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Acquisition of two portfolios and cautionary announcement
TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2016/277183/06
JSE share code: TPF ISIN: ZAE000227765
(Approved as a REIT by the JSE)
(“Transcend” or “the Company” or “TPF”)
ACQUISITION OF TWO PORTFOLIOS AND CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Transcend is pleased to advise shareholders that, on 21 September 2021 (“Signature Date”), it entered into sale and
purchase agreements (“SPAs”) with:
- IHS Fund II SA Rental Trust 2 (“IHS Fund II”), for the acquisition of a stabilised rental enterprise located in
Bester Road, Unclear, Cape Town, Western Cape consisting of 253 residential sectional title units in the scheme
known as the Block (“the Block” or “the Block Portfolio”) for a cash consideration of R151.50 million (“the
Block Purchase Consideration”) (“the Block Transaction”); and
- Renico Construction Proprietary Limited (“Renico”), for the acquisition of 189 residential sectional title units
located in North Boundary Road, Helderwyk, Brakpan, Gauteng in the scheme known as Stoneleigh
(“Stoneleigh” or “the Stoneleigh Portfolio”) for a cash consideration of R102.00 million (“the Stoneleigh
Purchase Consideration”) (“the Stoneleigh Transaction”),
(collectively, “the Properties”).
The Block Transaction and the Stoneleigh Transaction (collectively, “the Proposed Transactions”) comprise a total
of 442 residential units (“the Units”) in aggregate and, if implemented, will increase the value of Transcend’s total
property portfolio to approximately R2.78 billion (comprising 4,615 residential units with a total GLA of 259,084m2).
The Proposed Transactions are not inter-conditional.
2. RATIONALE FOR THE PROPOSED TRANSACTIONS
The Proposed Transactions are consistent with Transcend’s stated growth and investment strategy of acquiring
residential properties which are affordable, lifestyle-enhancing and located in well-situated, high-growth urban areas.
The Proposed Transactions will add 442 additional leases to Transcend’s existing portfolio (representing a 10.59%
growth in number of units).
The Properties offer a stable and secure income stream and further diversify Transcend’s residential portfolio with
57.20% of the Units being located in the Western Cape and 42.80% in Gauteng.
3. SALIENT TERMS OF THE BLOCK TRANSACTION
3.1. Details of the Block Portfolio
The Block Portfolio comprises a mix of one bedroom and two bedroom units. The Block Portfolio has a blended
acquisition forward yield of 10.04% based on the Block Purchase Consideration. The average budgeted gross
rental income of the Block Portfolio is R6,756 per Unit per month. A valuation performed by an independent
professional valuer will be published in the circular referred to in paragraph 6 below and in the announcement
referred to in paragraph 7 below.
Further information regarding the Block Portfolio is set out in the table below:
Portfolio Geographical Vendor Number Gross Weighted Rolling Total Acquisition
name location of units Lettable average gross 12-month consideration yield
Area rental income net payable
(m2) per square operating (Rmil)
metre income
(monthly) (Rmil)*
The Bester Rd, IHS 253 10,988 R155.55/m2 15.21 151.50 10.04%
Block Unclear, Cape Fund II
Town,
Western Cape
*The rolling 12-month net operating income from 1 December 2021 incorporates the following assumptions in
respect of revenue:
1. Net rental revenue is secured by a 12-month rental guarantee.
2. Net rental revenue is defined as gross rental income less bad debts and vacancies.
The rolling 12-month net operating income has not been reviewed or reported on by independent reporting
accountants.
3.2. Effective date
Transcend will acquire the Block Portfolio with effect from the date of registration of transfer of the Units
comprising the Block Portfolio into the name of Transcend (“Transfer Date”), from which date all benefits and
risks of ownership of each Unit shall pass to Transcend, which will be following the fulfilment of all the suspensive
conditions set out in paragraph 3.3 below.
3.3. Conditions Precedent
The Block Transaction is subject to fulfilment of, inter alia, the following suspensive conditions:
3.3.1. by no later than 30 days from the Signature Date:
3.3.1.1. IHS Fund II having obtained consent from its bondholder for the sale and transfer of the Block;
3.3.2. by no later than 90 days from the Signature Date:
3.3.2.1. Transcend having received approval from its shareholders in respect of all resolutions necessary
to implement the Block Transaction;
3.3.2.2. receipt by the parties of relevant regulatory approvals, including that of the Competition
Authorities, to the extent required; and
3.3.2.3. Transcend having raised the necessary equity and/or debt funding and executed binding funding
agreements in order to fund the Block Transaction and such funding agreements becoming
unconditional.
3.4. Other significant terms
3.4.1. IHS Fund II has agreed to guarantee the monthly rental income for the Block for a period of 12 (twelve)
months from Transfer Date;
3.4.2. The Block Purchase Consideration is payable by Transcend to IHS Fund II on the Transfer Date; and
3.4.3. The SPA for the Block Transaction includes warranties, undertakings and indemnities to Transcend which
are normal for a transaction of this nature.
3.5. Funding of the Block Purchase Consideration
The Block Purchase Consideration will be funded through the raising of debt and equity in the ratio of
approximately 40% debt and 60% equity, which equity will be raised pursuant to a vendor consideration
placement of new Transcend ordinary shares (“Transcend Shares”).
3.6. Categorisation
The Block Transaction constitutes a Category 2 related party transaction for Transcend, due to the fact that
Transcend is acquiring the Block Portfolio from IHS Fund II, which is managed by International Housing
Solutions, a material shareholder (11.50%) of the Company. In terms of the JSE Listings Requirements, the
Block Transaction is subject to the approval by a simple majority of Transcend shareholders voting on the Block
Transaction, excluding the related parties and their associates.
4. SALIENT TERMS OF THE STONELEIGH TRANSACTION
4.1. Details of the Stoneleigh Portfolio
The Stoneleigh Portfolio comprises a mix of one bedroom, two bedroom and three bedroom Units. The Stoneleigh
Portfolio has a blended acquisition forward yield of 10.85% based on the Stoneleigh Purchase Consideration.
The average budgeted gross rental income of the Stoneleigh Portfolio is R6,455 per Unit per month. The
directors’ valuation of the Stoneleigh Portfolio is R102.00 million, equalling its purchase price.
Further information regarding the Stoneleigh Portfolio is set out in the table below:
Portfolio Geographical Vendor Number Gross Weighted Rolling Total Acquisition
name location of units Lettable average 12-month consideration yield
Area gross net payable
(m2) rental operating (Rmil)
income income
per (Rmil)*
square
metre
(monthly)
Stoneleigh North Renico 189 12,984 R94.16/m2 11.07 102.00 10.85%
Boundary
Road,
Helderwyk,
Brakpan,
Gauteng
*The rolling 12-month net operating income from 1 December 2021 incorporates the following assumptions in
respect of revenue:
1. Rental revenue is secured by a rental guarantee up to a minimum 92% occupancy.
2. Rental escalations have been forecasted at an average of 2.00% per annum and have been applied from
1 February 2021.
3. Bad debts have been provided for at a rate of 1.50% of gross rental income.
4. Vacancies have been forecasted at 4.00% of gross rental income.
The rolling 12-month net operating income has not been reviewed or reported on by independent reporting
accountants.
4.2. Effective date
Transcend will acquire the Stoneleigh Portfolio with effect from 1 December 2021 or the 1st day of the month
following the fulfilment of all the suspensive conditions set out in clause 4.3 below (“Stoneleigh Effective
Date”).
4.3. Conditions Precedent
The Stoneleigh Transaction is subject to fulfilment of, inter alia, the following suspensive conditions:
4.3.1. by no later than 30 days after the Signature Date:
4.3.1.1. Transcend having concluded a satisfactory closing financial model reflecting all updated
information in relation to the purchase of Stoneleigh;
4.3.1.2. Renico having ensured that (i) an audit is conducted of the relevant design documents of the
Units comprising the Stoneleigh Portfolio to ensure that they meet the required EDGE
certification standards and (ii) submits the recommendation of the EDGE auditor to the Green
Building Council of South Africa for the Green Design Certificates in respect of the Units
comprising the Stoneleigh Portfolio to be issued;
4.3.1.3. Transcend having conducted and concluded a technical assessment of Stoneleigh, including but
not limited to, product designs/section layout plans and building plans, the title deeds, the
township establishment conditions, specifications and finishes, the result of which shall be to its
satisfaction (acting reasonably);
4.3.2. by no later than 90 days after the Signature Date:
4.3.2.1. Transcend having raised the necessary equity and/or debt funding and executed binding funding
agreements in order to fund the Stoneleigh Transaction and such funding agreements becoming
unconditional; and
4.3.2.2. receipt by the parties of relevant regulatory approvals, including that of the Competition
Authorities, to the extent required.
4.4. Other significant terms
4.4.1. Within 20 business days of the last condition precedent being met, Transcend is to deliver to the
conveyancers irrevocable bank guarantees acceptable to Renico and pay a deposit amount to the
conveyancers. Settlement of the Stoneleigh Purchase Consideration will occur within two business days
after date of transfer of the Units comprising the Stoneleigh Portfolio into the name of Transcend.
4.4.2. Renico has agreed to guarantee the monthly rental income for Stoneleigh from the date on which the
property transfers to Transcend until Renico has concluded valid leases in respect of no less than 92%
(ninety two percent) of the Units comprising the Stoneleigh Portfolio.
4.4.3. The SPA for the Stoneleigh Transaction includes warranties, undertakings and indemnities to Transcend
which are normal for transactions of this nature.
4.5. Funding of the Stoneleigh Purchase Consideration
The Stoneleigh Purchase Consideration will be funded through the raising of debt and equity in the ratio of
approximately 40% debt and 60% equity, which equity will be raised pursuant to a vendor consideration
placement of new Transcend Shares.
4.6. Categorisation
The Stoneleigh Transaction is a Category 2 transaction for Transcend in terms of the JSE Listings Requirements
and accordingly does not require approval by Transcend shareholders.
5. VALUATION
5.1. Details of an independent valuation for the Block will be included in the circular (referred to in paragraph 6
below) that will be distributed to shareholders in due course.
5.2. No independent valuation has been carried out on Stoneleigh.
6. CIRCULAR
A circular setting out the full details of the Block Transaction and containing a notice of general meeting will be
distributed to Transcend shareholders in due course.
7. CAUTIONARY ANNOUNCEMENT
Shareholders are advised to exercise caution until the financial information relating to the Proposed Transactions is
announced.
Bryanston
22 September 2021
Corporate Advisor and Bookrunner
Tenurey BSM Proprietary Limited
JSE Sponsor and Transaction Sponsor
Questco Proprietary Limited
Legal Advisor
Tonkin Clacey Incorporated
Independent Reporting Accountants and Auditors
KPMG
Date: 22-09-2021 11:40:00
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