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Financial information on proposed transactions, posting of circular, notice of meeting and cautionary withdrawal
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”, “the Company” or “the Group”)
FINANCIAL INFORMATION RELATING TO THE PROPOSED TRANSACTIONS, POSTING OF CIRCULAR, NOTICE OF
GENERAL MEETING AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Transcend shareholders (“Shareholders”) are referred to the announcement released by Transcend on SENS on Wednesday,
22 September 2021 and the renewal of cautionary announcement released on Thursday, 4 November 2021, relating to the
proposed acquisition by Transcend of:
- a rental enterprise located in Bester Road, Unclear, Cape Town, Western Cape consisting of 253 residential sectional title
units (“the Block Units”) in the scheme known as the Block (“the Block” or “the Block Portfolio”) from IHS Fund II SA
Rental Trust 2 (“IHS Fund II”) (a related party to Transcend) for R151.50 million (“the Block Purchase Consideration”)
(“the Block Transaction”); and
- 189 residential sectional title units (“the Stoneleigh Units”) located in North Boundary Road, Helderwyk, Brakpan,
Gauteng in the scheme known as Stoneleigh (“Stoneleigh” or “the Stoneleigh Portfolio”) from Renico Construction
Proprietary Limited (“Renico”) for R102.00 million (“the Stoneleigh Purchase Consideration”) (“Stoneleigh
Transaction”),
(collectively, “the Proposed Transactions”).
2. FINANCIAL INFORMATION
2.1. The Block
Set out below is the forecast statement of profit or loss and other comprehensive income for the Block Transaction (“the
Block Forecast”) for the year ending 31 December 2022 (“the Block Forecast Period”).
The Block Forecast has been prepared on the assumption that transfer of the Block Units will be completed, and rental
income in terms of the leases will be received from 1 January 2022.
The Block Forecast, including the assumptions on which it is based and the financial information from which it is prepared,
is the responsibility of the directors of Transcend (“the Directors”). The Block Forecast has been reviewed and reported
on by the Independent Reporting Accountants, KPMG Inc., and their unmodified report thereon is available for inspection
at the registered office of Transcend and has been reproduced in the circular to be posted on or about Tuesday, 9
November 2021 (and further explained in paragraph 5 below) (“Circular”).
The Block Forecast presented in the table below has been prepared in accordance with Transcend’s accounting policies
and in compliance with International Financial Reporting Standards.
The Block Forecast
for the
12 months
ending
31-Dec-22
R’000
Rental income from investment properties 19,863
Recoveries of operating costs from tenants 4,004
Revenue 23,867
Property operating expenses -8,466
Impairment losses -207
Net operating income 15,194
Other operating expenses -1,128
Operating profit 14,066
Change in fair value of properties 277
Profit before taxation 14,343
Taxation
Profit and total comprehensive income for the period for the Block Forecast 14,343
Incremental interest cost for the Group -3,797
Incremental external management fee relating to the Block for the Group -870
Profit and total comprehensive income for the period for the Block for the
9,676
Group
Reconciliation between earnings and distributable income:
The Block Forecast for the
Group
for the
12 months
ending
31-Dec-22
Profit for the year attributable to Transcend Shareholders for the Block 9,676
Change in fair value of properties -277
Acquisition and transaction costs expensed 1,128
Antecedent dividend available for distribution 2,138
Incremental Distributable income for the Block Forecast for the Group 12,665
The Block Forecast incorporates the following material assumptions in respect of revenue and expenses:
1. Rental revenue comprises of a rental guarantee received from IHS Fund II which is determined by gross monthly rental
income less 3.00% vacancies and 1.00% bad debts (“Net Monthly Rental”).
2. The Net Monthly Rental in respect of the Block Transaction is underwritten by a rental guarantee for an amount of
R19,66 million which approximates the forecast Net Monthly Rental. If the Net Monthly Rental is not achieved, IHS
Fund II will reimburse Transcend for the difference, and if the achieved Net Monthly Rental exceeds the guaranteed
Net Monthly Rental, then Transcend will reimburse IHS Fund II for the difference. As a consequence, the Net Monthly
Rental in respect of the Block for this period is all contracted rental revenue.
Accounting treatment of the rental guarantee
The rental guarantee embedded in the sale agreement of the Block represents a contractual right of Transcend to
exchange cash with IHS under conditions that are potentially favourable to Transcend. The value of the rental guarantee
changes in response to the underlying rent received by the tenants. There is no initial net investment paid by Transcend
to acquire the rental guarantee. It is included as part of the agreement for the sale of the Block from IHS to Transcend.
The rental guarantee meets the definition of a derivative contract in accordance with IFRS 9 Financial Instruments and
therefore at initial recognition should be measured at fair value. The rental guarantee is based on the expected rental
revenue to be received from tenants, the probability of the rental guarantee being initiated is low and therefore the fair
value of the derivative is estimated to be R0 on initial recognition.
Any income received by Transcend in respect of any shortfall between the rental revenue earned and the rental
guarantee amount will be recognised as other income in accordance with IFRS 15: Revenue from Contracts and IFRS
16: Leases. The reconciliation of the amount payable or receivable by Transcend will be assessed and settled bi-
annually.
3. Rental escalations have been forecasted at an average of 2.50% per annum and have been applied from 1 February
2022.
4. The change in fair value is (R0.28 million) arising due to the Block Purchase Consideration of R151.50 million plus
transaction costs of R1.21 million, being at a discount to the fair value of R153.30 million as per the valuation report.
A detailed forecast statement of profit or loss and other comprehensive income for the Block Transaction is set out in
Annexure 2 of the Circular.
2.2. Stoneleigh
Set out below is the summarised forecast statement of profit or loss and other comprehensive income for the Stoneleigh
Transaction (“the Stoneleigh Forecast”) for the year ending 31 December 2022.
The Stoneleigh Forecast has been prepared on the assumption that transfer of the Stoneleigh Units will be completed,
that all conditions precedent would have been met, and rental income in terms of the leases will be received from 1 January
2022 (“Effective Date”).
The Stoneleigh Forecast, including the assumptions on which they are based and the financial information from which it
has been prepared, is the responsibility of the Directors. The Stoneleigh Forecast has not been reviewed or reported on
by Independent Reporting Accountants.
The Stoneleigh Forecast presented in the table below has been prepared in accordance with Transcend’s accounting
policies and in compliance with International Financial Reporting Standards.
Stoneleigh Forecast for
the year ending
31 December 2022
ZAR
R’000
Rental revenue 13,836
Net property income / net operating profit 11,070
Net operating profit after tax 11,070
Profit available for distribution 11,070
The Stoneleigh Forecast incorporates the following material assumptions in respect of revenue and expenses:
1. 92% of rental revenue is guaranteed for a period of 12 months from the Effective Date. The balance of the revenue is
uncontracted.
2. Management’s best estimate is that vacancies will stabilise around 4% before transfer and that additional escalations
will be achievable on the securing of lease renewals after six months of the Effective Date. Vacancies have been
forecasted at 4.00% of gross rental income.
3. Rental escalations have been forecast at an average of 2.00% per annum and have been applied from 1 February
2022.
4. Bad debts have been provided for at a rate of 1.50% of gross rental income.
3. VALUATION
3.1. The Block Valuation:
The Block was valued by Theuns Behrens and Ben Labuschagne of Real Insight, both of whom are registered as
independent external valuers in terms of the Property Valuers Profession Act, No 47 of 2000.
The Block has been valued at R153,300,000 as at 1 October 2021.
A detailed valuation report has been prepared in respect of the Block and is available for inspection in terms of paragraph
14 of the Circular. A summary of the valuation report has been included in Annexure 1 of the Circular.
The value of the Block Portfolio in terms of the Independent Valuer’s report exceeds the Block Purchase Consideration by
c. R1.80 million before the deduction of any capitalised costs, as detailed in paragraph 3.3 of the Circular.
3.2. The Stoneleigh Valuation
The Stoneleigh Purchase Consideration of R102 million is based on an acquisition yield of 10.85%, which the Directors
believe is market related. As Stoneleigh is a new development, no independent valuation was performed. The Directors have
valued the property at R102 million as at 1 September 2021. The Directors are not registered as independent external valuers
in terms of the Property Valuers Profession Act, No 47 of 2000.
4. FUNDING OF THE PROPOSED TRANSACTIONS AND WAIVER OF A MANDATORY OFFER
4.1. Both the Block Purchase Consideration and the Stoneleigh Purchase Consideration will be settled in cash and will be funded
through the raising of new debt and equity in the ratio of approximately 40% debt and 60% equity, which equity will be raised
pursuant to a vendor consideration placing.
4.2. As a result, Transcend seeks to place up to 33,065,217 shares (“VCP Shares") in the market on behalf of IHS Fund II and
Renico Construction by way of an accelerated bookbuild (“Vendor Consideration Placing”).
4.3. Emira Property Fund Limited (“Emira”), which currently holds 45,682,283 (34.90%) of Transcend’s shares in issue
(“Transcend Shares”), has provided an irrevocable commitment (“Emira Irrevocable Commitment”) to subscribe for a
minimum of 11,539,761 VCP Shares and up to a maximum of 29,876,258 (“Emira Subscription Shares") in terms of the
Vendor Consideration Placing. Should all of the Emira Subscription Shares be issued, Emira will control up to a maximum
of 75,558,541 Transcend Shares, amounting to 46.08% of the Transcend Shares in issue.
4.4. Thus, as a consequence of the issue of the Emira Subscription Shares, and should Emira’s interest in the voting rights
attached to Transcend Shares exceed 35%, Emira would be obliged to make a mandatory offer to the remaining Transcend
Shareholders, unless such mandatory offer is waived in advance in accordance with Regulation 86(4) of the Companies
Regulations, 2011 (“Companies Regulations”).
4.5. Emira has no intention of obtaining control of Transcend. Accordingly, and as a condition to the Emira Irrevocable
Commitment, independent Transcend Shareholders, being Transcend Shareholders other than Emira, will be requested to
waive their right to receive a mandatory offer (“Waiver”) by way of an ordinary resolution to be proposed at the General
Meeting (as defined below).
4.6. In accordance with Regulation 86(7) of the Companies Regulations, an independent expert has been appointed to provide
a fair and reasonable opinion in relation to the Waiver. The opinion is included in Annexure 7 of the Circular.
5. DISTRIBUTION OF CIRCULAR AND NOTICE OF GENERAL MEETING
Shareholders are advised that the Company has today Tuesday, 9 November 2021, posted a Circular pertaining to the Block
Transaction.
Copies of the Circular may be obtained from the Company’s website at: https://transcendproperty.co.za/investor-information/,
from its registered office: 54 Peter Place Block C, Cardiff House, Peter Place Office Park, Bryanston, Johannesburg, 2191
between 09:00 and 16:30 on business days from 9 November 2021, or by prior arrangement via email to
sponsor@questco.co.za, at the offices of the Transaction Sponsor.
Notice is hereby given that a general meeting of shareholders will be held by electronic communication in accordance with the
provisions of section 63(2) of the Companies Act, 2008 (“Companies Act”) at 10:00 on Wednesday, 8 December 2021, to
consider the resolutions to approve the Block Transaction and the Waiver (“General Meeting”).
6. SALIENT DATES AND TIMES
The important dates and times in relation to the General Meeting are set out below:
2021
Record date for determining which Shareholders will be entitled to receive the Circular Friday, 29 October
Circular and notice of General Meeting posted to Shareholders and announcement on SENS Tuesday, 9 November
Last day to trade in order to be eligible to participate in and vote at the General Meeting Tuesday, 30 November
Record date to be eligible to attend and vote at the General Meeting Friday, 3 December
Last day to lodge forms of proxy for the General Meeting by 10:00 Monday, 6 December
General Meeting held at 10:00 Wednesday, 8 December
Results of the General Meeting released on SENS Wednesday, 8 December
Results of the General Meeting published in the press Thursday, 9 December
Proposed date of receipt of the Takeover Regulation Panel’s (“TRP”) ruling on the Waiver Thursday, 9 December
Proposed date of release on SENS of the TRP’s ruling on the Waiver Thursday, 9 December
Last day for Shareholders to request a review of the ruling on the Waiver Friday, 17 December
These dates and times are subject to amendment. Any such amendment will be released on SENS.
7. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated 22 September 2021, and the renewal of the cautionary
announcement dated 4 November 2021, and are hereby advised that as the forecast financial information in respect of the
Proposed Transactions has been disclosed, the cautionary announcement is hereby withdrawn. Accordingly, Shareholders are
no longer required to exercise caution whilst trading in the Shares of Transcend.
8. DIRECTORS RESPONSIBILITY STATEMENT
The board of Directors of Transcend (“Board”) (including the independent members thereof (“the Independent Board”)),
individually and collectively, accept full responsibility for the accuracy of the information contained in this announcement and
certify that, to the best of their knowledge and belief, such information is true and this announcement does not omit any facts
that would make any of the information false or misleading or would be likely to affect the importance of any information
contained in this announcement.
The Independent Board and the Board have made all reasonable enquiries to ascertain that no facts have been omitted and
this announcement contains all information required by law and the Companies Act.
Bryanston
9 November 2021
Corporate Advisor and Bookrunner
Tenurey BSM Proprietary Limited
JSE Sponsor and Transaction Sponsor
Questco Corporate Advisory Proprietary Limited
Legal Advisor
Tonkin Clacey Incorporated
Independent Reporting Accountants and Auditors
KPMG
Date: 09-11-2021 05:24:00
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