BUSINESS OF SPORT

Western Province rugby union steps into the unknown with Flyt

By Ruan Jooste and Craig Ray 1 July 2020
Caption
Newlands Rugby Stadium. (Photo: Western Province Rugby)

The Western Province Rugby Football Union has willingly stepped into, at the very least, a rushed agreement over the sale of the Newlands Rugby Stadium property that could have massive ramifications for the union in the future.

On Tuesday night, the Western Province Rugby Football Union (WPRFU) Council, made up of all the union’s clubs across the province, by majority vote, decided to follow the lead of its president, Zelt Marais, and accept a R112-million loan from a small Cape Town-based company called Flyt Property Investment (formerly known as AnySide). 

This was the only option put on the table after Marais walked away from a done deal with the Investec Property Fund last month. The WPRFU had agreed to sell the development rights of its Newlands property portfolio and lease the land to the investment institution for a period of 99 years. 

Essentially, the WPRFU is taking on additional debt, while still struggling to service its existing obligations to Remgro (currently at R58-million). Daily Maverick was told the union has already spent the R50-million it received from the Investec Property Fund in 2019 in an effort to stay afloat

The arrangement with Investec was also supposed to settle the outstanding balance owed to Remgro, wipe out the WPRFU’s debt and guarantee future income.

Tuesday’s decision to formally enter into an agreement with Flyt has set the union on a legal collision course with Investec after the two organisations signed heads of agreement on November 28, 2019. 

Marais argues that this is a better deal for the union because the WPRFU will now become a “partner” (as opposed to just a landlord) with Flyt Investments on the redevelopment of Newlands. It is not clear if, and how, the ownership structure will change. But it opposes the union’s previous policy of keeping full ownership of assets, which was the parameter under which the original Investec deal was done. 

The WPRFU has also signed over the mortgage bonds of the 11 properties it owns to Flyt as guarantees for the loan. It is another risky manoeuvre if the entire deal implodes in the coming months and years. All the WPRFU’s assets are now under Flyt’s control. 

The Flyt website does not punt any significant property portfolio on its page, but the Flyt 12J fund also featured on the site has been hugely successful – even more so in 2020 – according to its managing director, Neil Hobbs. 

Flyt is a builder of student accommodation and has investments in self-catering hospitality corporate suites, which Hobbs says will remain its development focus. Only two directors are listed on the Companies and Intellectual Property Commission (CIPC) records for Flyt Property Investment – the MD, Zane de Decker, and Donavan van der Vyver. There are a few other Flyt entities registered with the CIPC, some cross-holdings and similar structure boards with the accounting firm Hobbs and Sinclair and DreamWorld. The registrations directorships run rife across these companies and its individuals, but with no indication of what they all do. 

Marais told Daily Maverick in an email, “Negotiations with Flyt Property Investment (Pty) Ltd (formerly Anyside Investments) and DreamWorld Investments 401 (Pty) Limited (a company within the Flyt group) started after 3 June 2020 and have been positive. 

“In fact, they have resulted in a proposed deal in which the WPRFU will be an equal partner with a 50% share in all economic benefits derived from the future development of the Newlands site.

“This is far better than any previous deal that has been on the table and, if it is approved, will ensure the sustainable and long-term future of Western Province rugby. That is our absolute priority.” 

On the face of it, it sounds like a grand deal, but the WPRFU is not a property developer. It can barely balance its own books. It has hardly been able to succeed in its primary business of operating a solvent rugby union over the past five years, and questions have been raised by the SA Rugby Union on matters of going concern. 

Last November the two parties signed heads of agreement which saw Investec agree to pay R110-million to the WPRFU, R50-million of which was transferred immediately. The balance of the money would be made available when the final contracts were signed. That should have happened last month, before Marais baulked without immediate explanation. 

While it could be argued the Investec deal could have been better (its original offer of R150-million was reduced to R110-million when it emerged that one of the buildings in the Newlands precinct did not belong to the WPRFU), the reality is that the bank was taking on all the risk. It paid big bucks upfront, and once it acquired the lease to the Newlands land, the WPRFU would not have been exposed to any risk. 

Under the new deal, which Marais presented at an online meeting of the Council on Tuesday night, the WPRFU will take on half the risk of developing the Newlands property. It will also become 50% partners with Flyt in another property it owns in Cape Town’s southern suburbs, called Brookside. 

“Our proposed agreement follows a fairly standard agreement in development projects,” De Decker told Daily Maverick in an email. “Flyt provides the loan (to the WPRFU) upfront (via DreamWorld). Flyt then finances the costs of obtaining development rights and executing the project. The initial loan given to WPRFU is repaid from the proceeds of the development itself, in due course. 

“The attorneys handling the transaction have the cash in their trust account. The funds necessary to settle the debts owed by the union to both Investec Properties (Pty) Ltd and Remgro Sport Investments Proprietary Limited will be paid over upon registration of the mortgage bonds. We expect the total development to exceed R2-billion.” 

Last month Marais chose not to sign the final documents that would have completed the transfer of the Newlands developments rights to Investec. It led to the resignation of executive committee member Kevin Kiewit, who was instrumental in finalising the details with Investec that have paved the way for the WPRFU to play its rugby matches at the Cape Town Stadium in Green Point. 

Investec should have acquired a 99-year lease and had plans to redevelop Newlands into a residential and retail complex. The WPRFU, in turn, would benefit from a 5% share in any profits derived from this plan, plus a further 3.5% share from the resale of any units developed. 

Last November the two parties signed heads of agreement which saw Investec agree to pay R110-million to the WPRFU, R50-million of which was transferred immediately. The balance of the money would be made available when the final contracts were signed. That should have happened last month, before Marais baulked without immediate explanation. 

The union’s financial statements are not in the public domain, so ratios of debt to assets and the interest expense cannot be obtained to calculate risk of this sudden change of lanes. 

Now that the deal with Investec has fallen through, the WPRFU has to pay back the R50-million it received from Investec. Investec was also due to directly settle a R58-million debt owed to Remgro for outstanding WPRFU loans on completion of the original agreement. That payment was due to be made on 30 June. 

Remgro CEO Jannie Durand did not return calls, but the company has the right to foreclose on the assets underpinning the Flyt deal if the WPRFU does not come up with the money, which is where the DreamWorld loan comes into play. The WPRFU now urgently needs funding to settle with Remgro. 

“Under the terms of the proposed loan agreement, DreamWorld will advance the necessary R112-million required by WPRFU to pay off its existing debts to Investec and Remgro,” Marais confirmed in an email to Daily Maverick

“The loan will be advanced at the prime lending rate for a term of four years. Bank guarantees have already been obtained, subject to the ratification of the agreement by a Special General Meeting of the WPRFU on Wednesday 8 July 2020. Ultimately, the aim is to consolidate WPRFU’s debts and enable WPRFU to unlock the inherent value in the Newlands stadium property to put it on a firm financial footing.” 

The union’s financial statements are not in the public domain, so ratios of debt to assets and the interest expense cannot be obtained to calculate risk of this sudden change of lanes. 

“To that end, it is also proposed that Flyt Property Investment (Pty) Ltd and the WPRFU incorporates a new company called Newlands DevCo that will be owned equally by both parties,” Marais said. 

“Newlands DevCo’s sole purpose will be to obtain rights and develop the Newlands Rugby Stadium property as a mixed-use development with an anticipated developable bulk of no less than 60,000m2,” Marais said. 

“Newlands DevCo is envisaged as a 50-50 partnership between the WPRFU and Flyt. Importantly, this will mean that – unlike previous loan and redevelopment arrangements – the WPRFU will have a 50% share in the economic benefits derived from the future development of the site. This is critical to ensure the sustainable future of Western Province rugby and, specifically, the opportunity for investment in clubs in our poorer communities over the longer term. 

“In addition, it is also proposed that another new company will be incorporated between the WPRFU and Flyt Property Investment called Brookside DevCo. This new company will purchase the Brookside property and its purpose will be to obtain development rights and develop the Brookside property as a mixed-use development. This deal will give the WPRFU access to an estimated R40 million in cash, plus 50% of development profits down the line.” 

In the wake of these developments, Investec has also taken legal opinion and appears set to reserve its rights through the courts. The WPRFU can ill-afford a lengthy and potentially expensive legal battle with Investec, which appears to have met its obligations as laid out in the original heads of agreement. 

Daily Maverick asked WPRFU vice-president Spencer King whether the executive committee supported Marais’ actions. King declined to comment. DM

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