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Development of a logistics campus for Shoprite in Gqeberha, South Africa
EQUITES PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
Share code: EQU ISIN: ZAE000188843
JSE alpha code: EQUI
(Approved as a REIT by the JSE)
("Equites" or "the Company")
DEVELOPMENT OF A LOGISTICS CAMPUS FOR SHOPRITE IN GQEBERHA, SOUTH AFRICA
1. INTRODUCTION
Shareholders and noteholders are advised that Retail Logistics Fund (RF) Proprietary Limited ("RLF"), a subsidiary
of Equites (50.1%), and Shoprite Holdings Limited (49.9%), through its wholly-owned subsidiary Shoprite Checkers
Proprietary Limited ("Shoprite"), have concluded the following agreements -
• An agreement of sale in terms of which RLF will acquire from Shoprite a 10,077 square metre distribution
warehouse ("Existing DC"), as well as 216,100 square metres of undeveloped land ("Extension Land"), which
will be used for the purposes of the Extension, on Erf 8741 Wells Estate, a portion of Erf 409 Wells Estate, in
the Nelson Mandela Bay Metropolitan Municipality, Division Uitenhage, Province of Eastern Cape ("the
Property"). The acquisition cost is R90,000,000 (exclusive of VAT) for the Existing DC and R75,635,000
(exclusive of VAT) for the Extension Land ("Agreement of Sale");
• A lease and development agreement in terms of which RLF will let the Existing DC to Shoprite and extend this
property by a further 79,260 square metres ("the Extension") on the Property ("Development Lease"). The
indicative total cost of the development is R1,009,788,931, which includes the acquisition cost of the Extension
Land ("Development Cost"); and
• A development management agreement in terms of which RLF will appoint Equites as the development
manager to implement the Extension ("Development Management Agreement"),
together the ("Transaction").
2. RATIONALE
Equites has communicated its strategy of pursuing growth in South Africa through high-quality acquisitions and
developments. The Transaction meets Equites' strategic objectives of:
- continuing to cement itself as a developer of choice to the largest logistics, retail and e-commerce participants
in the South African market;
- increasing its exposure to the logistics sector in South Africa, which is one of the best-performing property
sectors;
- creating further scale in Equites' high-quality logistics portfolio with stable and predictable rental growth
profiles, which enhances capital and income growth in the medium to long- term;
- supporting Equites' commitment to sustainability, as the Development will be designed in line with Excellence
in Design for Greater Efficiencies ("EDGE") Green Building Certification requirements.
- enhancing returns to shareholders through the long-dated, annuity income stream, which contributes to
reducing Equites' cost of debt funding over time.
Equites views the Existing DC and the Extension, together forming a new campus ("Campus"), as evidence of the
following sound investment fundamentals:
- the Campus will be a modern, state-of-the-art logistics campus that meets Shoprite's specifications and
operational requirements;
- it increases the exposure to Africa's largest food retailer, Shoprite, which enhances the defensiveness of its
tenant base; and
- the Campus will be let to Shoprite on a 20-year lease, with a right to renew for three additional 10-year periods,
which substantially increases the weighted average lease expiry period of the portfolio.
3. DETAILS OF THE PROPERTY
The Campus will exhibit the characteristics which are expected of a state-of-the-art distribution facility suitable for
a multinational or national occupier, which includes strong sustainability elements:
Property Geographical Sector Gross lettable Weighted Purchase
name location area average rental consideration /
per square Development
metre per cost
month
Shoprite Erf 409 Wells Logistics 10,077m2 R58 R90,000,000
Wells Estate, in the
Estate – Nelson Mandela
Existing DC Bay Metropolitan
Municipality,
Division
Uitenhage,
Province of
Eastern Cape
Shoprite Erf 409 Wells Logistics 79,260 m2* R83* R1,009,788,931*
Wells Estate, in the
Estate - Nelson Mandela
Extension Bay Metropolitan
Municipality,
Division
Uitenhage,
Province of
Eastern Cape
*These values are indicative and are subject to change and will be finalised upon practical completion of the
Development.
The acquisition cost for the Property and the Development Cost for the Extension is considered to be in line with
fair market value of the Property and value upon completion of the Extension, as determined by the directors of
the Company. The directors of the Company are not independent and are not registered as professional valuers
or as professional associate valuers in terms of the Property Valuers Profession Act No.47 of 2000.
4. TERMS OF THE TRANSACTION
The Agreement of Sale envisages that RLF will acquire the Property for a purchase consideration of R165,635,000.
There are no outstanding suspensive conditions to the Transaction, and the effective date of the Transaction is
6 December 2022. It is expected that the transfer of the Property will be registered in the relevant Deeds Office by
the end of January 2023.
The Development Lease will be a fully repairing and insuring lease, enduring for an initial period of 20 years, with
the right to renew for a further three 10-year periods on the same terms and conditions. The rental in respect of
the Existing DC, which will be due and payable as of the date of transfer, will be determined based on the
contracted initial yield of 7.8% in respect of the purchase price for the Existing DC, whereas the rental for the
Extension will be determined based on the contracted initial yield of 7.8% in accordance with the actual
Development Cost. Rentals will escalate at a rate of 5% per annum.
The development of the Extension is expected to commence on 27 January 2023, with the lease in respect of the
Extension expected to commence on 1 October 2024.
The Development Management Agreement envisages the appointment of Equites by RLF as the developer
manager, with the former being obliged to implement the development of the Extension for a development
management fee of R10 million.
The agreements contain undertakings, warranties and indemnities, which are normal for a transaction of this
nature.
5. FINANCIAL INFORMATION
Set out below is the forecast financial information in respect of the Transaction ("the forecast") for the year ending
28 February 2023, the year ending 29 February 2024, the year ending 28 February 2025 and the year ending
28 February 2026 ("the forecast period").
The forecast has been prepared on the assumption that the Property transfers on 1 February 2023, with the
development lease commencing 1 October 2024.
The forecast, including the assumptions on which it is based and the financial information from which it has been
prepared, is the responsibility of the directors of the Company. The forecast has not been reviewed or reported
on by independent reporting accountants.
Forecast Year ending Year ending Year ending Year ending
ZAR'000 28-Feb-23 29-Feb-24 28-Feb-25 28-Feb-26
Rent - Existing DC 585 7,049 7,402 7,772
Rent - Extension - - 32,818 80,404
Total revenue 585 7,049 40,220 88,176
Less: finance costs (203) (2,430) (13,790) (29,694)
Net operating profit 383 4,619 19,028 50,710
Less: non-controlling interest (191) (2,305) (9,495) (25,304)
Distributable earnings 192 2,314 9,533 25,406
The forecast incorporates the following material assumptions in respect of revenue and expenses:
1. The contractual rental agreement is assumed to be valid and enforceable.
2. The lease is a triple net lease and normal property operating expenses are therefore assumed to be
recoverable from the tenant.
3. The property and asset management functions will be performed internally.
4. The forecast assumes a loan-to-value ratio ("LTV") of 30% throughout the forecast period.
5. The marginal cost of debt assumed is 9.0%.
6. No fair value adjustment is recognised.
7. There will be no unforeseen economic factors that will affect the tenant's ability to meet its commitments in
terms of the lease.
8. RLF is a 'controlled company' for the purposes of section 25BB(1) of the Income Tax Act.
6. FUNDING AND IMPACT ON LTV RATIO
The Transaction will increase Equites' LTV by 2.6%, on a pro-forma basis. The Transaction will be funded from
undrawn debt facilities as well as from proceeds received from property disposals in South Africa.
7. CATEGORISATION
The Transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements and
accordingly does not require approval by Equites' shareholders.
9 December 2022
Corporate advisor and sponsor to Equites Debt sponsor
Java Capital Nedbank Corporate and Investment Banking,
(a division of Nedbank Limited)
Date: 09-12-2022 02:17:00
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