Fourways Mall owner debacle
A cryptic stock exchange news service message by Fourways Mall owner Accelerate Property Fund revealed a messy R57 million transaction.
On 21 May 2024, after the market closed, Accelerate Property Fund released a statement that Investec had acquired a “beneficial interest in the ordinary shares of the company”.
It added that the acquisition was “pursuant to a lending arrangement” and that Investec now owns 8.02% of the company.
Accelerate said it had filed the required notice with the Takeover Regulation Panel as required by the Companies Act.
Five minutes later, Accelerate announced that director Michael Georgiou sold 107 million shares at an average price of 53% per share.
There was no additional information, but it was clear that Investec acquired Georgiou’s shares linked to a lending transaction.
Protea Capital Management founder and CEO Jean Pierre Verster said it is important to realise that Investec did not buy a stake in Accelerate Property Fund.
Instead, it was given a stake because Georgiou had a loan with Investec and used Accelerate shares as security. After he defaulted on the loan, Investec took his shares.
“Investec now owns 8% of Accelerate. I am sure they would prefer not to own 8% of Accelerate and rather had their loan repaid,” Verster said.
However, they now own 8%, which is difficult to sell, considering Accelerate Property Fund is a relatively small and illiquid share.
“It will be interesting to see whether Investec will become an activist shareholder to find a block buyer for the shares,” he said.
Verster added that it would have to be a brave investor since he will be buying into the Fourways Mall, which has serious problems.
“The Fourways Mall is not well designed, and it is not attracting enough foot traffic. It is the biggest headache in the Accelerate portfolio,” he said.
He predicted that there “would be a few more chapters which will be written in the interesting saga”.
Jean-Pierre Verster’s caution about Accelerate
Verster previously cautioned that investors should take note of Accelerate’s “colourful history” and material related-party transactions.
Related-party transactions are transactions between two business parties with a pre-existing relationship that forms more than 10% of the company’s turnover.
Michael Georgiou created Accelerate Property Fund by buying properties from his own personal portfolio and that of family members.
Since the company was listed, transactions amounting to hundreds of millions have occurred between Accelerate, the Fourways precinct, and other related parties.
The Fourways precinct is owned by Azrapart and Eriologix. Azrapart is wholly owned by Eriologix, which is wholly owned by the Michael family trust.
These transactions include payments to Fourways precinct for property management services, additional property acquisitions, and contingent considerations.
Accelerate shares were used to pay Fourways precinct for property it let to Accelerate within three years from the property purchase date.
Accelerate had bought so many shares in the Fourways precinct from the founder that it now has to issue a rights offer to fund further operations.
Verster doesn’t agree with these business practices, which is why he had short positions on the stock in the past.
Fourways Mall financial problems
Fourways Mall is in serious financial trouble with a large number of vacant stores and numerous structural issues.
Fourways Mall is the largest shopping centre in South Africa, with a gross lettable area of 178,000 square meters and 350 stores.
Accelerate Property Fund’s latest results revealed that Fourways Mall’s vacancies increased from 14,349 sqm in March 2023 to 15,109 sqm six months later.
“Management continues to focus on reducing vacancies, with the overall vacancy of 17.0%,” it said.
The mall’s net rent per square meter declined from R298 in 2020 to R262 in 2023. This decline is devastating to a property owner faced with increasing costs.
Fourways Mall’s fair value declined from R4.8 billion in 2020 to R4.02 billion three years later. This is bad news for the property owners, who are losing money.
It has reached such a dire situation that Accelerate, which owns 50% of Fourways Mall, is seeking R200 million to address the problem.
In its latest attempt to improve Fourways Mall’s performance, it appointed Flanagan & Gerard as the mall’s strategic asset manager.
The Moolman Group has also been appointed to have oversight of property management at the mall.
The Fourways Mall co-owners have also revealed the targeted strategy to reestablish it as a top-tier shopping destination.
It includes improved signage, introducing new tenants, deploying full backup power, upgrading security measures, and optimising traffic flow.
They also plan to revitalise the surrounding area, focusing on taxi services, hawkers, landscaping, and traffic light systems.
The initial six-month strategy plans to lay a foundation for re-establishing Fourways Mall as a top-tier shopping destination.
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