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RESILIENT PROPERTY INCOME FUND LTD - Disposal of a portfolio from Fortress Income Fund Limited

Release Date: 22/03/2013 15:15
Code(s): RES     PDF:  
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Disposal of a portfolio from Fortress Income Fund Limited

RESILIENT PROPERTY INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2002/016851/06
Share code: RES        ISIN: ZAE000043642
(“Resilient”)


DISPOSAL OF A PORTFOLIO OF PROPERTIES TO FORTRESS INCOME FUND LIMITED

INTRODUCTION

Linked unitholders are advised that wholly owned subsidiary companies of Resilient (hereinafter collectively
referred to as “Resilient”) have concluded agreements with a wholly owned subsidiary of Fortress Income
Fund Limited (“Fortress”) for the disposal of the letting enterprises conducted in respect of the properties
known as Nelspruit Plaza, Rustenburg Plaza, Central Park Bloemfontein, New Redruth Village, Sterkspruit
Plaza (82%) and Tzaneen Lifestyle Centre (25%) (collectively, the “disposal properties”), as well as a loan to
a development partner (collectively, the “disposal”).

RATIONALE FOR THE DISPOSAL

Resilient’s strategy is to own dominant retail centres with a minimum of three anchor tenants. Although the
properties being sold perform well and have excellent prospects, they do not fit Resilient’s strategy.

TERMS OF THE DISPOSAL, USE OF PROCEEDS AND CONDITIONS PRECEDENT

In terms of the agreements concluded for purposes of giving effect to the disposal (the “disposal agreements”),
the disposal will be effective from 1 July 2013. The aggregate selling price for the disposal is R1 062 585 984
which will be settled by the payment of R531 292 992 in cash and the balance through the issue of 25 469 463
Fortress A linked units and 25 469 463 Fortress B linked units by Fortress to Resilient. Of the total selling price
payable, R20 595 291 relates to the loan to the development partner.

The cash proceeds from the disposal will be used by Resilient to reduce interest-bearing borrowings. The
Fortress A and B linked units being issued to Resilient pursuant to the disposal will be retained by Resilient for
the time being.

The disposal is subject to:
- the receipt of approval from Fortress’ linked unitholders;
- the receipt of unconditional approval from the Competition Authorities;
- in respect of Nelspruit Plaza, the receipt of written confirmation from Transnet Limited, within 90 calendar
   days after the date of signature of the disposal agreement, that it has no objection to and consents to the sale
   of the business and the cessation by Resilient to Fortress of its leasehold rights, title and interest in and to
   the notarial deed of lease, to the extent that such consent is required; and
- in respect of the disposals of the 82% undivided share in Sterkspruit Plaza and the 25% undivided share in
   Tzaneen Lifestyle Centre, Resilient providing written confirmation, within 30 calendar days from the date
   of signature of the disposal agreements, that the co-owners of the remaining undivided shares in these
   properties, have not exercised their rights of first refusal to acquire the properties or other rights as co-
   owners.

The disposal of each property and the loan to the development partner are inter-conditional and must all
become unconditional in accordance with their terms.

The disposal agreements contain warranties that are typical for disposals of this nature.

DETAILS OF THE DISPOSAL
                                                                                                               

Details of the properties comprising the disposal properties including the property name and address,
geographical location, rentable area, sector, weighted average rental per square metre, purchase price and
valuations attributed to the properties as at 1 July 2013 by Quadrant Properties (Proprietary) Limited
(“Quadrant”), an independent professional associated valuer, are as follows:


Property name and address                  Geographical location            Rentable area Sector
                                                                             (100%) (m2)
Nelspruit Plaza, corner Henshall and
Bester Streets, Nelspruit                  Mpumalanga                              18 525 Retail
Rustenburg Plaza, 34 Fatima Bhayat
Street, Rustenburg                         North West                              12 188 Retail
Central Park Bloemfontein, corner
Fichardt and Hanger Streets,
Bloemfontein                               Free State                              12 753 Retail
New Redruth Village, St. Austell Street,
New Redruth, Alberton                      Gauteng                                 12 028 Retail
Sterkspruit Plaza, corner of Zastron and
Voyizana Roads, Sterkspruit (82%)          Eastern Cape                            10 696 Retail
Tzaneen Lifestyle Centre, corner
Voortrekker and the P43-3 Roads,
Tzaneen (25%)                              Limpopo                                  9 380 Retail

Total                                                                              75 570

                                        Weighted
                                   average rental                                            Valuation as at
                                 per square metre       Effective date of   Disposal price      1 July 2013
Property name and address                  (R/m2)               disposal              (R)               (R)
Nelspruit Plaza, corner
Henshall and Bester Streets,
Nelspruit                                   129.01           1 July 2013      312 500 000       312 500 000
Rustenburg Plaza, 34 Fatima
Bhayat Street, Rustenburg                   140.18           1 July 2013      260 000 000       260 000 000
Central Park Bloemfontein,
corner Fichardt and Hanger
Streets, Bloemfontein                       116.17           1 July 2013      163 000 000       163 000 000
New Redruth Village, St.
Austell Street, New Redruth,
Alberton                                    103.59           1 July 2013      151 000 000       151 000 000
Sterkspruit Plaza, corner of
Zastron and Voyizana Roads,
Sterkspruit (82%)                            89.45           1 July 2013     105 544 287^       105 544 287
Tzaneen Lifestyle Centre,
corner Voortrekker and the
P43-3 Roads, Tzaneen (25%)                  112.46           1 July 2013      49 946 406†        49 946 406
Sub total                                                                   1 041 990 693     1 041 990 693
Sterkspruit Plaza – loan to
development partner                                                            20 595 291
Total                                                                       1 062 585 984
                                                                                                               3


^ Resilient is disposing of its entire 82% undivided share in this property which includes a portion of land held
for development.
† Resilient is disposing of a 25% undivided share in this property which includes a portion of land held for
development.

FINANCIAL EFFECTS

The unaudited pro forma financial effects have been prepared for illustrative purposes only to provide
information on how the disposal may have impacted on the historical financial results of Resilient for the year
ended 31 December 2012. Due to their nature, the unaudited pro forma financial effects may not fairly present
Resilient’s financial position, changes in equity, results of operations or cash flows after the disposal. The
unaudited pro forma financial effects are the responsibility of the directors of Resilient and have not been
reviewed or reported on by Resilient’s auditors or reporting accountants.

The unaudited pro forma financial effects of the disposal on Resilient’s basic earnings per share and per linked
unit and diluted earnings per share and per linked unit for the year ended 31 December 2012 are set out below.
The unaudited pro forma financial effects of the disposal on Resilient’s distribution per linked unit, headline
earnings per share and per linked unit, diluted headline earnings per share and per linked unit, net asset value
and net tangible asset value per linked unit are not material and have not been disclosed.

The unaudited pro forma financial effects have been prepared in accordance with Resilient’s accounting
policies and in compliance with IFRS.

                                                               Unadjusted      Pro forma after
                                                                before the        the disposal
                                                           disposal (cents)            (cents)          % change
Basic earnings per share                                            444.85              471.60               6.0
Basic earnings per linked unit                                      700.66              730.64               4.3
Diluted earnings per share                                          427.87              453.59               6.0
Diluted earnings per linked unit                                    673.91              702.74               4.3
Weighted average number of shares/linked units in
issue                                                          272 329 259         272 329 259                 -
Diluted weighted average number of shares/linked units
in issue                                                       283 140 070         283 140 070                 -

Notes and assumptions:

1.   The amounts set out in the “Unadjusted before the disposal” column have been extracted, without
     adjustment, from the condensed audited consolidated financial statements of Resilient for the year ended
     31 December 2012.
2.   The disposal is assumed to have been implemented on 1 January 2012 for the statement of comprehensive
     income purposes.
3.   The properties and the loan to the development partner are assumed to be disposed of to Fortress for a
     disposal price of R1.04 billion and R20.6 million, respectively.
4.   Of the total disposal price, R531.3 million is assumed to be settled in cash and the balance is assumed to
     be settled by the issue of 25 469 463 Fortress A linked units at R13.80 per A linked unit and 25 469 463
     Fortress B linked units at R7.06 per B linked unit, respectively.
5.   The disposal properties earned historical net rental income of R65.1 million for the year ended
     31 December 2012.
6.   The historical property revenue and expenses were extracted from the underlying books and records of
     each disposal property which have not been reviewed or reported on by the auditors or reporting
     accountants. However, the directors of Resilient are satisfied with the quality of the information.                                                                                 
7.    The cash proceeds of R531.3 million are assumed to be used by Resilient to partly settle interest-bearing
      borrowings. Accordingly, interest on loans is assumed to be saved at a rate of 8.62%, being the historical
      cost at which Resilient incurred interest for the year ended 31 December 2012.
8.    The disposal of the disposal properties is assumed to result in a fair value adjustment of R70.7 million and
      a related tax charge of R13.2 million.
9.    Interest which was received on the loan to the development partner is assumed to reverse at a rate of 2%
      above prime, in accordance with the terms of the loan agreement with the development partner, in respect
      of the year ended 31 December 2012.
10.   Interest capitalised on land which is held for development is assumed to reverse in respect of the year
      ended 31 December 2012.
11.   The issue of 25 469 463 Fortress A linked units and 25 469 463 Fortress B linked units to Resilient results
      in Resilient’s voting rights in Fortress changing from approximately 10.51% to 17.53% and accordingly
      continues to be accounted for as an investment with an additional distributable income of R33.8 million
      assumed to be received from Fortress in respect of the year ended 31 December 2012. The distributable
      income received from Fortress was based on Fortress’ final distribution of 53.34 cents per A linked unit
      and 9.95 cents per B linked unit for the six months ended 30 June 2012 and Fortress’ interim distribution
      of 56.01 cents per A linked unit and 13.46 cents per B linked unit for the six months ended
      31 December 2012.
12.   The fair value gain on the investment in Fortress is assumed to be R15.3 million (net of deferred capital
      gains tax of R3.5 million) based on a closing bid price of R14.60 per A linked unit and R7.00 per B
      linked unit at 31 December 2012.
13.   Distributable income is assumed to be earned evenly throughout the year ended 31 December 2012.
14.   All statement of comprehensive income adjustments have a continuing effect.


CATEGORISATION OF THE DISPOSAL

The disposal constitutes a Category 2 transaction for Resilient in terms of the JSE Listings Requirements.

Accordingly, the disposal is not subject to approval by Resilient linked unitholders.


22 March 2013


Sponsor
Java Capital

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