JSE-listed real estate investment trust (REIT) Octodec on Tuesday announced its firm intention to acquire all of the issued linked units of REIT Premium that it did not already own.

Octodec already owned 14.19% of the Premium linked units in issue and, in terms of the proposed transaction, would offer 88.5 Octodec shares for every 100 Premium linked units held.

This swap ratio was determined by taking the historical volume-weighted average prices for both companies, as well as forecast distributions and the net asset values of both companies, into account.

Should the transaction be successful, IPS Investments, in which Premium and Octodec currently each held a 50% stake, would also become a wholly owned subsidiary of Octodec.

“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,” Octodec and Premium MD Jeffrey Wapnick said.

Octodec and Premium chairperson Sharon Wapnick said that, following the conversion of both companies to REITs, the boards of the companies believed that it was an opportune time to seek a merger, especially since they already shared a number of administrative and operational services and had complementary portfolios.

“Careful consideration was given to ensure that the transaction would preserve value for both parties and all stakeholders,” she said.

“The simplified structure will also enable substantial cost savings, while freeing up management time to focus on the delivery of our strategy to provide shareholders with above-average returns and growing distributions,” Jeffrey Wapnick added.

The companies’ combined portfolio would comprise 325 properties valued at about R10-billion, while Octodec would have a market capitalisation in excess of R5-billion that could possibly result in the inclusion of Octodec in the FTSE/JSE SA Listed Property Index, the companies said in a joint statement.

“It is expected that the larger fund will attract interest from a wider group of investors, which will improve liquidity and potentially support a rerating of the Octodec share price.

“The scale of the combined fund will also result in improved access to capital at more attractive rates, which will support Octodec in the execution of its growth strategy through further yield-enhancing upgrades, redevelopments and acquisition opportunities across the portfolio,” the companies said.

Meanwhile, the companies noted that independent boards, which had been established by Premium and Octodec to evaluate the proposed transaction, have recommended that unitholders vote in favour of the transaction.

The Wapnick family, which held 43% of Octodec, would vote in favour of the proposed transaction but, in line with the Companies Act, would not be voting in respect of their 29.9% shareholding in Premium.

Other directors of both companies have also provided their undertaking to vote in favour of the deal.

The merger, which was expected to be effective in September 2014, remained subject to various conditions precedent including regulatory and shareholder approvals at the respective general meetings.