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VKE - Vukile Property Fund Limited - Detailed cautionary announcement regarding the strategic acquisition of a portfolio of 20 properties and introduction of the PIC as a large unitholder Vukile Property Fund Limited (Incorporated in the Republic of South Africa) Registration number 2002/027194/06 JSE Share code: VKE ISIN: ZAE000056370 NSX Share code: VKN ("Vukile" or "the company") DETAILED CAUTIONARY ANNOUNCEMENT REGARDING THE STRATEGIC ACQUISITION OF A PORTFOLIO OF 20 PROPERTIES AND INTRODUCTION OF THE PIC AS A LARGE UNITHOLDER 1. Introduction Further to the cautionary announcement dated 3 November 2011, Vukile linked unitholders ("unitholders") are advised that the company has made an offer to Sanlam Life Insurance Limited ("Sanlam") dated 3 November 2011 in terms of which Vukile will acquire the property letting enterprises (the "Enterprises") in respect of a portfolio of properties (the "Property Portfolio") (the "Transaction") which offer has been accepted by Sanlam. The Transaction will become effective upon the date of fulfilment or waiver of the conditions precedent set out in paragraph 4 below (the "Effective Date"), which is expected to be on or about 1 June 2012, and accordingly the Property Portfolio has been valued at that date. Coterminously with the Transaction, the Public Investment Corporation ("PIC") has reached agreement with Sanlam in terms of which it will acquire 70 200 000 Vukile units from the Sanlam Group (the "Acquisition"). The PIC will acquire the stake of c.20% and thereby become a large unitholder in Vukile. The last condition precedent to the Acquisition is the announcement of the Transaction. Accordingly, the Sanlam Group`s beneficial unitholding in Vukile will reduce to 13.6%, of which 7.6% will be held by Sanlam Policy holder funds and will be considered as an institutional holding. 2. Rationale Transaction The Transaction fulfils Vukile`s objective of growing a quality portfolio of properties with strong cash flows in order to achieve meaningful capital appreciation and sustainable growth in distributions. Vukile already manages the properties in the Property Portfolio on behalf of Sanlam and has deep insight into the properties making this a low risk acquisition which will be integrated seamlessly into the Vukile portfolio. Within the property portfolio being acquired the offices are well located with good quality building specifications, hence the Transaction will enhance the quality of Vukile`s current office portfolio. The total acquisition cost of R8 154/m2 is 29.2% higher than the current valuation of Vukile`s total portfolio on a R/m2 basis. The Transaction increases the group`s exposure in the Western Cape. The Transaction will also assist in achieving Vukile`s strategy of broadening its unitholder base and seeking to achieve a JSE free float rating of 100% (currently 50%) in respect of the FTSE/JSE Africa Index series. Acquisition The Acquisition has been concluded to realign Sanlam`s property exposure with its investment requirements. The Acquisition also introduces the PIC as a large unitholder in the company. The PIC is one of the largest property investors in South Africa and the introduction of such a seasoned property investor is an affirmation of the new Vukile strategy. 3. Purchase Consideration The Enterprises will be acquired for a purchase consideration of R1 490 303 000 (One billion four hundred and ninety million three hundred and three thousand Rand), payable in cash (the "Purchase Consideration") on the Effective Date. The Purchase Consideration has been determined on the basis that the Property Portfolio will be transferred on 1 June 2012. To the extent that the Effective Date is prior to or post 1 June 2012, the Purchase Consideration will be adjusted upwards or downwards by 0.017255% compounded daily (6.5% per annum). The first and second year forecast yields in respect of the Enterprises are 8.8% and 9.5% respectively. The Property Portfolio being acquired has been externally valued as described more fully in paragraph 6 below. The external value equates to 98% of the Purchase Consideration. Details per property are listed in paragraph 5 below. The Purchase Consideration will be funded through a combination of debt and the issue of new linked units (the "Consideration Units"). 4. Conditions precedent The Transaction is subject to the fulfilment of the following conditions precedent on or before the Effective Date: 4.1. Approval by the Listings Division of the stock exchange operated by the JSE Limited and all other regulatory authorities; 4.2. Approval by the South African Competition Authorities; 4.3. Raising the required capital through the issue of the Consideration Units and raising of the requisite bank debt; 4.4. Unitholders passing the required resolutions to approve the Transaction and placing of the Consideration Units under the control of the Vukile board and authorising the Vukile board to allot and issue the Considerations Units; 4.5. Consent from the eThekwini Metropolitan Municipality to cede and assign the land lease for the Durban Workshop centre from Sanlam to Vukile; 4.6. Sanlam providing Certificates of Identification in respect of the Property Portfolio; 4.7. Sanlam providing Electrical Compliance Certificates in respect of the Property Portfolio; and 4.8. Conclusion of a formal agreement of sale containing all the normal terms, conditions and warranties associated with a transaction of this nature. 5.Salient details of the Property Portfolio Specific information relating to the Property Portfolio: Bassonia Bellville Office Bellville Bellville Tijger
Details Park Barons Santyger Park 1 Location Bassonia Bellville Bellville Bellville Johannes- Western Western Western Burg Cape Cape Cape
Gauteng Sector Offices Retail Offices Offices GLA (mSquared) 1 597 6 778 6 374 3 198 Single or multi tenanted Multi Multi Multi Multi Weighted average rental per mSquared (Rand) - contractual September 2011 89.68 86.21 100.58 87.74 Vacancy by rentable area (mSquared) - - 1 018 - Vacancy % of total GLA (mSquared) 0.0% 0.0% 16.0% 0.0% Annualised property yield on purchase price 8.2% 8.5% 9.2% 9.1% External valuer Jones Quadrant Quadrant Quadrant Lang Properties Properties Properties LaSalle Valuation (Rand million) 9.660 64.400 66.450 32.700 Price (Rand million) 10.214 70.033 67.183 32.067 Bellville Bellville Bellville
Tijger Tijger Tijger Details Park 2 Park 3 Park 4 Location Bellville Bellville Bellville Western Western Western
Cape Cape Cape Sector Offices Offices Offices GLA (mSquared) 3 904 4 345 4 297 Single or multi tenanted Multi Multi Single Weighted average rental per mSquared (Rand) - contractual September 2011 75.63 83.58 81.55 Vacancy by rentable area (mSquared) 2 099 1 115 - Vacancy % of total GLA (mSquared) 53.8% 25.7% 0.0% Annualised property yield on purchase price 7.7% 8.4% 8.8% External Valuer Quadrant Quadrant Quadrant Properties Properties Properties
Valuation (Rand million) 30.300 36.300 47.500 Price (Rand million) 32.546 37.003 50.344 Bloem- Fontein Durban Bellville Trador Westville Tijger Cash Surrey Durban
Details Park 5 & Carry Park Workshop Location Bellville Bloem- Westville Durban Western fontein Durban KwaZulu- Cape Free State KwaZulu- Natal
Natal Sector Offices Retail Offices Retail GLA (mSquared) 4 480 6 563 3 176 20 138 Single or multi tenanted Multi Multi Multi Multi Weighted average rental per mSquared (Rand) - contractual September 2011 85.00 0.00* 75.01 110.40 Vacancy by rentable area (mSquared) 600 6 563 710 141 Vacancy % of total GLA (mSquared) 13.4% 100.0% 22.4% 0.7% Annualised property yield on purchase price 8.8% 9.8%* 11.5% 10.5% External Valuer Quadrant Jones Lang Jones Lang Jones Lang Properties LaSalle LaSalle LaSalle Valuation (Rand million) 40.950 18.400 19.880 139.100 Price (Rand million) 42.206 18.119 22.582 133.442 * Currently vacant - effective yield assumes the building is fully let within the first year. Johannes- Burg Empire Johannes- Road burg Pretoria
Details Offices Houghton Sanlynn** Location Parktown Houghton Lynnwood Johannes- Johannes- Manor Burg burg Pretoria
Gauteng Gauteng Gauteng Sector Offices Offices Offices GLA (mSquared) 5 959 28 068 8 619 Single or multi tenanted Multi Multi Multi Weighted average rental per mSquared (Rand) - contractual September 2011 78.44 69.89 98.83 Vacancy by rentable area (mSquared) 1 403 1 913 - Vacancy % of total GLA (mSquared) 23.5% 6.8% 0.0% Annualised property yield on purchase price 10.2% 8.4% 8.9% External Valuer Jones Lang Jones Lang Quadrant LaSalle LaSalle Properties
Valuation (Rand million) 38.100 223.900 104.600 Price (Rand million) 43.378 230.133 108.000 ** The acquisition of this property is subject to the satisfactory renewal of a Sanlam lease (74% of the building) which is currently in process. Pretoria Rosslyn
Joshua Sandton Midrand Doore Pretoria Ascot Details IBG Warehouse Sancardia Offices Location Midrand Rosslyn Arcadia Bryanston Gauteng Pretoria Pretoria Sandton Gauteng Gauteng Gauteng Sector Offices Industrial Offices Offices GLA (mSquared) 8 515 7 541 28 723 5 539 Single or multi tenanted Multi Single Multi Multi Weighted average rental per mSquared (Rand) - contractual September 2011 80.04 82.07 63.19 63.69 Vacancy by rentable area (mSquared) 1 497 - 8 027 - Vacancy % of total GLA (mSquared) 17.6% 0.0% 27.9% 0.0% Annualised property yield on purchase price 8.2% 8.5% 8.2% 8.4% External Valuer Quadrant Quadrant Jones Lang Quadrant Properties Properties LaSalle Properties Valuation (Rand million) 80.600 24.700 173.000 49.400 Price (Rand million) 80.715 25.529 179.550 49.136 Sandton Sandton Rivonia Sunninghill
Details Tuscany Park Total Location Rivonia Sunninghill Sandton Sandton Gauteng Gauteng
Sector Offices Offices GLA (mSquared) 11 088 14 790 183 692 Single or multi tenanted Multi Multi Weighted average rental per mSquared (Rand) - contractual September 2011 80.75 81.79 78.96 Vacancy by rentable area (mSquared) 1 354 - 26 441 Vacancy % of total GLA (mSquared) 12.2% 0.0% 14.5% Annualised property yield on purchase price 8.4% 8.7% 8.8% External valuer Jones Lang Jones Lang LaSalle LaSalle Valuation (Rand million) 114.850 142.800 1 457.590 Price (Rand million) 114.708 143.415 1 490.303 6. Related Party Transaction and independent valuation report As Sanlam was a holder of more than 10% of the units in Vukile during the last 12 months, the Transaction is classified as a related party transaction in terms of the JSE Listings Requirements. The company has therefore appointed two independent registered valuation experts, Jones Lang LaSalle (Proprietary) Limited and Quadrant Properties (Proprietary) Limited ("the Valuers"), to value the Property Portfolio. The details of the valuation of the Property Portfolio will be disclosed in the circular to be sent to unitholders to approve the Transaction (the "Circular"). Based on these valuations, the Vukile directors will state whether the terms and conditions of the Transaction are fair to unitholders. 7. Circular and general meeting The Circular to unitholders containing details of the Transaction and all resolutions and the notice of general meeting will be posted to all unitholders in due course. 8. Financial effects of the Transaction and continued cautionary announcement The interim results for the company are due to be released on 21 November 2011. Financial effects of the Transaction will be provided on or about 30 November 2011. Accordingly, unitholders are advised to continue exercising caution when dealing in the company`s linked units until the financial effects of the Transaction have been disclosed Johannesburg 14 November 2011 Merchant Bank and Transaction Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited) Reporting Accountants: Grant Thornton Independent Valuation Experts: Quandrant Properties (Pty) Ltd and Jones Lang LaSalle Date: 14/11/2011 07:30:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
