A tale of two buyout bids

Shareholders and the boards of RMB Holdings (RMH) and Tower Property — companies that hold a similar portfolio mix — have starkly differing views of the value of their respective real estate holdings. How these contrasting views play out over the next few years will be intriguing to monitor as the property cycle moves.

Late last month RMH fended off an unsolicited and opportunistic offer made at 40% lower than the last stated NAV.

Tower, on the other hand, looks set to accept an offer made at a similarly gaping discount.

Interestingly, both companies have a spread of local properties and offshore real estate, situated mainly in Eastern Europe.

Since unbundling its mainstay stake in banking giant FirstRand in June last year, RMH has taken on the guise of a property investment company. The property portfolio was built off the old RMH balance sheet, but this was never viewed as a particularly inspired move by the market.

Yet RMH subsidiary RMH Property has built up a sizable portfolio with exposure to SA, Namibia, Mauritius, Serbia, Romania and Cyprus. In truth, though, the portfolio revolves mainly around investments in Atterbury and Atterbury Europe.

Officially RMH’s strategy around its remaining assets is to "ensure disciplined capital allocation and to guide, support and challenge them to deliver on their investment and development pipelines, enhance NAV and produce sustainable earnings".

The strategy also entails funding ongoing operating activities, while realising maximum shareholder value through the orderly monetisation of RMH Property.

This monetisation should pique the interest of market watchers, as RMH carries a NAV of about 250c a share. Bear in mind that a special dividend of 80c a share was paid out earlier this year.

But the share is trading at 40% below NAV, which is surprisingly wide, considering that RMH seems intent on unlocking the value of its property investments. RMH CEO Herman Bosman confirms that no alternative strategies or diversification is being planned for the group either.

But getting a decent price will be tricky. The recent approach came from Brightbridge Real Estate, a company associated with the Atterbury property empire. The pitch was for RMH’s 27.5% of Atterbury Property and 37.5% of Atterbury Europe, as well as its 10.9% stake in Divercity Urban Property Fund.

There was also an offer from investment company Fledge for a smaller property holding, similarly made at a significant discount to RMH’s most recent valuation.

The Brightbridge price was R1.75bn, almost a full R1bn below the properties’ estimated value.

One can only presume that Brightbridge’s cheeky offer banked on RMH executives and shareholders preferring to wind up the property portfolio quickly, return the capital to shareholders and then delist the significantly smaller group.

But RMH wasted little time in rebuffing both Brightbridge and Fledge, arguing that these offers were not in the best interests of the group or its shareholders.

Like Tower did at its recent AGM, RMH would probably have caught serious flak for bailing out of its key assets at a hefty discount to the last stated NAV.

But what is the alternative? RMH concedes that Brightbridge, as an Atterbury group-affiliated entity and one closely aligned to Atterbury prime mover Louis van der Watt, is "the most likely acquirer as part of this monetisation strategy in view of [its] deep knowledge of the businesses and contractual arrangements between the parties".

Atterbury has been a partner to RMH since 2017, and the group says it will remain an important partner notwithstanding developments.

Still, one shareholder, who asked not to be named, has questioned the partnership arrangement. "A partner in a good relationship won’t turn around and kick the other in the teeth with a lowball offer."

If Brightbridge, or the broader Atterbury group, is the only real buyer for the bulk of RMH’s assets, there could be a long wait for another offer to transpire. Finding other buyers for significant minority stakes in Atterbury Property and Atterbury Europe won’t be easy, though certain private equity players or property specialists might use the Brightbridge pitch as a reference point for better offers. However, it will probably still be at a discount to NAV.

Tower, meanwhile, held its AGM last week, and a buyout offer from Botswana-based RDC Properties featured prominently during proceedings. The RDC offer has been pitched at 377c a share (400c a share cum dividend), when the last stated NAV for Tower was 614c a share — a 40% discount.

Institutional shareholders Allan Gray, Prescient and Counterpoint, representing 59% of the issued shares, have already given irrevocable support for the buyout offer.

At the AGM, shareholder activist and Opportune Investments chief investment officer Chris Logan argued that by supporting the offer the board was facilitating a huge transfer of wealth (to RDC). He said: "I find it outrageous. At the IPO [in 2013] Tower’s price was 870c, and now you want to leave the market at 377c a share? It’s worse than communism!"

Tower chair Andrew Dalling explained that the last stated NAV represented a long-term view on the property sector, and to achieve that figure the entire economy would need to turn around. "The sad thing is that the potential of the assets will be realised later," he told shareholders.

RDC’s bid has also received a fair and reasonable opinion from Questco — pitching a value range of 332c-382c a share, with a most likely value at 357c a share.

But, says, Logan, Questco applied a price-to-book multiple of only 0.66 in its assessment, attributing an apparent 34% discount to the NAV of 614c, which both Dalling and Marc Edelberg, the auditor partner of Mazars, confirmed as accurate.

But Logan reckons there are other ways of creating more value for shareholders, suggesting that Tower panicked at the height of a once-in-a-century pandemic.

"Things are improving economically — more people must be pouring into your properties like the Cape Quarter [in central Cape Town]," he says.

Logan also points out that Tower had already sold several properties at close to their NAVs. "And these properties were sold at a time far worse than that we are in now."

But Tower CEO Marc Edwards says the property market is now awash with assets.

While Edwards says the RDC deal will realise value a lot faster than will be achieved by trying to sell of properties piecemeal, Logan is not convinced: "The board is allowing some shareholders to hijack the company for short-term gains. The board needs to show fortitude, not throw in the towel near the bottom of the property cycle."

In terms of RMH and Tower, it might be years before investors can determine properly whether enduring or capitulating is the better ploy.

That said, last week Irongate (the old Investec Australia Property Fund) dismissed an "unsolicited, highly conditional, indicative and nonbinding" buyout proposal from 360 Capital Group. The pitch price was A$1.6047 cash per stapled security — equal to R17.86 a unit.

Irongate’s board said the offer materially undervalued the group, which has a portfolio of mainly office and industrial properties. Irongate’s directors estimated NAV at A$1.61 per stapled security, and the JSE share price has since crept up to R18.20.

Perhaps more pertinent is the example of Texton Property, which was subject to a buyout offer of 120c a share from a consortium of controlling shareholders last October. At the time the offer represented a premium of more than 50% on the share price before the offer was tabled.

The offer was convincingly rejected by minority shareholders, and they have been richly rewarded by staying on board and watching Texton unlock value by selling various properties. At a share price of 316c, Texton shareholders have seen a gain of over 160% from the buyout offer price of 120c a share.

The upshot is that this might placate any impatient RMB shareholders and rouse Tower minorities to rush to the ramparts at the scheme meeting later this month.