Octodec-Premium confident of Merger
Jeffrey Wapnick, MD of both Octodec and Premium, said the market capitalisation of the new entity was expected to be slightly more than R5bn, with assets under management of R10bn.
Octodec Investments Limited is confident it will be able to use its relationship with sister company Premium Properties to boost property portfolio and expects high dividend-paying strategies to investors once the proposed merger goes through.
The two JSE listed property groups, Octodec and Premium recently announced an agreement of their merger, which will result in Octodec buying all the issued linked units of Premium in exchange for Octodec shares, subject to conditions.
Jeffrey Wapnick, the MD of both Octodec and Premium, said one of the expected gains from the merger would be cost savings, particularly finance costs. The companies, which focus mainly on Gauteng’s inner city markets, are sister funds under the same management.
In terms of the proposed transaction, Octodec will offer 88.5 of its shares in exchange for every 100 Premium linked units held. The deal would result in Premium and residential-focused IPS, which is owned 50% each by Premium and Octodec, becoming wholly owned subsidiaries of Octodec.
The combined portfolio will comprise 325 properties valued at approximately R10 billion. Management said the combined market capitalisation of more than R5bn could result in Octodec’s inclusion in the FTSE/JSE South African listed property index.
Mr. Wapnick, added that the combined entity makes strategic sense and will create a sizeable company with a strong asset mix providing investors with significant exposure to the residential property sector, relative to any other REIT listed on the JSE.
The merger of the two is likely to be “credit positive” thanks to the benefits of scale and diversification, says Eyal Shevel, head of the corporate sector at Global Credit Ratings (GCR).
Mr Shevel said GCR, which rates Premium, viewed increased company size as “a positive when it comes to ratings”. One concern about Premium had been its heavy concentration on the inner city Pretoria market, though Octodec’s portfolio would provide diversification.
The merger could improve Premium’s credit rating, which in turn could allow the companies to negotiate better financing costs, Mr Shevel said.
A larger fund would also improve the stock’s liquidity on the JSE.
The proposed transaction, which is expected to be effective in September 2014, remains subject to various conditions precedent including regulatory and shareholder approvals at the respective general meetings.
