The two events are key to the evolution of the listed property sector, and could lead to the creation of major funds attractive to institutional investors.
The merged Grayvest and Grayprop started trading as a single entity, Allan Gray Property Trust (Grayprop), on Friday. With market capitalisation of more than R2bn, it is the single largest listed property entity in the listed property sector of the JSE.
'The transaction reflects the changed regulations for property unit trusts, which we believe will contribute to a more dynamic property sector,' says Grayprop MD John Rainier.
New regulations include increasing property unit trusts' gearing abilities to a maximum of 30% from 5%.
'Particularly important to this merger is that unit holders from both companies will benefit,' says Rainier.
Bigger issues will improve Grayprop's liquidity and should enhance its rating, he says.
Primegro bought Richway's retail property assets for about R1,1bn. The transaction the biggest retail property deal in SA to date increases Primegro's portfolio value to R2,5bn and pushes its market capitalisation up to just less than R1bn from R430m.
Primegro joint MDs Martin Ettin and Derek Greenberg say: 'The deal was settled at cap rates which we believe are very attractive in current market circumstances.' The acquisition takes effect on January 1.
The deal will be settled partly through the issue of Primegro linked units worth R411m at an issue price of 670c. The gearing of R764m will be provided by a consortium of financial institutions involving Nedcor Investment Bank, Absa and BoE Bank.
Greenberg says the financing process is well advanced. 'From our perspective, the Richway component and all it brings with it means greater investment interest,' says Greenberg. 'Most importantly, we will have greater tradability and liquidity, and Richway's shareholders will add to our free float,' he says.
He believes the company's linked units will be rerated, but that distributions will remain attractive due to Primegro's interest-free gearing structure. The deal raises Primegro's 63% exposure to the retail sector to 73%. The office component will drop from 23% to 15,9%, and the office warehousing and commercial component from 12,5% to 10,2%.
Last week's events were welcomed by property analysts. BoE's Ron van der Bos says the deals represent a muchneeded consolidation in the listed property sector. 'There are far too many small and untradable entities in this market,' says Van der Bos.
The Grayprop situation takes advantage of property unit trusts' increased ability to borrow, permitting it to inherit Grayvest's relatively high gearing levels.
Grayprop has also entered an agreement to acquire a 19,9% stake in Westgate shopping centre from Sasol Pension Fund for R140m. The transaction is to be settled with R40m cash and the issue of 37,6-million Grayprop units.
This transaction, effective on October 1, will increase Grayprop's holding in Westgate to more than 41% of the centre. After making the acquisition, Grayprop's underlying property portfolio will be worth more than R2,4bn.