Transcend’s future growth would best be explored in the delisted environment, it is up to shareholders to decide whether the offer price is fair.
“Transcend has been able to grow their portfolio to R2.4 billion since listing [on the JSE’s AltX] in 2016. Covid-19 would have dampened a bit of their pipeline growth – which would have been value accretive. The poor liquidity of the company makes it difficult for them to achieve a premium rating in the sector.
“Minority shareholders will need to take a view on whether the offer price is attractive on both a forward yield and discount to NAV basis,” says Chetty.
“The last reported NAV was close to 808cps [cents per share]. So the offer is still at a significant discount. If I look at the other listed residential companies none of them are trading at premiums to book.”
Some shareholders on board
Emira has already secured the go-ahead from 16.7% of Transcend’s existing shareholders who support the property fund’s ambitions. With approval from the competition authorities, this would give the group a majority stake of 57.4% in Transcend.
“We want to provide a once-off liquidity event to existing Transcend shareholders and ensure the focus is on driving shareholder value rather than Transcend’s size and share liquidity,” says Jennett.
“By taking Transcend in-house, Emira would realise value for shareholders by adding the advantage of critical mass, removing cost duplication on a corporate level, enabling better access to capital, and driving increased stakeholder value.”
Emira says to finance the deal, it would make use of a R500 million merchant bank facility as well as cash it has available. The group says it also plans to use the proceeds from the sale of its stake in Enyuka Property Fund to settle the facility.
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