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Detailed Financial Information in Respect of the Property Acquisitions and Withdrawal of Cautionary
ANNUITY PROPERTIES LIMITED
(formerly Niqsha Beleggings CC)
(Incorporated in the Republic of South Africa)
(Registration Number 2011/145994/06)
Share code: ANP ISIN: ZAE000165643
(“Annuity” or “the Company”)
DETAILED FINANCIAL INFORMATION IN RESPECT OF THE PROPERTY ACQUISITIONS AND WITHDRAWAL
OF CAUTIONARY ANNOUNCEMENT
A. INTRODUCTION
Linked unitholders are referred to the announcements released on SENS on 30 July 2012 and 28 August
2012 (the “Announcements”), in terms of which linked unitholders were advised that Annuity had agreed
broad terms to acquire various properties as set out below:
- the Atrium property in Milpark, Johannesburg (the “Atrium Acquisition”);
- the BCX property in Midrand, Johannesburg (the “BCX Property Acquisition”);
- the Langeberg Mall in Mossel Bay, Western Cape (the “Langeberg Mall Acquisition”);
- the Riverhorse property, also known as Thynk Retail Park, in Durban (the “Riverhorse Acquisition”);
and
- the Virgin Active property in Bryanston, Johannesburg (the “Virgin Active Acquisition”);
(hereinafter collectively, the “Property Acquisitions”).
Annuity is pleased to announce that it has completed the respective due diligences and concluded
agreements with the relevant vendors for the Property Acquisitions. The final details relating to the Property
Acquisitions are set out in Section C below. The purpose of this announcement is to present the revised
forecast financial information and pro forma financial effects pursuant to the Property Acquisitions (“the
Combined Portfolio”).
B. RATIONALE
The Property Acquisitions strongly compliment the quality of Annuity’s existing underlying property portfolio
providing, inter alia:
- strong underlying contractual cash flows with escalations above long term inflation expectations;
- further geographic diversification;
- addition of quality retail assets (Langeberg Mall and Riverhorse property) into Annuity’s property
portfolio; and
- an underpin of high quality blue-chip tenants such as BCX, Santam, Virgin Active and Massmart
accounting for ±86% of the total GLA acquired.
Furthermore, the increased fund size of approximately (>R1.5 billion) will offer increased market visibility to
Annuity which is expected to result in improved liquidity for Annuity’s linked unitholders.
C. ADDITIONAL INFORMATION RELATING TO THE PROPERTY ACQUISITIONS
Unitholders are referred to the Announcements for the property specific information relating to the Atrium
property, the BCX property, the Riverhorse property and the Virgin Active property. Set out below is the
property specific information relating to Langeberg Mall, which was not previously provided, and an overview
of the final acquisition costs and market values of the Proposed Acquisitions provided by independent
property valuers:
Property specific information relating to Langeberg Mall
Remainder Erf 14, Hartenbos, Cape Division, Province
Description of the property:
of Western Cape
Location: Louis Fourie Drive, Hartenbos, Mossel Bay
Single or multi-tenanted: Multi-tenanted
Grade A Grade
Weighted average gross rental per square
Retail: R101.02/m2
metre (R/m2 ):
Vacancy percentage: 1.0%
Weighted average lease expiry profile: 4.24 years
Market values and acquisition costs of the Property Acquisitions
Name Location Property Cost of Forward yield to Market value as GLA
type acquisition 31 March 2014 attributed by (m2)
(R’000) independent
valuer
(R’000)
Atrium 41 Stanley Avenue, Office 134 000 8.93% 135 500 13 484
property Milpark,
Johannesburg
BCX 16th Road, Office 38 147 9.21% 38 000 2 542
property Randjespark,
Midrand
Langeberg Mall Louis Fourie Drive, Retail 410 000 8.12% 410 000 29 946
Hartenbos, Mossel
Bay
Riverhorse 23 Riverhorse Road, Retail, 117 000 8.48% 123 000 12 489
property Riverhorse Valley, industrial
Durban
Virgin Active 12 Cross Road, Special 118 038 8.50% 122 300 5 244
property Bryanston,
Sandton
Total of the Property Acquisitions 817 185 828 800 63 705
D. FUNDING OF THE PROPERTY ACQUISITIONS
As indicated in the Announcements the aggregate acquisition costs of the Property Acquisitions will be
funded through a combination of linked units and cash. Annuity is seeking to fund up to 60% of the
aggregate acquisition cost, including property acquisition costs (collectively, “the Total Acquisition Cost”),
through the issue of Annuity linked units, as follows:
- vendor placement of R6,000,000 of Annuity linked units against transfer of the Atrium property into
the name of Annuity. The Annuity linked units will be issued at a price equivalent to the Volume
Weighted Average Price (“VWAP”) of Annuity linked units on the JSE Limited (“JSE”) for the 30
trading days prior to the date of transfer of the Atrium property to Annuity (“the Atrium Vendor
Placement”);
- vendor placement of R10,400,000 of Annuity linked units, equivalent to two million Annuity linked
units issued at a price of R5.20 per linked unit, against transfer of the BCX property into the name of
Annuity. The issue price of the linked units represents a 1.8% discount to Annuity’s 30 day VWAP on
the date broad terms for the BCX Property Acquisition were agreed with the BCX vendor being the
27th of July 2012; (“the BCX Vendor Placement”); and
- the issue of linked units through a specific issue for cash (“Specific Issue”);
(collectively, “the Equity Raise”).
The remainder of the Total Acquisition Cost not raised through the Specific Issue will be funded with a debt
facility from Rand Merchant Bank (“RMB”), the terms of which are as follows:
Amount Lesser of R425 000 000 and 50% of the value of Atrium property,
BCX property, Langeberg Mall, Riverhorse property, the Virgin
Active property and the Ethos property
Term 3 years – non-amortising
Interest payment frequency Quarterly in arrears
Interest rate 7.18% (nacm)**
Security - The Atrium property, BCX property, Langeberg Mall,
Riverhorse property, the Virgin Active property and the Ethos
property;
- First covering mortgage bonds over the properties for the loan
amount plus 20% of the loan amount for contingencies;
- Cession of current and future lease agreements and rentals
pertaining to the secured properties;
- Cession of all insurance policies pertaining to the secured
properties; and
- Guarantee for the obligations of Annuity secured by the
properties.
** The interest rate set out above is, per the signed RMB term sheet, for indicative purposes and is an all-in-
rate, as at close of business on 08 September 2012 for drawdown on 01 November 2012. The final all-in-
rate will be determined on hedging when the actual draw down occurs.
E. OUTSTANDING CONDITIONS PRECEDENT TO THE PROPERTY ACQUISITIONS
The individual properties are subject to the fulfilment of, inter alia, the following conditions precedent:
a) the regulatory approval by the JSE,
b) the requisite majority of Annuity linked unitholders approving the necessary resolutions required for the
implementation of the Property Acquisitions in the general meeting;
c) Competition Authority approval for the Atrium Acquisition, the Langeberg Mall Acquisition, the
Riverhorse Acquisition and the Virgin Active Acquisition in terms of the Competition Act 89 of 1998;
d) the Virgin Active property having reached a stage of completion that is fit for the purpose by no later
than 31 May 2013 and 90% of the Virgin Active letting enterprise having been let to tenants under
leases acceptable to Annuity by no later than 18 April 2013; and
e) the raising of equity capital required to fund the Property Acquisitions.
The conditions in relation to the underlying properties are not interconditional.
F. PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects are the responsibility of the directors and have been prepared for
illustrative purposes only to provide information relating to how the Property Acquisitions may have impacted
unitholders on the relevant reporting date and, due to their nature, may not give a fair reflection of Annuity`s
financial position after implementation of the Property Acquisitions.
The table below sets out the audited pro forma financial effects of the Property Acquisitions on net asset
value ("NAV") per linked unit and tangible net asset value ("TNAV") per linked unit based on the financial
information extracted from the announcement dated 08 June 2012 (the “Ethos Announcement”). The
Ethos Announcement represents the date when the most recent forecast information of Annuity was
published. The assumption, for calculating NAV per linked unit and TNAV per linked unit, is that the Property
Acquisitions were implemented on 08 June 2012.
Pro forma Pro forma
results before Property results after %
the Property Acquisitions the Property change
Acquisitions Acquisitions
NAV per linked unit (cents) 499.92 8.77 508.69 1.75%
TNAV per linked unit (cents) 499.92 8.77 508.69 1.75%
Linked units in issue 93,340,341 93,818,003 187,158,344 100.51%
The pro forma financial effects have been calculated on the basis of the following assumptions:
1. The “Pro forma results before the Property Acquisitions” column was extracted from the Ethos
Announcement dated 08 June 2012.
2. The “Pro forma results after the Property Acquisitions” column represents NAV per linked unit and
TNAV per linked unit including the Property Acquisitions. It includes the effect of the acquisition and
transfer of the Property Acquisitions at a fair value of R828.8 million, in terms of IFRS 3.
3. It is assumed that the Property Acquisitions will be funded by the Equity Raise and the remainder with
debt funding.
4. For the remainder of the Total Acquisition Cost that exceeds the proceeds from the Equity Raise,
Annuity has secured a debt facility which will incur interest at an indicative fixed rate of 7.18%.
5. The total estimated once-off transaction costs to be paid out of cash amount to R27.7 million,
comprising capital raising costs of R14.3 million and property acquisition costs of R13.4 million. The
capital raising costs funded by debt and the property acquisition costs will be funded by a combination
of debt and equity.
G. FORECAST FINANCIAL INFORMATION OF THE PROPERTY ACQUISITIONS
The forecasts, including the assumptions on which they are based and the financial information from which
they are prepared, are the responsibility of the directors of Annuity. The forecasts have been reported on by
the independent reporting accountants and their report will be set out in the circular.
The forecasts presented in the tables below have been prepared in accordance with the Company's
accounting policies and in compliance with IFRS.
The forecasts have been prepared on the assumption that the Atrium Acquisition, the BCX Property
Acquisition, the Langeberg Mall Acquisition and the Riverhorse Acquisition will be implemented (transfer of
the properties into Annuity’s name) on 02 January 2013 and the Virgin Active Acquisition will be
implemented (transfer of the property into Annuity’s name) on 01 June 2013.
1. THE ATRIUM ACQUISITION FORECAST
The reviewed summarised profit forecast of the Atrium Acquisition for the three months ending 31
March 2013 and the further twelve months ending 31 March 2014 is set out in the table below:
3 months ending 12 months ending
31 March 2013 31 March 2014
Rental income and related revenue 4,253,819 18,319,061
Net property income 2,767,263 11,968,503
Operating profit before interest 2,499,430 11,078,546
Earnings available for distribution 1, 793,856 7,328,458
2. THE BCX PROPERTY ACQUISITION FORECAST
The reviewed summarised profit forecast of the BCX Property Acquisition for the three months ending
31 March 2013 and the further twelve months ending 31 March 2014 is set out in the table below:
3 months ending 12 months ending
31 March 2013 31 March 2014
Rental income and related revenue 1,030,246 4,362,911
Net property income 828,174 3,514,742
Operating profit before interest 753,063 3,265,160
Net profit available for distribution 551,751 2,195,204
3. THE LANGEBERG MALL ACQUSITION FORECAST
The reviewed summarised profit forecast of the Langeberg Mall Acquisition for the three months ending
31 March 2013 and the further twelve months ending 31 March 2014 is set out in the table below:
3 months ending 12 months ending
31 March 2013 31 March 2014
Rental income and related revenue 11,562,562 48,700,322
Net property income 7,743,098 33,277,788
Operating profit before interest 6,932,682 30,548,929
Net profit available for distribution 4,778,608 19,136,151
4. THE RIVERHORSE ACQUISITION FORECAST
The reviewed summarised profit forecast of the Riverhorse Acquisition for the three months ending 31
March 2013 and the further twelve months ending 31 March 2014 is set out in the table below:
3 months ending 12 months ending
31 March 2013 31 March 2014
Rental income and related revenue 3,295,818 14,010,627
Net property income 2,234,439 9,454,653
Operating profit before interest 1,991,314 8,646,795
Net profit available for distribution 1,374,964 5,370,928
5. THE VIRGIN ACTIVE ACQUISITION FORECAST
The reviewed summarised profit forecast of the Virgin Active Acquisition for the ten months ending 31
March 2014 is set out in the table below:
10 months ending
31 March 2014
Rental income and related revenue 8,361,000
Net property income 8,277,390
Operating profit before interest 7,474,130
Net profit 4,601,869
6. THE COMBINED PORTFOLIO FORECAST
Set out below is the forecast statement of comprehensive income of Annuity’s existing portfolio and the
Property Acquisitions on a combined basis for the twelve months ending 31 March 2013 and 31 March
2014:
Forecast for the Forecast for the
twelve months twelve months
ending 31 March ending 31 March
2013 2014
R R
Gross rental and related income 83,415,582 170,546,757
Straight lining of rental income adjustment 17,088,180 20,707,502
Rental revenue 100,503,762 191,254,259
Property operating expenses (21,186,334) (44,516,556)
Net property income 79,317,427 146,737,704
Gain on bargain purchase 32,986,187 -
Fair value adjustment (17,088,180) (20,707,502)
Interest received 5,763,118 4,768,296
Gross income 100,978,553 130,798,497
Administrative expenses (3,644,942) (7,569,466)
Once-off property acquisition costs (17,399,324) -
Net operating profit before interest and taxation 79,934,287 123,229,031
Interest on mortgage bonds (15,701,934) (38,765,794)
Interest on debentures (48,510,469) (84,228,799)
Amortisation of transaction costs capitalised to
financial liabilities and debenture capital (1,849,381) (2,818,884)
Interest on other borrowings - IFRS adjustment (3,750,957) (3,299,433)
Net profit / (loss) before taxation 10,121,546 (5,883,880)
Taxation (1,421,020) (2,012,148)
Net profit / (loss) for the period 8,700,526 (7,896,028)
Earnings 57,210,995 76,332,772
Headline earnings 37,911,512 93,188,678
Distributable earnings 48,607,684 84,397,595
Number of linked units in issue at end of period 187,158,344 187,158,344
Weighted average number of linked units in issue 142,855,398 187,158,344
Earnings per linked units (cents) 40.05 40.79
Headline earnings per linked unit (cents) 26.54 49.79
Distribution per linked unit (cents) 40.48 45.09
The profit forecasts for the 12 months ending 31 March 2013 and 31 March 2014 are based on the
following assumptions:
1. The forecast for the twelve months ending 31 March 2013 represent Annuity's expected profits
and losses for the period from 1 April 2012 and includes the period from the date of listing, being 4
May 2012.
2. Annuity's forecasts are based on information derived from property managers and historical
information.
3. Annuity will not dispose of or acquire any properties during the period of the forecasts other than
those being acquired in terms of the Property Acquisitions.
4. Contracted revenue is based on existing lease agreements, whilst un-contracted revenue
amounts to 1,2% and 7,4% of the total forecast revenue for the 12 months ending 31 March 2013
and the year ending 31 March 2014, respectively.
5. Where it is expected by management that future property expenses will differ significantly from
historical expenses, forecast property expenses have been revised to reflect management's
expectation. This resulted in material expenditure items, namely assessment rates and municipal
charges exceeding historical expenses by more than 15%.
6. Leases expiring during the forecast periods have been forecast on a lease-by-lease basis where
the discussion with the lessee has proven positive, the forecast includes the rentals at current
market rates.
7. Annuity's forecast property operating expenditure has been determined based on management's
review of historical expenditure, where available, discussion with property managers and agreed
to supplier service contracts.
8. Material items of expenditure include assessment rates and other municipal charges.
9. The gain on bargain purchase relates to the initial acquisition of the property letting enterprises
and is recognised in terms of IFRS 3: Business Combinations, being the difference between the
fair value and the acquisition price. In terms of IFRS 3, once-off property acquisition costs, such
as asset manager transaction fees, conveyancing costs and due diligence fees are not capitalised
to the property, but expensed through the statement of comprehensive income. However, do not
have an effect on distributable earnings.
10. Interest on other borrowings - IFRS adjustment relates to the effective interest on vendor loans in
respect of the Oakfields and Cell C properties, as a result of present-valuing these loans bearing
interest at 0%, in terms of IFRS.
11. In order to recognise a straight lining of rental income adjustment, a fair value adjustment to the
properties is required, as the straight lining asset is added to the carrying value of the properties,
which carrying value cannot be greater than the fair value.
12. The straight lining adjustment has been calculated assuming that the start date of the lease is the
same date at which ownership of the property has been transferred.
13. It has been assumed for the purpose of the forecast that there is no change in the fair value of the
properties since listing date, however, in order to recognise the straight lining of rental income
adjustment, a fair value loss on the properties is required to be recognised, as explained above. In
total, the carrying values of the investment properties together with the straight lining rental asset
are not more than the fair value of the investment properties.
14. These forecast statements of comprehensive income have been compiled using the accounting
policies of Annuity.
15. There will be no unforeseen economic factors that will affect the lessees' abilities to meet their
commitments in terms of existing lease agreements.
16. Consumption based recoveries are consistent with the independent valuer's statement of
comprehensive income and historical financial information.
H. WITHDRAWAL OF CAUTIONARY
Linked unitholders are referred to the renewal of the cautionary announcement dated 28 August 2012, and
are advised that as the pro forma financial effects and the forecast information in relation to the Property
Acquisitions have been disclosed in this announcement, caution is no longer required to be exercised by
linked unitholders when dealing in their linked units.
A combined circular detailing the terms of the Property Acquisitions and convening a general meeting of
Annuity linked unitholders will be posted on or about 22 October 2012.
Illovo
15 October 2012
Lead Investment Bank and
Transaction Sponsor to Annuity Joint Investment Bank to Annuity
Investec Bank Limited Sasfin Capital
Independent reporting accountant and Attorneys to Annuity
auditor to Annuity
Glyn Marais Inc
PKF
Date: 15/10/2012 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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