Sharemax investors to take income knock
Julius Cobbett
29 September 2010
Distributions paid on all property syndications will be based only on rental income.
JOHANNESBURG - As of this month, distributions paid to Sharemax investors will be based purely on rental income. This means that most (if not all) of Sharemax's investors can expect a decrease in their monthly interest payments, which are due to be paid this week.
Interest payments have already been stopped for Sharemax's two largest syndications, Zambezi Mall and The Villa. But September will be the first month that investors in Sharemax's remaining 20 "income-based" syndications do not receive their full payment.
Realestateweb has previously reported that the income paid to investors in Sharemax syndications does not always reflect reality.
As an example, we investigated Flora Centre, a Roodepoort shopping centre. Audited financial statements show that Flora Centre is not earning - and has never earned - enough money in rental income to pay the monthly R960 000 it distributes to investors.
At the time, Sharemax declined to tell us where the extra money was coming from.
Sharemax's newly-appointed statutory managers, Jaco Spies and Neels Alant, confirmed on Wednesday that a letter has been sent to Sharemax investors informing them of the impending income adjustments.
"Investors will only get a distribution that is generated by the underlying buildings," says Alant. "That distribution may vary from month to month because if a key tenant doesn't pay, or pays late, there will be a different amount of money available at month end."
The statutory managers elaborated on their role at Sharemax and its syndication companies.
For one thing, their appointment does not protect any of the companies from liquidation. There is a fear that investors or other creditors may apply for liquidation of the more troubled syndications, such as The Villa or Zambezi. Such an application would almost certainly be opposed, and would have to be argued in court, something which could take several months.
The managers' investigation into Sharemax and its syndications is ongoing. Spies says that they will eventually get to a stage where they can present various options to investors.
One of the options will be disposal, and the statutory managers confirmed that a number of offers have been received. News emerged this week that unlisted Realcor Holdings has its sights set on various Sharemax assets. A media release claims that Realcor has "signed an agreement with Sharemax which may provide a solution to the complications experienced by Sharemax investors." The statutory managers chose not to comment on this "agreement".
Alant says that there has been no public invitation made for offers yet, but it is possible that one will be made. These offers will be scrutinised by Sharemax directors, as well as the Registrar of Banks, before they are put to investors. Investors of each syndication company will be invited to vote on options at a special general meeting. It is uncertain at this stage when these meetings will take place.
"You must also bear in mind that these are all different entities," says Alant. "So you can't necessarily throw them in a pot with one solution. Each syndication has different shareholders". He noted that it's possible that an offer could be made for just one building, which could be considered by the shareholders in that particular syndication.
Another option that could be presented to investors is the conversion of their company to a structure that complies with the Banks Act. Under such a proposal, the investors would continue to own the building, and receive the income it generates.
"It's important to get out there is a process that needs to be followed, and it's not something that will happen overnight," says Spies.
Alant notes that Sharemax investors bought into a long-term asset. "Fixed property is not something that you can liquidate overnight." He appeals to investors to give him and Spies time to offer the best solution to investors.
The statutory managers confirmed that former Sharemax MD Willem Botha is no longer playing a managerial role and does not attend director meetings.
Investors who feel that their financial advisers did not adequately disclose all the risks inherent in a Sharemax investment, should consider taking their complaint to the Fais Ombud, Noluntu Bam. If Bam finds that a broker has given bad advice, she is empowered to order that the client be refunded.
(If you require assistance with this feel free to contact me: stephen.leppan@gmail.com )
Write to Julius Cobbett: julius@moneyweb.co.za
