Accelerate Property Fund tries to sell Cherrylane – again (JSE: APF)
Will they finally get it right?
By now, Accelerate executives must feel sick at the thought of even driving past Cherrylane Shopping Centre. They have tried to sell this thing numerous times. If at first you don’t succeed, keep signing sales agreements.
The latest attempted buyers are Bellerose Investments and Scarlet Sky Investments, private companies that sound like characters from a Marvel movie. They are not related parties to Accelerate.
The property was valued at R60 million as at March 2024 and is being sold for R54 million. Accelerate will use the money, if it ever comes, to reduce debt.
With a vacancy rate of 52.3%, this centre seems to be cursed. Hopefully, the conditions for this deal will be met and the transaction will close.
Separately, the group announced that they are experiencing delays in the finalisation of its category 1 related party circular, as the underlying terms are complex and require input from a number of advisory teams, as well as the JSE as regulator. They expect to distribute the circular by no later than 4 December.
Even Afrimat isn’t immune from market cycles (JSE: AFT)
Earnings have plummeted
Afrimat is well regarded in the market for having a diversified business and a great track record in acquisitions. Whilst all of that is true, the reality is that the business isn’t immune from cyclical moves in commodities like iron ore, as well as dependencies on major customers like ArcelorMittal.
Even then, it’s going to come as a shock to many to see HEPS down by between 75% and 85% for the six months to August. The move in EPS (earnings per share) is a drop of between 4% and 14%, with the vast difference attributed to the bargain purchase gain on the Lafarge acquisition that is a boost to EPS but is excluded from HEPS.
The way to interpret this is that the highlight for the period was that deal, with the rest of the business facing challenges.
One such challenge was a furnace freeze at a major customer (I think ArcelorMittal but the announcement isn’t explicit). Another problem was a decrease in international iron ore prices in dollar terms, combined with a stronger rand – and thus a significantly lower iron ore price once converted to rands. Along with a 31% increase in shipping costs and the ongoing problems at Transnet, that’s not a great situation for the iron ore business.
Lafarge made losses for all four months since being incorporated into Afrimat on 1 May 2024. This is due to the problems that Afrimat knew they would be buying at the cement factory. On the plus side, the turnaround is described as showing very good progress.
The Construction Materials segment has a better story to tell, with volumes up and the integration of the Lafarge quarries and other operations into the Afrmiat business. The Industrial Minerals business is also a positive story, with significant improvement thanks to market developers and the magical disappearance of load shedding.
These numbers are a strong reminder that even with all the efforts to diversify, Afrimat remains significantly exposed to iron ore. There has been improvement in domestic demand after the reporting period (a great read-through for ArcelorMittal) and the international iron ore price has also improved.
Given the underlying challenges, much of the GNU-inspired rally has washed away at Afrimat. The share price initially fell more than 4% in response to this news, yet it somehow staged a comeback in the afternoon to close flat for the day!
Illiquid stock DRA Global is headed for the exit (JSE: DRA)
The company will delist from the JSE and the Australian Stock Exchange
DRA Global has little in the way of liquidity in the stock, despite having a market cap of nearly R1.3 billion. It’s therefore not worth the cost and hassle of being listed, an assessment that many small- and mid-caps made in the past few years.
The delisting trend seems to have slowed down at least, following a flurry of activity that saw many companies leave our market. Even then, there will always be delistings on the table as smaller companies look for more efficient ways to operate.
DRA Global is taking the route of a share buyback. The nuance is that the share buyback isn’t conditional upon the delisting being approved by shareholders, so those who want to turn their shares into cash will be able to do so. The reverse isn’t true though, as the delistings are conditional on the buyback being approved.
As the primary listing is in Australia, the disclosure is far more detailed than normal in this announcement. It’s full of information for shareholders about the route forward and what happens in an unlisted environment.
Now here’s the trick: the buyback only covers around 20% of current issued share capital, so holders of 80% of shares will end up in unlisted territory if the delisting goes ahead. If they receive applications for more shares than this to be repurchased, then it will be a pro-rata situation. Notably, directors do not intend to participate in the buyback, so this is effectively a take-private by the company insiders using the company’s balance sheet.
The buyback price is R24.55, which is a modest premium of 11.13% to the 30-day volume-weighted average price (VWAP) on the JSE.
Another nuance is that if for some reason the delisting is allowed in Australia but not South Africa, the company will engage with the JSE on a potential continued listing.
A shareholder meeting is scheduled for early November. This is going to be an interesting one to follow.
Hammerson’s recent balance sheet initiatives have paid off (JSE: HMN)
The group has reduced its cost of debt and improved its debt maturity
Hammerson has been very busy with debt issuances and repurchases. This is typical of larger funds that have bonds with different maturity dates in issue in the markets. There are a number of different ways to get funding, with the major REITs able to tap institutional bond markets for debt capital. Over time, they have to manage the maturities carefully and take advantage of market conditions that allow for tweaks to the structure and resultant savings.
After issuing a 12-year £400 million bond that was over 7x oversubscribed, as well as repurchasing bonds of £411.6 million with maturities in 2026 and 2028, Hammerson has unlocked a decrease in its weighted average cost of funding from 3.8% to 3.6%. This equates to £3.6 million per year, with £0.8 million in savings expected for the 2024 financial year.
The weighted average debt maturity has increased from 2.9 years to 5.2 years, a significant improvement in financial risk.
Due to the repurchase of bonds being almost entirely financed by the issuance of new bonds, the loan-to-value ratio is steady at 25.5% and net debt to EBITDA remains at 5.4x. The South African funds never really report net debt to EBITDA, as this metric is usually for operating companies rather than property funds, but clearly things are different in the UK.
Mondi acquires Schumacher Packaging – a deal that looks set to close quickly (JSE: MNP)
Dad jokes aside, this is a substantial transaction
Mondi has announced a deal to acquire the Western Europe packaging assets of Schumacher Packaging. I Googled and couldn’t find an obvious link to the famous family. I did find a guy named Michael Schumacher who works in logistics in Germany at an unrelated company, but I’ve used up my dad joke allowance and won’t make references to fast deliveries.
Moving on, this company has an enterprise value of €634 million and owns two “mega-box” plants in Germany focused on sustainable packaging, along with a bunch of other facilities. This is therefore a deal to acquire complementary assets in the Corrugated Packaging business at Mondi that add substantially to Mondi’s capacity and footprint.
Mondi is also using this to gain access to an eCommerce customer base in Germany and wider Europe, with the goal of putting more Mondi products in front of existing customers of Schumacher Packaging.
With adjusted EBITDA of €66 million in 2023, this deal is priced at a trailing EV/EBITDA multiple of 9.6x. That’s arguably on the high side, with Mondi expecting a significant increase in EBITDA at this asset going forward. There are also cost synergies, as you’ll see in any major deal rationale.
To help deliver these benefits, the co-CEOs of Schumacher Packaging (Bjoern and Hendrik Schumacher) will be sticking around in key roles. The announcement was light on details, but I hope that there’s some kind of earn-out or delayed payment structure in place to incentivise the sellers to help drive a successful transition.
They expect the deal to close in the first half of 2025.
More good news in property – this time from Schroder European Real Estate (JSE: SCD)
Property values are on the up
As we saw just the other day at European real estate peer Sirius Real Estate, property values in the region are starting to head the right way again. Schroder European Real Estate has added to that narrative and they are making it very clear, by noting in the heading of the latest announcement that “stabilisation of portfolio values continues as global interest rate hiking cycle comes to an end” – couldn’t have put it any better myself, really.
In truth, their portfolio was down -0.1% this quarter after a +0.1% move in the previous quarter, so things aren’t exciting yet. The point is that the bleeding has stopped, with hopefully only strong momentum from here.
The portfolio has an solid occupancy rate of 96%. As I said earlier in the week in the Sirius update, you can’t rely purely on the macroeconomics to drive values higher. The properties also need to be of sufficient quality to see the upswing.
The fund’s loan-to-value is 33% based on gross asset value and 25% net of cash. This means that the balance sheet is in decent shape.
Nibbles:
- Director dealings:
- The CEO of Woolworths (JSE: WHL) sold shares worth R26 million. The announcement notes that a portion is to cover taxes and the rest is for a “portfolio rebalancing” – but doesn’t indicate in which proportion. Either way, the CEO selling rather than buying shares after a 9.6% year-to-date decrease isn’t a bullish signal at all.
- The CEO of AVI (JSE: AVI) received share awards and sold the whole lot to the value of R11.1 million. AVI is up 32% year-to-date and has had a hard run, so this is an indication that the rally might have been too strong.
- NEPI Rockcastle (JSE: NRP) has closed the disposal of Promenada Novi Sad in Serbia. The deal was first announced in July 2024. Cash proceeds of €177 million have been received by the fund.
- Vunani (JSE: VUN) has renewed the cautionary announcement related to a potential disposal of a minority shareholding in a subsidiary. As always, there’s no deal until there’s a deal!
- Old Mutual (JSE: OMU) announced that CFO Casper Troskie has agreed to remain in the role until April 2027. This is to ensure continuity during major strategic projects.
