Ascension enters merger talks after disappointing its investors
ASCENSION Properties has admitted that it failed to create well traded securities for its investors, and as a result the real estate investment trust (REIT) has entered into merger talks with other listed property funds.
Listed Rebosis gave notice about a week ago of its firm intention to acquire Ascension, which would result in the creation of the largest black managed JSE-listed REIT.
Shaun Rai, the acting chief executive of Ascension, said yesterday that the fund’s board was satisfied it had substantially achieved two of its three listing objectives: to increase its property portfolio by R1 billion a year and provide above market returns.
However, he said it had been difficult to create liquidity in the company’s shares given its market capitalisation. “It is for this reason the board entered into various discussions with other REITs, culminating in the offer from Rebosis.”
In terms of a proposed scheme of arrangement, Rebosis plans to acquire 100 percent of the Ascension A-linked and Blinked units it does not own.
Ascension A-linked unitholders will receive Rebosis Aordinary shares and in effect continue to receive the same fixed income distributions they were entitled to, he said.
Rai said the proposed swap ratio of 23.549 Rebosis ordinary shares for every 100 Ascension Blinked units translated into a value of 303 cents a B-linked unit based on the Rebosis ordinary share closing price of R12.89 on February 20.
The proposed transaction will increase the value of Rebosis’ portfolio to more than R11bn and its market capitalisation to almost R8bn despite Rebosis’ portfolio increasing to a total of only 47 properties. The transaction is subject to a number of suspensive conditions.
Ascension yesterday reported a 6.5 percent increase in distributable earnings to R107.1 million for the six months to December from R100.6m in the previous corresponding period.
The interim A-linked unit distribution grew by 5 percent to 20.95c from 19.95c and the B-linked unit distribution by almost 9 percent to 11.28c from 10.36c.
Rai said the B-linked distribution had been negatively affected by delays in installing the Department of Arts and Culture in two buildings, Matrix House in Cape Town and VWL Building in Pretoria. He said the asset management and day-to-day operations had been integrated with the operations of Rebosis following its acquisition of Ascension’s management company in February last year.
Rai added that Ascension, Delta and Rebosis had explored a three-way merger early last year, which involved an agreement not to do any acquisitions.
The delay in finalising the proposed deal with Rebosis had resulted in little portfolio activity during the past year, he said.
The portfolio, including investment properties and properties under development, in December comprised 29 properties valued at R3.78bn, with a total gross lettable area of 315 670m2.
Ascension’s portfolio is heavily weighted towards offices with this sector accounting for 81 percent of the portfolio, retail 9.3 percent and 9.7 percent.
Rai said the total portfolio was 64.3 percent tenanted by the government in line with Ascension’s strategic focus on this market.
Total vacancies rose slightly to 8.5 percent in December. However, Rai said vacancies were in line with their expectations.
“Despite the challenging business environment, Ascension has a defensive portfolio and the quality of its assets, with healthy lease and escalation profiles, should ensure that the group continues to deliver acceptable returns to its unitholders.”