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PROPERTY: Trematon De-Gears With Ingenuity Sale

 



Recent Western Cape Business News

CAPE TOWN-based investment company Trematon Capital Investments has surprisingly sold off its 20% stake in local property group Ingenuity for R68 million.

Ingenuity, which holds well-known properties in Tyger Valley and in central Cape Town, was always considered part of Trematon’s long-term investment portfolio.

The 20% stake was sold to Jacana Assets and US-based businessman Louis Frenkel. Trematon directors Monty Kaplan, Allan Groll and Arnold Shapiro have already resigned from the Ingenuity board.

Outlining the official rationale for selling the Ingenuity stake, Trematon directors said although the asset base and management of the company were of high quality, the needs of Trematon shareholders would be better served by selling the investment at a fair price.

More importantly, at least in CBN’s opinion, is that the deal also reduces Trematon’s overall level of gearing markedly.

Presumably, Trematon was also taking cognisance of future cash flows – suggesting by the sale that Ingenuity – which has a development component as well – is unlikely to pay dividends in the short term.

The sale, though, leaves Trematon in an interesting position. For one thing Trematon still has broad property exposure through other real estate ventures.

These would include a 40% stake in the Faircare Trust (which manages upmarket retirement villages in the Cape), a 50% share in Stalagmite (which has developed the Broadway Industrial park on the N2 near Strand), a 37.5% stake in Boulevard Park on the N2 on the periphery of the city centre and a 40% interest in Wembley Square in Cape Town.

Trematon’s flagship property interest, however, lies in Club Mykonos Langebaan, where a 34.2% stake gives the company de facto control of this leisure property.

The CML interest also means Trematon holds a 29.6% stake in the Mykonos Casino, an investment that gells nicely with an existing holding of 5.2 million shares in gaming investment company Grand Parade Investments.

Trematon also holds a 7.2% stake in highly profitable building cladding specialists, Mazor Group.

CBN suspects Trematon’s Ingenuity sale might have been prompted by developments at Boulevard Park. On paper Boulevard Park enjoys a prominent position (and can be seen when entering the city from the N2 highway), offering seven office blocks with 38 000 square metres or office space and (perhaps more importantly) 1980 parking bays.

But things have been a little slow at Boulevard Park. At the end of August 2009 less than 70% of the park had been sold and 65% let.

The Boulevard Park project came on stream at the low point of the property cycle, which meant that rentals achieved were below expectations. In its last annual report Trematon noted Boulevard Park made a ‘very small’ net contribution to group profits.

The problem for Trematon is that at the end of 2009 loans repayable topped R104 million. Of those Trematon owed Nedbank for R40 million – a loan that was secured by a cession of the company’s shares in Ingenuity.

While Trematon envisaged repaying the Nedbank loan this year from proceeds of the R53 million loans repayable from the Boulevard Park Trust, it seems to be playing it safe on the gearing side by cashing in Ingenuity. (Interestingly, Trematon also cashed in a portion of its GPI holding during 2009.)

The Ingenuity sale may well be a defensive ploy in light of tighter economic conditions and a market where capital is not always readily available. But CBN wonders if a de-geared Trematon is not poised to take advantage of some radically marked down asset prices in the year ahead.

The company’s investments in GPI and Mykonos certainly shows that these guys know how to dig out a good deal in places where mainstream investors simply are not looking.

Watch this space.


 
 
 
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