Rebosis - a tale of two share classes

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Rebosis - a tale of two share classes

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Published Date: 2022-01-10 | Source: INCE|Community | Author: The Finance Ghost

Rebosis - a tale of two share classes

Occasionally, you may see companies that have two listed classes of shares. This was quite common in the property sector, with one class providing a more stable dividend stream and the other designed to provide further equity upside while having more volatility. Of course, any structuring is technically possible. Whenever you see a company with a complicated capital structure, make sure you properly understand how it works.

Rebosis ordinary shares have lost nearly 98% of their value over 5 years. In the past year, they are up 40%. Rebosis A shares have lost over 82% over the past 3 years but are up 359% in the past 6 months. Yes, you read that correctly.

The company has released results for the year ended August 2021.

Net property income fell by 10% on a like for like basis, driven by negative reversions and increases in rates assessments. That squeezes the margins on properties, which aren't terribly fat to begin with.

The fair value of the property portfolio only increased by 0.3% year on year, which demonstrates how tough things still are for certain types of properties. Rebosis is primarily exposed to office and retail property and is trying to get rid of the office portfolio. More on that later.

A decrease in head office costs by R24 million and finance costs by R226 million helped save the result at distributable income level. Distributable income before tax and excluding once-off items is R83 million.

Nevertheless, there is no dividend as the board is focused on deleveraging the fund i.e. reducing debt. For example, R89.1 million of Standard Bank debt was settled during the period using the proceeds from the disposal of Medscheme.

The critical thing to understand is that the distributable income is not evenly shared across the two classes of shares. The A share has distributable income of 292.72 cents. The ordinary share (which Rebosis calls the B share) has zero distributable income. Niks. Nada. You know which word comes next.

This is still a highly speculative play. Current liabilities exceed current assets by R3.9 billion and the group is still in a net operating loss position (as distributable income strips out various items that are included in net profit). Bank covenants are in breach and so the company is at the mercy of its bankers.

All debt has been extended for 6 months except RMB (R243 million) which is still being negotiated.

The key is the disposal of R6.3 million in assets to Vunani Group. Achieving this sale would reset the loan-to-value to 43% (normal for a property company). If any of the conditions to the deal fall through for some reason, it's hard to see how Rebosis survives.

In summary, I'll quote from the latest results:
"The group's ability to continue as a going concern is dependent on the roll forward of the debt facilities by the banks and/or the successful completion of the portfolio sale of assets above," - referencing the Vunani deal.

The Rebosis A shares are popular at the moment among speculators. The word that gets thrown around is "convexity" - a scenario where the potential upside is substantial. The payoff profile looks a bit like an option, where you either make a lot of money or lose everything.

Those who bought a few months ago are already sitting in multi-bagger territory (where you make multiples of your investment back as a return).

The tickers are JSE:REA and JSE:REB.





1 Comments

Mohamed Sayed 1 week ago

Correction: The Vunani sale is R6,3 Billion and not R6,3 million.



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