Property development companies Vukile Property Fund, Arrowhead Properties and Synergy Income Fund have concluded agreements for a transaction that will create a high-yield, high-growth fund within the existing entity of Synergy, which will be renamed GemGrow Properties.
The transaction is expected to increase Synergy’s market capitalisation to R3.4-billion, with a property portfolio valued at around R4.4-billion.
To establish GemGrow, Synergy’s portfolio will be reconstituted with properties from both Vukile and Arrowhead for its asset base.
In the case of Vukile, a R2.45-billion asset swap will see Synergy exchange its portfolio of 14 retail shopping centres for 29 of Vukile’s higher-yielding office, retail and industrial properties.
This will transform Vukile into a specialised retail property fund in South Africa with over 90% of its portfolio comprising high-quality retail assets.
“For some time now, our goal has been to craft Vukile’s direct South African assets into a specialist retail property fund. With this transaction, Vukile will achieve [its] goal, placing over 90% of our assets in the most defensive and preferred property sector,” says Vukile CEO Laurence Rapp.
Vukile, which will hold just over 29% of Synergy B shares once the transaction is completed, will also benefit from its passive stake in GemGrow.
Meanwhile, Synergy will acquire Arrowhead subsidiary Cumulative, which holds 100 high-yielding office, retail and industrial properties valued at R1.9-billion, in return for the issue of Synergy B shares to Arrowhead.
This will realise Arrowhead’s strategy of placing its high-yielding properties in a separate JSE-listed subsidiary. Arrowhead’s property portfolio will comprise large, high-quality properties.
After the transaction’s implementation date, set for October 1, Arrowhead will hold around 62% of Synergy B shares.
Arrowhead Properties COO Mark Kaplan notes that transferring the company’s high-yielding properties into a separate listed subsidiary that is positioned for yield-enhancing growth is a strategic objective for the company.
“Arrowhead will benefit from a refined portfolio of bigger and better-quality properties to focus on going forward,” he states.
GemGrow CEO Gerald Leissner says the transaction is a unique meeting of minds, addressing various strategic objectives of three separate entities.
“This has created a vehicle that offers shareholders exposure to a unique dual-class share structure with a focus on acquiring assets at attractive yields that will enhance earnings and growth prospects for the company.”