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DELTA PROPERTY FUND LIMITED - Forecast financial information and financial effects relating to the acquisitions of letting Enterprises and Propert

Release Date: 07/02/2013 17:20
Code(s): DLT     PDF:  
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Forecast financial information and financial effects relating to the acquisitions of letting Enterprises and Propert

Delta Property Fund Limited
(formerly Tuffsan 89 Investment Holdings Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2002/005129/06)
Share code: DLT ISIN: ZAE000172052
("Delta" or “the Company”)



FORECAST FINANCIAL INFORMATION AND FINANCIAL EFFECTS RELATING TO THE
ACQUISITIONS OF LETTING ENTERPRISES AND PROPERTIES AND WITHDRAWAL OF
CAUTIONARY


1.    Introduction

      Linked unitholders are referred to the announcement released on SENS on 24 January 2013
      and published in the press on 25 January 2013 (“the Announcement”), in which it was
      announced that Delta had concluded agreements for the acquisition of letting enterprises and
      properties (“the Acquisitions”) from the following vendors:

              Sugar Creek Trading 278 Proprietary Limited for the purchase of the property and
              letting enterprise commonly known as the “Bestmed Building";

              Ingwazi Property Fund for the purchase of the property and letting enterprise commonly
              known as the “Anchor House Building";

              Frutek Proprietary Limited for the purchase of the property and letting enterprise
              commonly known as the “In 2 Fruit Building";

              Cedar Falls Properties 166 Proprietary Limited, Desert Charm Trading 150 Proprietary
              Limited and Bostwich CC for the purchase of the property and letting enterprises
              commonly known as "Protea Coin Cape Town", "Protea Coin Pretoria" and "Protea Coin
              Durban" respectively, collectively known as the “Protea Coin Portfolio”;

              SEG Alliance Proprietary Limited for the purchase of the property and letting enterprise
              commonly known as the “Edcon Building";

              The owners of Hendisa Investments Proprietary Limited for the purchase of the entire
              issued share capital of Hendisa Investments Proprietary Limited. Hendisa Investments
              Proprietary Limited is the owner of the property and letting enterprise commonly known
              as “Hensa Towers”;

              Sechaba Property Investments Proprietary Limited for the purchase of the property and
              letting enterprise commonly known as "539 Church Street";

              Trifecta Holdings Proprietary Limited and Trifecta Trading 4343 Property 4 Proprietary
              Limited (“Trifecta”) for the purchase of the property and letting enterprises commonly
              known as “5 Elliot Street”, “13 Elliot Street”, “Du ToitSpan” and “Themo Thema”
              respectively, collectively known as the “Trifecta Portfolio”;

              12 New Street South CC, 14 New Street South Shareblock Proprietary Limited and O
              Property Holdings Proprietary Limited (“OPH”) for the purchase of the property and
              letting enterprises commonly known as “12 New Street”, “14 New Street” and “Unisa
              House” respectively, collectively known as the “OPH Portfolio”; and
                                                                                                   
              Manaka Property Investments Proprietary Limited (“Manaka”) for the purchase of the
              property and letting enterprises commonly known as “Manaka Continental”, “Hallmark”,
              “Manaka House” and “Manaka Heights” respectively, collectively known as the “Manaka
              Portfolio”.

     The purpose of this announcement is to present the financial effects of the Acquisitions,
     including the effects of the required debt funding and the issue of linked units.

2.   Forecast information on the properties

     Set out below are:

             the summarised forecast statements of comprehensive income (the “Acquisition
             forecasts”) of the Bestmed Building, Anchor House, the In 2 Fruit Building, the Protea
             Coin Portfolio, the Edcon Building, Hensa Towers, 539 Church Street, the Trifecta
             Portfolio, the OPH Portfolio and the Manaka Portfolio on a stand-alone basis for the
             years ending 28 February 2014 and 28 February 2015; and

             together with the existing Delta property portfolio, a full forecast statement of
             comprehensive income (the “combined property portfolio forecast”) for the year ending
             28 February 2014.

     collectively the “forecasts”.

     The forecasts have been prepared on the assumption that the Acquisitions will be implemented
     between 1 March 2013 and 1 May 2013 and include forecast results for the years ending 28
     February 2014 and 28 February 2015. The combined property portfolio forecast includes
     consolidated forecast results for the existing property portfolio for the year ending 28 February
     2014.

     The forecasts, including the assumptions on which they are based and the financial information
     from which they are prepared, are the responsibility of the directors of Delta. The forecasts have
     not been reviewed or reported on by the independent reporting accountants.

     The forecasts presented in the tables below have been prepared in accordance with Delta’s
     accounting policies and in compliance with IFRS.

     Summarised forecast in respect of the Bestmed Building:



                                                                               Forecast       Forecast
                                                                              12 months      12 months
                                                                                 ending         ending
                                                                            28 February             28
                                                                                   2014       February
                                                                                  R’000           2015
                                                                                                 R’000
          Rental income                                                           7,302          7,920
          Straight-line rental income accrual                                     2,969          2,393
          Total revenue                                                          10,272         10,313
          Net operating profit                                                    6,380          6,301
          Net profit after tax                                                    1,898          1,751
          Distributable earnings attributable to linked unitholders               3,377          3,869
                                                                                    

Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of the Anchor House Building:

                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Rental income                                                     4,564       4,997
    Straight-line rental income accrual                                 529         191
    Total revenue                                                     5,093       5,188
    Net operating profit                                              2,422       2,388
    Net profit after tax                                                273         153
    Distributable earnings attributable to linked unitholders         1,874       2,175


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of the In 2 Fruit Building:

                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Rental income                                                     9,784      11,301
    Straight-line rental income accrual                               1,173         673
    Total revenue                                                    10,957      11,974
    Net operating profit                                              5,248       5,686
    Net profit after tax                                                611         521
    Distributable earnings attributable to linked unitholders         4,034       4,962


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of the Protea Coin Portfolio:

                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Rental income                                                     7,601       8,936
    Straight-line rental income accrual                               1,132         613
    Total revenue                                                     8,733       9,549
                                                                                      
                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Net operating profit                                              5,389       5,834
    Net profit after tax                                                523         479
    Distributable earnings attributable to linked unitholders         4,214       5,169


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
portfolio is contracted.

Summarised forecast in respect of the Edcon building:

                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Rental income                                                     6,945       7,979
    Straight-line rental income accrual                               1,043         788
    Total revenue                                                     7,988       8,767
    Net operating profit                                              3,701       4,118
    Net profit after tax                                                559         591
    Distributable earnings attributable to linked unitholders         2,632       3,297


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of Hensa Towers:

                                                                   Forecast    Forecast
                                                                  12 months   12 months
                                                                     ending      ending
                                                                28 February          28
                                                                       2014    February
                                                                      R’000        2015
                                                                                  R’000
    Rental income                                                    28,275      30,820
    Straight-line rental income accrual                               6,297       3,853
    Total revenue                                                    34,572      34,673
    Net operating profit                                             21,555      21,433
    Net profit after tax                                              3,445       2,901
    Distributable earnings attributable to linked unitholders        15,105      17,404


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of 539 Church Street:
                                                                                                                                                           Forecast      Forecast
                                                                   12 months      12 months
                                                                      ending         ending
                                                                  28 February            28
                                                                         2014      February
                                                                        R’000          2015
                                                                                      R’000
    Rental income                                                        6,096        6,635
    Straight-line rental income accrual                                  1,250          787
    Total revenue                                                        7,346        7,422
    Net operating profit                                                 3,828        4,120
    Net profit after tax                                                   747          591
    Distributable earnings attributable to linked unitholders            2,552        3,299


Contracted revenue is based on existing lease agreements. 100% of the revenue for this
property is contracted.

Summarised forecast in respect of the Trifecta Portfolio:

                                                                     Forecast      Forecast
                                                                    12 months     12 months
                                                                       ending        ending
                                                                  28 February            28
                                                                         2014      February
                                                                        R’000          2015
                                                                                      R’000
    Rental income                                                      20,724        23,236
    Straight-line rental income accrual                                 1,982           645
    Total revenue                                                      22,706        23,880
    Net operating profit                                               12,927        12,945
    Net profit after tax                                                  685           553
    Distributable earnings attributable to linked unitholders          10,836        12,177


Contracted revenue is based on existing lease agreements. Uncontracted revenue in respect of
this portfolio amounts to 6.7% and 8.6% for the years ending 28 February 2014 and 2015,
respectively.

Summarised forecast in respect of the OPH Portfolio:

                                                                     Forecast      Forecast
                                                                    12 months     12 months
                                                                       ending        ending
                                                                  28 February            28
                                                                         2014      February
                                                                        R’000          2015
                                                                                      R’000
    Rental income                                                      16,032        19,643
    Straight-line rental income accrual                                 2,166         1,042
    Total revenue                                                      18,198        20,686
    Net operating profit                                               10,554        11,755
    Net profit after tax                                                  935           828
    Distributable earnings attributable to linked unitholders           8,304        10,605
                                                                                         
Contracted revenue is based on existing lease agreements. Uncontracted revenue in respect of
this portfolio amounts to 8.5% and 16.0% for the years ending 28 February 2014 and 2015,
respectively.

Summarised forecast in respect of the Manaka Portfolio:

                                                                     Forecast      Forecast
                                                                    12 months     12 months
                                                                       ending        ending
                                                                  28 February            28
                                                                         2014      February
                                                                        R’000          2015
                                                                                      R’000
    Rental income                                                      87,207       103,673
    Straight-line rental income accrual                                10,991         4,850
    Total revenue                                                      98,197       108,523
    Net operating profit                                               48,241        55,662
    Net profit after tax                                                5,166         3,858
    Distributable earnings attributable to linked unitholders          36,877        50,304


Contracted revenue is based on existing lease agreements. Uncontracted revenue in respect of
this portfolio amounts to 8.0% and 9.5% for the years ending 28 February 2014 and 2015,
respectively.

    The combined property portfolio forecast:

                                                                                     Forecast
                                                                                   12 months
                                                                                    ending 28
                                                                                February 2014
                                                                                        R’000
    Notes:
    Revenue
    Rental income (Trading income)                                                    486,746
    - Gross property rental income                                                    423,615
    - Recoveries                                                                       63,131
    Straight-line rental income adjustment                                             59,820
    Total revenue                                                                     546,566
    Expenses
    Property expenses (Trading expenses)                                            (103,726)
    Administrative expenses and corporate costs                                      (41,188)
    Other income                                                                            -
    Profit from operations                                                            401,652
    Finances costs                                                                  (124,982)
    Finance income                                                                      5,112
    Profit before debenture interest                                                  281,782
    Debenture interest                                                              (219,742)
    Profit after debenture interest                                                    62,040
    Capital expenses not included in distribution
    Fair value adjustment                                                                   -
    Transaction costs                                                                  (7,074)
    Debt restructuring                                                                      -
                                                                                                    
          Profit before taxation                                                        54,966
          Taxation                                                                     (17,371)
          Profit after taxation                                                         37,595
          Other comprehensive income for the period                                          -
          Total comprehensive income for the period (attributable
          earnings)                                                                     37,595
          Number of linked units in issue ('000)                                       289,316
          Weighted average number of linked units in issue ('000)                      277,378
          Earnings per linked unit (cents)                                               91.39
          Headline Earnings per linked unit (cents)                                      91.39
          Distribution per linked unit (cents)                                           75.95
          Annualised distribution yield (R8.40 issue price per                            9.26%
          linked unit)
          Reconciliation between earnings and headline earnings attributable to shareholders

          Net profit after taxation                                                     37,595
          Adjusted for:
          Fair value adjustment (net of taxation)                                            -
          Earnings & headline earnings attributable to
          shareholders                                                                  37,595
          Reconciliation between earnings, headline earnings and distributable earnings
          attributable to Linked Unitholders
          Profit before taxation                                                        37,595
          Adjusted for:
          Debenture interest                                                           219,742
          Capital and other items not distributed                                        7,074
          Earnings attributable to Linked Unitholders                                  264,411
          Adjusted for:
          Fair value adjustment (net of taxation)                                            -
          Headline earnings attributable to Linked Unitholders                          264,411
          Straight-line rental income adjusted net of deferred tax                      (43,071)
          Dividend paid to shareholders                                                  (1,598)
          Distributable earnings                                                        219,742


Main assumptions and comments on the forecasts
Assumptions considered to be significant are disclosed below, however, the assumptions disclosed
are not intended to be an exhaustive list.
       The forecast information is based on information derived from the vendors, historical financial
       information and the directors’ knowledge of and experience in the property industry;
       All existing lease agreements are valid and enforceable;
       Contracted revenue, which comprises rental income and expense recoveries from existing
       tenants, is based on existing lease agreements for the duration of such agreements;
       Rental income in respect of current vacant space, reported under forecast gross rental
       income, has been excluded from the forecast information;
       Leases expiring during the respective forecast periods have been forecast on a lease-by-lease
       basis. In circumstances where the tenants occupy the premises on a month-to-month basis, it
       has been assumed that where such tenants have indicated that they are satisfied with the
       premises, they will continue to occupy the premises at the same rates and escalations. In
       circumstances where the existing lease agreements will expire during the periods under
                                                                                                  
review and the current tenants have indicated that they are satisfied with the premises, it has
been assumed that such tenants will continue to occupy the premises at the same rates and
escalations as per the existing lease agreements, unless they have specifically indicated
otherwise;
Forecast uncontracted rental income in respect of the Acquisitions included in the forecast
information amounts to 5.8%, and 7.7% for the years ending 28 February 2014 and 2015
respectively. Uncontracted revenue for the combined portfolio amounts to 6% for the 12
months ending 28 February 2014;
Forecast recoveries in respect of municipal expenses have been based on the terms of the
existing lease agreements;
Straight-line rental adjustments are performed on an individual lease basis, are based on
current lease agreements and exclude any assumptions of renewals or new leases during the
respective forecast periods;
Properties will be paid for as and when they are transferred. The dates of transfer are
assumed to be 1 March 2013 for the Bestmed Building, Anchor House, Hensa Towers and
539 Church Street, 1 April 2013 for the Edcon Building, In 2 Fruit Building, Unisa House,
Protea Coin Portfolio, Trifecta Portfolio and Manaka Portfolio and 1 May 2013 for 12 New
Street and 14 New Street;
The total purchase consideration for the transactions amounts to R1.723 billion and is
inclusive of costs to be capitalised of R12 million;
The purchase considerations will be funded in part (c.60%) through the issue of additional
linked units in terms of a rights issue and a private placement and in part (c.40%) by new debt
facilities;
The additional linked units are assumed to be issued at a price of R8.40;
Transaction costs amounted to R30.3 million of which R11.2 million is written off against share
capital in terms of IAS 32 – Financial instruments, as it directly relates to the rights issue and
private placement, R12 million is capitalised to the cost of the properties and R7 million is
expensed.
Debenture interest paid to linked unitholders will be deductible in full for company taxation
purposes. Deferred taxation has been raised in respect of the straight-line rental adjustments
at the company taxation rate of 28 per cent;
Debt funding provided at an average lending rate of 7.85% per annum based on a
combination of fixed and floating rate debt instruments;
No fair value adjustments have been made in respect of the Acquisitions as at 28 February
2014 or 28 February 2015;
These forecast statements of comprehensive income have been compiled utilising the
accounting policies of Delta;
No unforeseen market and economic factors that will affect the tenants’ ability to meet their
commitments in terms of existing lease agreements have been included;
The full amount of equity capital required is raised;
The South African prime overdraft rate will be 8.5 per cent for the entire period under review;
No properties will be acquired and no properties will be disposed of during the forecast
periods other than those being acquired in terms of the Acquisitions; and
99 per cent of the distributable income will be distributed to linked unitholders as debenture
interest.
                                                                                                     
3.   Unaudited pro forma financial effects of the Acquisitions

     The unaudited pro forma financial effects of the Acquisitions on net asset value and net tangible
     asset value per Delta linked unit have not been disclosed as these are not significant.

4.   Withdrawal of cautionary

     Delta linked unitholders are referred to the announcement and are advised that following the
     release of the financial effects of the Acquisitions, caution is no longer required to be exercised
     by linked unitholders when dealing in their Delta linked units.


07 February 2012


Corporate advisor and sponsor
Nedbank Capital

Date: 07/02/2013 05:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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