Azan divests MegaMart real estate to pension funds
Published:Wednesday | February 6, 2013 | 12:00 AM
Steven Jackson, Business Reporter
MegaMart Wholesale Club has sold its retail stores in Portmore and Montego Bay to a group of pension funds in a deal worth J$2.3 billion.
The deal will result in external ownership of all the real estate assets - land and buildings - for all four MegaMart retail stores, but the business remains firmly under the control of Chairman and Chief Executive Officer Gassan Azan.
Azan said Tuesday that the deal on the Portmore and MoBay properties, which essentially refinances his company, gives MegaMart a "war chest" of cash for operations and expansion.
"It frees up our cash for operations as opposed to owning the real estate," Azan said. "Because we are not a real estate company."
The deal was structured by Scotia Investments Jamaica Limited in December. Scotia Investments set up a real estate company in which MegaMart holds a 22 per cent stake, and about six pension funds bought shares. Azan declined to name the pension funds.
"Scotia Investments did the transactions with the two MegaMarts in Portmore and Montego Bay. We got a valuation on them and got pension funds to buy into it," Azan said, adding that the return on investment for the real estate company, which he called an 'informal REIT', comes in the form of rental.
The final tranche of the funds, which Azan said is worth J$500 million, will be distributed to MegaMart three to four months following the sale of Azan's 22 per cent, and will result in full liquidation of his ownership of the assets.
MegaMart will in effect act as a tenant and pay rent to the newly created company, in a deal similar to the US$1.2 billion lease-operate deal secured by Scotia Investments last year for the MegaMart branch in Mandeville.
EXPANSION OPPORTUNITY
It takes some US$10 million (J$940 million) to construct a new MegaMart complex.
"What this does is allow for faster expansion plans," Azan said, when asked whether he would be expanding further. The Caribbean and Guyana are attractive options outside of Jamaica, he said.
Azan remains bullish on Jamaica despite negative economic externalities, including a pending International Monetary Fund agreement. He is mulling raising additional funds in the medium term via an initial public offering on the Jamaica Stock Exchange.
MegaMart, which started operations in 2000, clocks roughly 300,000 monthly transactions via its initial three stores, and projects another 100,000 monthly from its newest store in Mandeville.
Scotia Investment executives involved in the deal were travelling and unable to comment immediately.