Nova continues to flog properties

The Nova Property Group continues to sell underlying investment properties and today barely has a handful of income-generating properties left in its portfolio.

Nova was created through Section 311 Schemes of Arrangement (SoA) as the ‘rescue vehicle’ for the failed Sharemax investment scheme to repay the R5 billion around 18 700 people invested in Sharemax. To do so, Nova inherited 28 unencumbered properties from Sharemax to manage and use the proceeds to repay investors.

Read: Sharemax ‘tombstone’ may soon be under the hammer

Moneyweb can reveal that Nova sold the Athlone Park Centre in Amanzimtoti in KwaZulu-Natal in March this year for R27.6 million. This is after it sold the Amogela Mall in Welkom late last year for R21.5 million. The sale of these two properties means Nova has now sold 19 of the 28 former Sharemax investment properties, and only 10 remain in the investment portfolio. Just seven are generating income for the group.

The sale of Athlone Park also came after Nova failed to repay investors within the 10-year period set out in the SoA.

The deadline was 20 January this year, but Nova controversially announced in December last year that no payments would be forthcoming and that the board had the discretion to delay such payments. (The Companies and Intellectual Property Commission [CIPC] and Nova’s former auditor Mkiva held the view that the board had no such authority and was in breach of the SoA).

Read:
‘Investors screwed twice’
Sharemax rescue vehicle makes a U-turn on payments to investors
Moneyweb editor physically and forcefully denied entry to Nova’s AGM

No communication

Nova is yet to inform debenture holders of the sale of Athlone Park and how the board intends to use the proceeds.

Moneyweb asked the controversially elected trustee of the Nova Debenture Trust, Jean-Pierre Tromp, whether he was informed about the transaction. He responded that he had already raised the issue with Nova and would take it up with them this week.

Neither Connie Myburgh nor Dominique Haese, Nova’s chair and CEO respectively, responded to Moneyweb’s questions on the matter.

Hans Klopper, the head of business restructuring at BDO and the receiver of the trust, said: “I do not discuss professional issues with the media, and all your queries must be directed at the board of Nova directly.”

Klopper added that he was appointed as the receiver before his employment by BDO, and this was unrelated to his responsibilities at BDO.

Using the proceeds to pay operational expenses

The sale of the Athlone Park and Amogela properties is contentious as Nova has been in a dire financial position for several years.

Nova’s auditors have questioned the company’s ability to continue to operate as a going concern for four consecutive financial years dating back to 2018.

The auditors have also warned that Nova is using the proceeds of the sale of properties to fund operational expenses, which may indicate it is trading insolvently – a contravention of the Companies Act.

Read:
CIPC asks Nova to explain why it should not be closed down
Sharemax rescue vehicle faces CIPC shutdown
CIPC concerned about Nova’s ability to repay debenture holders

Nova is also the target of an investigation by the CIPC, which has already issued two compliance notices to Nova relating to the suspicion that it is trading insolvently. The commission is still considering Nova’s response to the second compliance notice, but if the CIPC rejects it, it may take steps to prevent the further sale of properties and shut the company down.

Nova sold 19 of the original Sharemax properties

The sale of Athlone Park and Amogela means Nova has sold 19 of the 28 unencumbered properties it inherited from Sharemax in 2012.

Today, only nine remain. The current portfolio consists of 10 properties. (Nova bought an additional property in 2012, Cold Creek, which was facing a liquidation application. This transaction was in itself very controversial as Myburgh was a shareholder and director of the company, and its liquidation could have caused him significant financial harm. His related party status was never disclosed.)

Read: How former Sharemax investors ‘saved’ Connie Myburgh

‘Breach’ of trust deed

The sale of the properties may also be in breach of the Nova Debenture Trust, which stipulates that all debentures would become immediately payable if “the company disposes of or attempts to dispose of the whole or substantially the whole of its undertaking or the whole or the greater part of its assets other than in the normal course of business”.

This is relevant as Nova has sold off 19 of the 28 former Sharemax investment properties.

A summary of the properties Nova has sold and still own appears in the tables below:

	Properties sold	Amount sold for	Calendar year sold
1	Amogela	R27 600 000	2022
2	Athlone Park	R21 500 000	2021
3	Benoni Hyper	R39 675 000	2018
4	Checkers Virginia	R36 500 000	2017
5	De Marionette Shopping Centre	R40 000 000	2019
6	Die Meent	R19 500 000	2014
7	Hazel Court	R6 500 000	2012
8	Homemakers Village	R7 410 000	2013
9	Leeupoort Street	R7 000 000	2014
10	Magalieskruin Mall	R28 500 000	2019
11	Nelspruit Hyper	R53 500 000	2014
12	Oxford Gate	R27 689 074	2014
13	Parkside Shopping Centre	R17 000 000	2013
14	Rivonia Square Shopping Mall	R115 000 000	2012
15	Secunda Plaza	R10 800 000	2019
16	Shoprite Secunda	R14 200 000	2020
17	Silverwater Crossing Centre	R92 500 000	2018
18	The Fern Shopping Centre	R45 000 000	2014
19	Town Square (Lydenburgh Shopping Centre)	R46 500 000	2018

 

	Remaining properties	2021 valuation
1	Careltonville Centre	R17 500 000
2	Carnival Centre/RangeView	R18 000 000
3	Cold Creek (generates no income)	R100 508 317
4	Del Judor Mall/Witbank Highveld	R182 333 513
5	Flora Centre	R207 326 530
6	Tarentaal Centre/Courtside	R63 175 000
7	The Villa Retail Park (generates no income)	R848 000 000
8	The Village Mall	R30 220 000
9	Waterglen Shopping Centre	R232 500 000
10	Zambezi Retail Park (generates no income)	R480 000 000
		R2 179 563 360

According to Moneyweb’s calculations, based on Nova’s cash flow statements between 2012 and 2021 and the sale of Amogela and Athlone Park, Nova received R639.3 million from the sale of the properties – of which only R176 million was used to repay debentures.

In fact, since 2018 alone, Nova’s proceeds from the sale of properties have amounted to R350 million, of which only R96 million was paid back to debenture holders. (In previous correspondence, Haese disputed Moneyweb’s calculations. Read her response here.)

Perhaps even more concerning is that only seven properties that currently generate income remain in the portfolio. Three significant properties – The Villa, Zambezi and Cold Creek – do not contribute any revenue to the group.

Nova’s 2021 annual financial statements (AFS) showed Nova had significant cash flow problems and that it used the proceeds of the sale of properties to fund operational expenses.

Nova’s board has the authority to sell properties “in the normal course of business” and use the proceeds to repair and upgrade other shopping centres to increase their revenue generation potential and cover some operating expenses. However, Nova cannot sell capital assets such as properties to fund operational expenses the company should be able to pay from the revenue and profits it generates.

It is not clear how much of the proceeds were used to pay for operational expenses, which may include the lavish salaries of directors. (Between 2012 and February 2021, Myburgh and Haese have received more than R100 million between them. Nova has previously stated the remuneration of directors was market-related).

Other property woes

Recent developments may affect the portfolio further. Nova owns a 30% stake in the massive half-built and derelict shopping mall, The Villa in Pretoria – the erstwhile flagship project of the failed Sharemax investment scheme.

Thumos Properties 1, which owns the remaining 70% and is already in business rescue, may soon sell or auction off its stake in the Villa, as it lost a court case and needs to pay around R500 million to GD Irons Construction.

Read: Sharemax ‘tombstone’ may soon be under the hammer

It is unclear how such a forced sale or liquidation would affect Nova and whether Nova would also sell the 30% it owns as part of such a transaction. It will, however, affect Nova’s valuation of the property as it consolidates 80% of the value of The Villa in its books, despite only owning 30%. If the 70% is sold to a third party, the 80% consolidation may have to be reversed.

Such a reversal may reduce Nova’s assets by more than R500 million.

Nova is also facing a legal challenge from Beneficio Finance Corporation, a bridging finance company which is suing Nova for R32 million. Nova borrowed R55 million from Beneficio in 2017 and 2018 at an interest rate of 1% a week or 52% a year after Nova could not source funding from traditional property finance companies. Nova stopped the repayment of the loan and claimed the interest rate was excessive and unlawful. The case was heard earlier this year, and judgment could be expected soon.

However, Beneficio registered bonds over the Tarentaal Centre and the Village Mall as security for the loan. If Nova loses the case, one or both of the properties will need to be sold to repay Beneficio.

Nova also announced in its 2021 annual financial statements that it sold the Flora Centre, but it seems as if the transaction was not concluded, as the title deed reflects that Nova still owns the property.

Harrison & White

Myburgh and Klopper were also involved in the failed rescue of the Highveld Syndication companies and a company named Harrison and White (H&W), where its inevitable liquidation was delayed to allow for the stripping of assets to leave creditors with nothing to recover.

At the time, Klopper was H&W’s business rescue practitioner (BRP) and Myburgh was a legal advisor to the company.

A Section 417 investigation into developments leading up to the liquidation of H&W stated that Myburgh “colluded with the company directors and management” to delay an inevitable liquidation application for more than three-and-a-half years, which allowed sufficient time for the stripping of the company’s assets.

Read: The dark underbelly of the business rescue industry

The report stated that Klopper was “gravely remiss in the exercise of his functions” as a BRP and that he should have been aware that the company was insolvent and taken action to liquidate the company to ensure the best outcome for creditors.

Furthermore, the Master of the High Court referred the report to the National Prosecuting Authority to investigate possible fraudulent conduct on Myburgh’s part.

At the time, Myburgh and Klopper vehemently denied any wrongdoing and accused Moneyweb of illegally publishing the Section 417 report. (Klopper issued a statement regarding the report, which can be accessed here.)

H&W’s liquidators are also suing several parties, including Myburgh and Klopper, for R110 million for delaying the “inevitable” liquidation of the company.

Read:
Findings against Nova chair referred to NPA
Highveld Syndication BRP and Nova chair sued for R110m
‘Guilt without trial’ – Klopper