Sandy Centre was acquired in Oct 2012 for R24m from a private seller who owned both the Kwikspar and the Centre. He was only willing to sell the centre to us once he had sold his Kwikspar. We had first negotiated with this seller some 2 years before, but he had since changed his mind about selling. The price for the centre was agreed after some tough negotiations and we then waited patiently for him to sell his Kwikspar.
We became concerned as it was taking too long and the word was getting out that the property was for sale and a 2am revelation made me decide to buy the Kwikspar as well to keep the opportunity under our own control. With some good contacts in Spar we did a quick crash course on valuing a Spar and finalised the offer at R6.5m for the Spar. This value was not what it was worth but rather what the seller would accept. As it turned out we had overpaid for the store and it became a major problem for the opportunity.
Despite the price we paid for the store, my 2am revelation proved to be very intuitive as 4 days after finalising the deal, the seller received an offer to purchase both the centre and the Spar. The prospective purchaser then put in a backup offer for R1m more than our combined offer.
Our backs were seriously against the wall as any failure to meet any of the suspensive conditions would have resulted in us losing the shopping centre deal. As we had no intention of owning the Kwikspar, we met with several prospective buyers for the Kwikspar business but no-one wanted it at the cost price we had paid.
We also negotiated with Food Lovers as they had a 800m2 Fruit and Veg store next door to the Kwikspar and they were keen to do the deal with us and expand their store, but restrictive conditions in the sale agreements would prevent us from doing this as it required Spar’s consent. This then left us with only one choice which was to not renew the Fruit & Veg lease and give the extra space to Spar, to expand the small Kwikspar to a Spar store with a larger Tops. In exchange, Spar traded us a 10 year corporate lease on both, and this unlocked the deal on the Kwikspar business, as it then became an attractive offering.
The rent on the expanded Spar and Tops was less than the income received from the Fruit & Veg and the Kwikspar, but the 10 year corporate lease, and the long term potential of Sandy Centre, made it worth our while to settle on a lower final yield of 8.25%.
The centre has been substantially renovated with us spending R7m. It now looks somewhat different to what it did before. Sandy Centre is currently on a busy intersection and the M5 (Otto Volek) will be linking to the Kwamashu highway, Stapleton Rd will then link to the Hans Detman Highway, providing a new link from the outer west to the North Coast and a ring route around the city. This road work will be completed within the next five years and will further enhance our location and thereby our asset value.