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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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