Big change for South Africa’s largest shopping mall
The co-owners of South Africa’s biggest shopping mall, Fourways Mall, have detailed their agreement with the regional centre’s new managers, including a possible option to dispose of a 15% stake in the asset.
Accelerate Property Fund alerted shareholders on Tuesday (20 August) that it has concluded the development and asset management services agreement with the Flanagan & Gerard Group and Luvon Investments, who are taking over management of Fourways Mall.
The group flagged the potential disposal of a minority interest in the mall as part of the agreement – as well as guarantees of between R110 million and R150 million if the contract is terminated early.
Fourways Mall is by far the biggest asset in the Accelerate portfolio, with the group’s 50% share valued at R3.9 billion (and the whole mall itself worth R7.8 billion).
Despite this, the mall has been suffering from a high number of empty shops, resulting in its vacancy rate increasing from 3% to 8% between 2021 and 2023.
The impact on Accelerate’s finances has been significant. Fourways Mall’s net rent per square meter has significantly deteriorated – from R298 in 2020 to R262 in 2023.
The group’s latest financial results showed that Fourways Mall’s gross rent, before expenses, was R223 in 2024, much lower than its 2023 net rent of R262.
This is a big drag on Accelerate’s overall finances.
The group reported a loss of R625 million for the year ended 31 March 2024, driven by the revaluation of investment property to its fair values and increased expected credit loss allowances during the year resulting from long overdue debtors.
Among these revaluations, Fourways Mall lost significant value. Accelerate’s 50% share of the property declined from R4.8 billion to R3.9 billion between 2020 and 2024, taking the mall’s total value down to R7.8 billion from R9.6 billion before.
New agreement
To improve Fourways Mall’s situation, Accelerate appointed Flanagan & Gerard and the Moolman Group (as Luvon Investments) to manage the mall.
The groups were approached in December, and they officially took over the management of the mall in February.
According to Accelerate, it is spending R400 million to upgrade Fourways Mall in a bid to improve its fundamentals, improve its cash flow and reduce vacancies. This includes the new management.
It said that the impact of F&G and Luvon’s involvement is already being felt.
The group noted in its financial results that Investec and RMB committed to providing Accelerate’s portion of R200 million of a total of R400 million of capex that will be spent on the mall.
A significant portion of this will be going to Flanagan & Gerard and Luvon for the management of the mall.
In terms of the agreement, the groups will be providing management services for a five-year period, unless all parties agree to terminate the contract early (including lenders), the group defaults, or the co-owners dispose of their entire share of the mall.
Over this period, the managing groups will be entitled to remuneration equal to 3.25% plus VAT of the mall’s gross monthly collections for the previous month.
This includes:
- Property management fee of 1% plus VAT
- Asset management fee of 1.75% plus VAT
- A leasing fee of 0.5% plus VAT
The groups can also receive a development fee of 2.5% of the total costs incurred in respect of each capital project, excluding costs in excess of the total approved by the relevant executive committee.
There are also other, more complicated, calculations for added incentives to the managers if the mall is run well and makes money, which Accelerate calls the “upside participation fee” (UPF), which will either be delivered by the fund in cash, or through an undivided share option.
This presents the potential for a significant change in ownership of the mall, although no more than 15%.
“To the extent that the property manager elects an undivided share in the Properties and Letting Enterprises, each co-owner will be required to sell a pro rata portion of their undivided share in the Properties and Letting Enterprises,” Accelerate said.
If the agreement is terminated before the fifth anniversary of the commencement date, the UPF carries certain guaranteed minimums, ranging from R110 million (if the contract is terminated in the first year) to R150 million (if it is terminated in the fifth year).
The managers will have a 30-day window after the UPF determination date to decide whether to take the share option.
The agreement is still conditional on all the boards approving it, shareholders passing a resolution approving it, and the co-owners securing security and bank guarantees supporting it.
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