Property Flash


Emira Property Fund, the JSE-listed real estate investment trust (Reit), has made an offer to buy the shares in Transcend Residential, the listed specialised fund, which it doesn’t already own. Emira will spend R525m on the deal if Transcend’s shareholders accept the offer.

Transcend is a specialist Reit which listed on the JSE AltX in 2016 and migrated to the main board in 2020.

In 2018, Emira secured a strategic minority stake in Transcend to expand its investment in residential property and enhance portfolio diversification. Emira’s CEO Geoff Jennett said Transcend had accumulated an impressive residential portfolio over a relatively short period. Emira had helped by providing Transcend with funds. Since its initial investment in Transcend, Emira has played a pivotal and almost exclusive role in providing capital to fund its growth, Jennett said. In the process, Emira has increased its equity in Transcend, he said.

“Most recently, Emira was one of only a few legacy shareholders to follow their rights in Transcend’s December 2021 R156m equity raise via an underwritten vendor placement. This investment, together with a small stake acquired in an off-market trade from a major financial institution, increased Emira’s stake in Transcend to a pre-offer level of 40.69%,” said Jennett.

Transcend faced fundamental obstacles deterring a broader universe of institutional investors. It is a highly illiquid small-cap with less than 0.9% of its issued shares trading over the last three months. Its external management company structure has been unpopular within the investment community.

“We firmly believe that operating Transcend in the unlisted environment is the only realistic alternative for the future, given its limitations. Controlling it as an Emira subsidiary makes sense from a cost, access to capital and investor interest perspective,” said Jennett.

There was no benefit to maintaining two listed entry points into Transcend’s assets, which would be better served in an Emira-controlled subsidiary. Emira was not supportive of Transcend issuing new equity capital to the extent that it resulted in a dilution of either Emira’s shareholding in Transcend or its net asset value per share, which, other than via increasing its loan to value ratio, is the only way to fund acquisitive growth.

Emira’s general offer is a liquidity event for all existing shareholders at a clean share price of R5.38 per Transcend share representing a 17% premium on the recent vendor placement price of R4.60, which most legacy shareholders declined to take up, Jennett said.

“This once-off liquidity event also represents a 12% premium to the effective R4.80 clean closing price of 8 July 2022. The clean share price will be escalated by an estimated distribution accrual per share for the applicable,” he said.

Emira’s medium-term target mix is to have 20% of its assets offshore, and of the remaining 80% in SA, it is targeted to be weighted 20%, 15%, 20%, 45% in office, residential, industrial and retail.

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