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IPF - Investec Property Fund Limited - Proposed acquisition of two properties in
terms of a related party transaction ("Proposed Transaction")
INVESTEC PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2008/011366/06)
Share code: IPF ISIN: ZAE000155099
("Investec Property Fund" or "the Fund")
PROPOSED ACQUISITION OF TWO PROPERTIES IN TERMS OF A RELATED PARTY TRANSACTION
("PROPOSED TRANSACTION")
1. Introduction
Linked unit holders are hereby advised that the Fund, a company primarily
involved in property investment, will acquire two properties ("Properties")
from Investec Property Limited ("Investec Property) and Randburg Street
Property (Proprietary) Limited, wholly owned subsidiaries of Investec
Limited ("Investec") ("the Vendors"), for a total purchase consideration of
R185.9 million ("Purchase Consideration"). The Purchase Consideration is to
be settled in cash and will be funded, initially by way of a bridging
facility provided by Investec Bank Limited.
The Proposed Transaction constitutes a related party transaction in terms
of the Listings Requirements of the JSE Limited ("Listings Requirements")
as Investec, through Investec Property, is the manager of the Fund and
holds 50% plus 100 (one hundred) linked units of the Fund`s issued linked
units. Accordingly, Investec will not vote on the Proposed Transaction.
Subject to linked unit holder approval, the Purchase Consideration shall be
paid to the Vendors upon registration of transfer of the Properties into
the name of the Fund ("Transfer Date"). The effective date of the Proposed
Transaction will be 1 October 2011 ("Effective Date"), notwithstanding the
Transfer Date. Consequently should the Transfer Date fall after the
Effective Date, the net rental income of the Properties will accrue to the
Fund from the Effective Date and the Fund will pay interest on the Purchase
Consideration to the Vendors, at a call rate, from the Effective Date until
the Transfer Date.
2. Rationale for the Proposed Transaction
The Proposed Transaction is at an attractive yield, which the directors
believe offers good value and will enhance the earnings and growth
prospects of the Fund. The independent valuation set out in 3.3 below
supports this view.
3. Properties being acquired
3.1 The Innovation Building
The Innovation Group which is a wholly owned subsidiary of Innovation
Group Plc, a specialist global provider of software and outsourcing
solutions to insurers and the associated fleet, automotive and
property sectors, occupies the entire building, located on ERF 524
Kensington B, Registration Division I.R. Province of Gauteng.
The building is situated at 192 Bram Fischer Drive, Randburg and has
been refurbished by Investec in accordance with the tenant`s
specifications and now provides 15,500 m2 quality B-grade office
accommodation over 9 floors and 2 basements providing 516 parking bays
and some storage space. Bram Fischer is one of the main roads in the
Randburg CBD and is in close proximity to most major roads with easy
access to the freeway system. The location and height of the building
provides excellent exposure for the tenant.
A 10 year lease has been concluded with the tenant, which commenced on
1 September 2011. The weighted average gross rental per m2 for the
property is R78.84/m2.
3.2 The Scientific Building
The Scientific Group, which is owned by Capital Works Partners and
Brimstone Limited and provides diagnostic and medical equipment to the
healthcare industry, occupies the entire building which comprises a
gross lettable area of 5,733m2 of warehouse and auxiliary office space
and is situated on ERF 15621, an ERF pending subdivision from the
mother ERF, Cosmo City Ext 15. The property forms part of the new
Cosmo Business Park located just north of Kya Sands industrial node,
in close proximity to Lanseria Airport and with direct access and
exposure onto Malibongwe Drive (R612).
A 7 year triple net lease has been concluded with the tenant, which
commenced on 1 July 2011. The weighted average gross rental per m2 for
the property is R54.21/m2
3.3 Valuation of the Properties
An independent valuation of the Properties has been performed by Mills
Fitchet Magnus Penny (Proprietary) Limited ("Independent Valuer"),
which at R194.5 million exceeds the Purchase Consideration. The
Independent Valuer is an independent registered valuer as defined in
Section 13 of the Listings Requirements.
Property name Independent Valuer Purchase Consideration
(R`000) at cost
(R`000)
Innovation 160,000 151,000
Building
Scientific 34,500 34,900
Building
Total 194,500 185,900
The Purchase Consideration represents the aggregate of the directors`
valuation of the Properties to be acquired.
4. Linked unit holder approval
The purchase of the Properties will require the approval of Fund`s linked
unit holders in general meeting as it is a related party transaction. A
circular, containing full details of the Proposed Transaction and
incorporating a notice of general meeting, will be sent to linked unit
holders for this purpose.
5. Conditions precedent
The Proposed Transaction is subject to linked unit holder approval in
general meeting.
6. Unaudited forecast financial information of the Properties
The unaudited profit forecast of the Properties for the six months ending
31 March 2012 and the further twelve months ended 31 March 2013 is set out
in the table below. The directors of the Fund are responsible for the
unaudited profit forecast including the assumptions on which it is based,
and for the financial information from which it has been prepared.
The forecast information has been prepared on a basis consistent with the
accounting policies of the Fund and in compliance with International
Financial Reporting Standards. The information below has been prepared on
the assumption that the Properties have been transfer to the Fund on 1
October 2011.
Unaudited Unaudited
forecast forecast
for for
the the
Properties Properties
for the six for the
months year
ending ending
31 March 31 March
2012 2013
R`000 R`000
Revenue
Gross rental and related revenue, 10,574
excluding straight-line rental revenue 22,248
adjustment
Straight-line rental revenue adjustment 3,712
6,520
Rental revenue 14,286 28,768
Property expenses (1,517) (3,300)
Net rental and related revenue 12,769 25,468
Other operating expenses
Asset management fee (465) (930)
Operating profit 12,304 24,538
Finance costs (7,343) (14,686)
Profit before debenture interest and 4,961 9,852
taxation
Debenture interest (1,248) (3,330)
Profit before taxation 3,713 6,522
Taxation (1,040) (1,826)
Profit after taxation attributable to equity 2,673 4,696
holders / Total comprehensive income
Reconciliation of attributable earnings to
distributable earnings
Attributable earnings 2,673 4,696
Debenture interest 1,248 3,330
Earnings 3,921 8,026
Straight-line rental revenue adjustment (3,712) (6,520)
Deferred tax on straight-line rental revenue 1,039 1,826
adjustment
Distributable earnings 1,249 3,332
Distributable to Linked Unit Holders 1,249 3,332
Interest on debentures 1,248 3,330
Dividends on ordinary shares 1 2
Undistributed earnings - -
Linked Units in issue 170,000,000 170,000,000
Incremental distribution per Linked Unit 0.73 1.96
(cents)
Notes and assumptions:
The profit forecast for the six months ending 31 March 2012 and twelve
months ending 31 March 2013 is based on the following assumptions:
Assumptions that are outside the influence of the directors:
1. Circumstances which affect the Fund`s business, but which are outside
of the control of the directors, will not change in a way that will
materially affect the trading situation of the Properties;
2. The Properties have been transferred with effect from 1 October 2011;
3. No unforeseen economic factors that will affect the tenants` ability
to meet their commitments in terms of the existing lease agreements
have been included;
4. Finance costs are calculated at JIBAR plus a 225 basis point spread,
being the rate of the bridging loan and which is in line with funding
costs for a similar sized listed property funds. Finance costs are
thus assumed to be based on an interest rate of 7.9% which remains
constant over the forecast period ending 31 March 2012 and 31 March
2013;
5. Deferred tax on the straight-line rental revenue adjustment has been
included at a rate of 28%;
6. Secondary Tax on Companies, related to the dividend on ordinary shares
has been included at a rate of 10%.
It is noted that the Minister of Finance stated in his Budget Speech
on 23 February 2011 that the proposed withholding dividend tax
legislation will become effective from 1 April 2012 and that this will
replace Secondary Tax on Companies. This means that dividend tax of
10% will be withheld by a company on behalf of linked unit holders
when dividends are paid. This dividend tax will, however, be levied
on the linked unit holder as opposed to the company, which is
currently the case in relation to Secondary Tax on Companies. The
rate of dividend withholding tax may be reduced through the
application of exemptions or via the application of a relevant double-
tax treaty where a company pays dividends to non-South African tax
resident linked unit holders. As such, it should be noted that for
periods beyond 31 March 2012 the assumption relating to Secondary Tax
on Companies that has been applied to this unaudited forecast for the
year ending 31 March 2012 may no longer apply in the same manner
should this proposed tax legislation be enacted;
Assumptions that the directors can influence:
7. Contracted revenue is based on existing lease agreements and has been
forecast for each property;
8. There is no uncontracted rental income;
9. All existing lease agreements are valid;
10. No fair value adjustments to the Properties have been provided for;
11. Operating expenditure has been based on discussions with, and records
of the Vendor rather than historical costs of similar buildings
(taking into account the effects of inflation on these) as the
historical costs either don`t exist or are not comparable for the
Properties as the Scientific Building is a new building and thus
historical costs do not exist and the Innovation Building has been
refurbished and thus the historical costs are not comparable. No
material expenditure items have been increased in the forecast periods
ending 31 March 2012 and 31 March 2013 by more than 15% when compared
with historical costs of similar buildings (taking into account the
affects of inflation on these) and the only significant expenditure
items of the Properties being acquired are in respect of the asset
management fees and repairs and maintenance costs;
12. The only material operating expense within property expenses is
repairs and maintenance, which is forecast to be R540,000 for the 6
months ending 31 March 2012 and R1,188,000 for the 12 months ended 31
March 2013. These expenses were based on supplier quotes provided by
the Vendors;
13. The asset management fee is in line with the relevant agreement and
amounts to 0.5% of the enterprise value of the Fund. For purposes of
the forecast the enterprise value has been assumed to equal the cost
of the Properties, being R185.9 million for the entire forecast
period;
14. Surplus cash arising from monthly net rental flows will be invested in
interest bearing deposits at an assumed rate of 5.35% per annum; and
15. It has been assumed that distributable earnings will be distributed to
linked unit holders in full.
The above assumptions are material to the forecast and the actual
profit of the Properties will depend on them. Unforeseen events or
circumstances may also occur subsequent to the date of this
announcement and the actual results achieved by the Properties during
the forecast periods ending the 31 March 2012 and 31 March 2013 may
therefore differ materially from the forecast.
7. Circular to linked unit holders
A circular to linked unit holders, incorporating the Independent Valuer`s
valuation of the Properties and a notice of general meeting is currently
being prepared and will be forwarded to linked unit holders in due course.
It is anticipated that the circular will be posted to linked unit holders
on or about 20 September 2011
Johannesburg
5 September 2011
Corporate Advisor and Transactional Sponsor Attorneys
Sponsor
(Investec Corporate (BDO Corporate Finance (Fluxmans logo)
Finance logo) logo)
Independent Reporting Independent Valuers
Accountants and Auditor
(E&Y logo) (Mills Fitchet Magnus
Penny logo)
Date: 05/09/2011 11:38:03 Supplied by www.sharenet.co.za
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