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Financial information relating to the acquisition of various properties by Texton and Withdrawal of Cautionary
TEXTON PROPERTY FUND LIMITED
(formerly Vunani Property Investment Fund Limited)
Granted REIT status by the JSE
(Incorporated in the Republic of South Africa)
(Registration number 2005/019302/06)
JSE code: TEX
ISIN: ZAE000190542
(formerly ISIN: ZAE000185872)
(“Texton” or “the Company”)
FINANCIAL INFORMATION RELATING TO THE ACQUISITION OF VARIOUS PROPERTIES BY TEXTON AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION AND WITHDRAWAL OF CAUTIONARY
Texton shareholders (“Shareholders”) are referred to the announcement, dated 17 October
2014, regarding the acquisition of various properties (“Proposed Transactions”) and the notice
to Shareholders to exercise caution when dealing in the Company’s shares until such time as
the financial and property information relating to the Proposed Transactions has been
disclosed. The Proposed Transactions have been considered and approved by the Independent
Board of directors of Texton and having regard to the information set out below, the cautionary
announcement is hereby withdrawn.
2. CONFIRMATION OF RATIONALE FOR THE PROPOSED TRANSACTIONS
The Proposed Transactions are consistent with Texton’s strategy to build a quality property
portfolio that offers long-term distribution and capital growth underpinned by strong
underlying cash flows and the stated intention of the shareholders of Texton’s management
company, Texton Property Investments Proprietary Limited (“Manco”), to align its interests
with that of the Company to participate more significantly in the well being of the Company, as
a Shareholder, by vending owned properties (which fit Texton’s investment criteria) to Texton,
for Texton shares. The Proposed Transactions represent all of the directly held assets from the
vendors, other than those that are not appropriate for acquisition by Texton at this time. As
recorded previously, Texton has a right of first refusal on all properties owned by the Manco
shareholders.
The specific properties, which comprise the Proposed Transactions (“Properties”), were
selected by management after careful consideration of the underlying property fundamentals
of the Properties, the fit of the Properties within Texton’s property portfolio, the independent
valuation of the Properties and Texton’s stated objective to diversify prudently into the
industrial and retail sectors. Accordingly, the Proposed Transactions provide Texton with the
following benefits:
• Industrial (56,938m2) and retail (19,105m2) sector exposure, sectors that are under-
represented in Texton’s current portfolio;
• Properties are well located within prominent value retail, office and industrial nodes;
• Significant re-development opportunities of two of the sites in line with Texton’s long term
strategy;
• Lower vacancies compared to Texton’s current portfolio;
• Combined weighted average lease expiry of 2.0 years; and
• Potential for upward rental reversions.
Texton believes that management has the necessary skills, expertise and experience to manage
the Properties and extract additional value by redevelopment. In addition Kuper-Legh Property
Management Proprietary Limited (“KLPM”), who have managed the Properties historically, will
be retained as property manager for the acquired Properties.
3. SALIENT PROPERTY INFORMATION
The Proposed Transactions involve the acquisition of the entire issued share capital and claims
of Discus House, Imperial Com Props, Investage and Sable Place (“Vendor Companies”). Details
relating to the underlying Properties are as follows:
3.1. Discus House
Property: Kempstar Mall
GLA: 6,019m2
Tenant profile by GLA: Large national / Listed National Other
large listed/
Government
45.6% 16.1% 38.3%
The centre is exceptionally busy and is anchored by
Cambridge Foods (GLA:1,470m2 expiring in 2021) and all
Kempton Railway commuters pass through the centre
Weighted average lease 2.77 years
expiry:
Weighted average rental per R155.26 per m2
m2:
Purchase yield: 9.41%
Vacancy: 0%
Agreed property value: R92.8m
Independent valuation: R93.6m
Difference between agreed property value (R92.8m) in
arriving at the purchase price and independent valuation
is considered immaterial.
3.2. Imperial Com Props
Property: Woodmead Commercial Park
GLA: 13,086m2
Tenant profile by GLA: Large national / Listed National Other
large listed/
Government
0% 40.2% 59.8%
The tenants are mostly long term and the Woodmead
value node is undergoing rejuvenation
Weighted average lease 2.34 years
expiry:
Weighted average rental per R83.98 per m2
m2:
Purchase yield: 9.93%
Vacancy: 4.85% with seller providing a rental guarantee for 2 years
Agreed property value: R112.4m
Independent valuation: R111.3m
Difference between agreed property value (R112.4m) in
arriving at the purchase price and independent valuation
is considered immaterial.
3.3. Investage
Properties: 1. Kuper-Legh Industrial Park
2. 54 Bompas Road
3. Blue Strata
GLA: 1. 44,029 m2
2. 750 m2
3. 1,806 m2
Tenant profile by GLA (Kuper- Large national / Listed National Other
Legh Industrial Park): large listed/
Government
38.3% 22.6% 39.1%
Major tenants include Defy SA (GLA: 5,222m2), Metrofile
(GLA: 3,419m2), Steiner (GLA:742m2), Bidvest (GLA:
742m2), Tshwane University of Technology (GLA: 742m2)
Tenant profile by GLA (54 Large national / Listed National Other
Bompas Road): large listed/
Government
13.3% 0% 86.7%
Tenants are Texton and KLPM
Tenant profile by GLA (Blue Large national / Listed National Other
Strata): large listed/
Government
100% 0% 0%
Tenant is Blue Strata, predominantly owned by Investec
Weighted average lease 1. 1.81 years
expiry:
2. 4.92 years
3. 4.17 years
Weighted average rental per 1. R32.13 per m2
m2:
2. R140.76 per m2
3. R173.60 per m2
Purchase yield: 1. 9.75%
2. 9.25%
3. 9.25%
Vacancy: 1. Current vacancy of 2.63%. Seller is providing a rental
guarantee of R5m for 12 months
2. 0%
3. 0%
Agreed property value: R196.9m
Independent valuation: R192.8m
Difference in valuation is attributable to the excess bulk
and redevelopment opportunities at Bompas Road and
Wierda Valley which are not taken into account in the
independent valuation and provides significant potential
upside.
3.4. Sable Place
Property: Kya Sands
GLA: 12,909 m2
Tenant profile by GLA: Large national / Listed National Other
large listed/
Government
0% 0% 100%
Weighted average lease 1.50 years
expiry:
Weighted average rental per R37.79 per m2
m2:
Purchase yield: 11.81% (all properties at 11.75% and one at 12.00%)
Vacancy: Currently nil vacancy. In addition, Sellers are providing a
rental guarantee for 2 years
Agreed property value: R40.6m
Independent valuation: R40.2m
Difference between agreed property value (R40.6m) in
arriving at the purchase price and independent valuation
is considered immaterial.
4. FORECAST INFORMATION RELATING TO THE PROPOSED TRANSACTIONS
The forecast financial information relating to the Proposed Transactions for the financial
periods ending 30 June 2015 and 30 June 2016 is set out below. The forecast financial has not
been reviewed and this information will be reported on by the reporting accountant in terms of
section 8 of the Listings Requirements of the JSE in due course. The forecasts have been
prepared in compliance with IFRS.
Forecast Forecast
6 months ending Year ending
R’000 30 June 2015 30 June 2016
Investment property income 37 545 80 433
Straight-line rental adjustment 1 584 586
Revenue 39 129 81 019
Property expenses (16 044) (34 662)
Net property income 23 085 46 357
Other income 11 488 -
Other operating expenses (44) (95)
Asset management fees (1) (2)
Operating profit 34 528 46 260
Finance costs (9 999) (20 581)
Profit before income tax 24 529 25 679
Income tax - -
Total comprehensive income for the period 24 529 25 679
Reconciliation of attributable income to
distributable income:
Earnings attributable to Shareholders 24 529 25 679
Straight-line rental adjustment (1 584) (586)
Distributable income 22 945 25 093
Shares in issue (‘000) 21 112 21 112
Dividend per share (cents) 108.68 118.86
Notes and assumptions:
The forecasts are based on the following assumptions:
4.1. Effective date
The effective date of the Proposed Transactions, for accounting purposes, is assumed to
be 31 December 2014, being the date when the Proposed Transactions are to be
approved.
4.2. Rental income
In the case of existing leases:
• Where there is reasonable certainty of renewal (due to high capital expenditure
by the tenant or early indication of renewal) a market-related rental has been
used with no allowance for vacancy.
• Where there is some doubt as to the existing tenant renewing, depending on the
building, its location and market rentals, a vacancy period of 3 to 6 months has
been allowed and thereafter market rentals have been applied.
• For leases expiring in the forecast period, the Vendor Companies have supplied
the following rental guarantees:
- Imperial Com Props, a 24 month rental guarantee commencing on 1 July
2014 to 30 June 2016. The vendors are responsible for all reasonable
letting commissions and tenant installation costs relating to the properties
covered by the rental guarantee.
- Investage, a 12 month rental guarantee from the closing date, which is
expected to be 31 December 2014, limited to R5 000 000 to the extent
that the actual net income is below the expected net income as included in
the financial effects. The sellers are responsible for all reasonable letting
commissions and tenant installation costs relating to the Investage
properties.
- Sable Place, a 24 month rental guarantee commencing on 1 July 2014 to 30
June 2016. The vendors are responsible for all reasonable letting
commissions and tenant installation costs relating to the properties
covered by the rental guarantee.
• All forecast revenue has been disclosed in the following table illustrating the
spread between contracted and uncontracted rental:
Forecast Forecast
6 months ending Year ending
30 June 2015 30 June 2016
% %
% contracted 82.7 65.6
% uncontracted 17.3 34.4
4.3. Property related expenditure
Property related expenses have been based on historical data and forecasted expenses
provided by management:
• Rates
Depending on the specific municipality, rates have been escalated at 10%.
• Municipal charges
Municipal charges are fully recovered. Escalations therein have been estimated at
between 8% and 10%. This only affects the property management fee charge as
the basic municipal charge is fully recovered from tenants in the normal course of
business.
• Property management fee
The following property management fees (KLPM) have been provided on all
collections including VAT:
- 1.00% for triple net leases;
- 2.85% for all other gross leases; and
- 4.00% for Kempstar Mall due to the management involved in managing this
retail asset.
The property management agreements to be entered into between Texton and
KLPM are on the same terms to those contained in Texton’s existing property
management agreement except that the agreement will be for an initial period of
3 years, renewable for two further periods of 3 years each.
4.4. Other Income
Other income relates to the gain on bargain purchase. The effective date of the
transaction is 1 July 2014. All income and expenses accrue to the Company from the
effective date. The closing date of the transaction is expected to be 31 December 2014
and therefore the net income that accrued from the effective date to the closing date
affects the at acquisition reserves at the closing date and a gain on bargain purchase
arises. As the gain relates mainly to the net income from the effective date to closing
date, the distribution per share will not be negatively affected as the gain will be
distributed to Shareholders.
4.5. Asset management fee
The effective date of the transaction is 1 July 2014, however the expected date of
transfer of the shares and claims will be on or before 31 December 2014. No asset
management fees are therefore charged from 1 July 2014 to transfer date. Thereafter
the asset management fee of 0.5% of will apply.
4.6. Capital expenditure, tenant installation costs and agents’ commission
All capital expenditure is specific as required or anticipated. Where applicable an
estimate of the tenant installation cost and commission has been made. No tenant
installation costs or agents’ commission have been provided for as the seller is
responsible for the cost on the guaranteed space.
4.7. Finance costs
As the effective date of the Proposed Transactions is 1 July 2014, the existing funding
remains in place until the Company has taken transfer of the shares and claims in the
various Vendor Companies which is expected to be by the end of December 2014.
Following the transfer of the shares and claims the funding will be replaced by more cost
effective funding as follows:
- R146 million – 3 years at 3 month JIBAR plus 165 basis points margin; and
- R99.9 million – 5 year at 3 month JIBAR plus 180 basis points margin.
4.8. Deferred tax
No deferred tax is calculated as a result of REIT status.
4.9. Dividends
Dividends payable in respect of shares are based on distributable earnings. The dividends
are calculated with reference to distributable income (100%) and are in compliance with
REIT requirements. Shares to be issued in lieu of settlement will rank pari passu in all
respects with current issued Texton shares.
4.10. Other general expense items
All other expenses have been increased at 10%, based on detailed forecast budgets and
expected growth escalations unless, in specific cases, the present charge is unnecessarily
low, in which case, it has been adjusted to the realistic charge at the commencement of
the forecast year and subsequent escalations have then incurred the normal 10%
increase. No expense items have been changed by 15% or more.
Dunkeld West
31 October 2014
Investment Bank and Sponsor
Investec Bank Limited
Reporting Accountant
KPMG Inc.
Legal Adviser
Cliffe Dekker Hofmeyr Inc.
Date: 31/10/2014 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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