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Vukile still pursuing Synergy takeover, H1 distribution up

Vukile CEO Laurence Rapp

Vukile CEO Laurence Rapp

26th November 2014

By: Leandi Kolver

Creamer Media Deputy Editor

  

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JSE-listed Vukile Property Fund would continue to pursue the acquisition of Synergy Income Fund as long as it made financial sense, Vukile CEO Laurence Rapp confirmed on Wednesday.

Rapp noted that Synergy’s portfolio would have a strong synergistic fit within Vukile’s R5.7-billion lower-income retail portfolio.

Adding Synergy’s R2.4-billion portfolio to its own would increase the value of the company’s retail assets to R8.1-billion, or 62% of its total portfolio, in line with its strategy of increasing its lower-income retail property portfolio.

In December 2013, Vukile acquired around 34% of Synergy B-linked units, but after failing to agree on pricing with Synergy’s board in September 2014 withdrew from discussions to pursue an alternate route to gain control of Synergy.

In November, Vukile then triggered a mandatory offer by acquiring further Synergy B-linked units and now owned some 40% of the fund.

It confirmed that it would offer to acquire the remaining Synergy B-linked units at a swap ratio of one Vukile linked unit for every 2.67 Synergy B-linked units, and extend a comparable offer to Synergy A-linked unitholders at a swap ratio of one Vukile linked unit for every 1.65 Synergy A-linked units.

At a presentation of Vukile’s results for the six months ended September 30, Rapp stated that Vukile believed Synergy unitholders would be significantly better off if they accepted the offer.

“Synergy cannot grow from where they are. We don’t see them being able to take on more debt, it wouldn’t be prudent for them to do so, [and] they will have no authority to issue shares for cash. So Synergy is starting to resemble a closed fund with limited prospects,” he explained.

He added that Vukile had a strong balance sheet with gearing of 23.6% and hedging of around 90%, which would enable it to absorb Synergy’s higher geared position of about 37% and lower hedging of 51%.

FINANCIAL RESULTS
Meanwhile, Vukile on Wednesday reported 7.8% growth in normalised distributions per linked unit to 59.1c for the six months ended September 30 on the back of strong operational performance.

Rapp noted that, during the period under review, the company achieved like for like net property revenue growth of 7.9%, while vacancies decreased from 6.5% during the prior corresponding period to 5.4%.

He added that post-period Vukile’s vacancies had been reduced even further to 4.2% through the sale of two properties in Bedfordview and the Tshwane central business district.

Vukile closed the period with a diversified portfolio of 79 properties valued at R10.6-billion.

Vukile also reduced its gearing ratio to 23.6%, with 89.4% of its debt fixed and good access to funding from multiple sources.

Rapp further pointed out that Vukile had a healthy acquisition pipeline of about R1-billion in agreements signed, noting, however, that these acquisitions were still subject to due diligence and Competition Commission approval.

These acquisitions included a R320-million investment to acquire an 80% stake in the 31 653 m2 regional Moruleng Mall in North West at an 8.68% initial yield, a R140-million investment in the 15 000 m2 Batho Plaza in Soshonguve, Gauteng, at an initial yield of 9.52% and an investment in the 27 700 m2 regional Nonesi Mall in Queenstown, Eastern Cape, at a 8.25% yield for an anticipated price of about R360-million.

Vukile had also concluded an offer for the R127-million purchase of an industrial warehousing portfolio in the Silverton industrial area at an initial yield of 9.25%.

Rapp stated that the company had the capacity to fund the R1-billion in deals through cash, existing debt facilities and its authority to place equity.

Further, he said Vukile’s portfolio was expected to continue performing in line with expectations during the second half of the financial year, with full-year growth in distributions of between 7.5% and 8% expected.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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