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REBOSIS PROPERTY FUND LIMITED - Financial effects relating to the proposed acquisition of a portfolio of office properties, withdrawal of cautionary

Release Date: 27/03/2013 16:49
Code(s): REB     PDF:  
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Financial effects relating to the proposed acquisition of a portfolio of office properties, withdrawal of cautionary

REBOSIS PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2010/003468/06)
JSE code: REB ISIN code: ZAE000156147
(“Rebosis” or “the company”)


FINANCIAL EFFECTS RELATING TO THE PROPOSED ACQUISITION OF A PORTFOLIO OF
OFFICE PROPERTIES AND WITHDRAWAL OF CAUTIONARY


INTRODUCTION

Linked unitholders are referred to the announcement released on SENS on 5 December 2012 in which it was
announced that Rebosis had concluded agreements for the acquisition of a portfolio of letting enterprises and
properties (“the Nthwese office portfolio”) from various sellers, all of which are ultimately controlled by
Peolwane Properties (Proprietary) Limited and the Nthwese Trust (each an “acquisition” and together “the
acquisitions”).

The Nthwese office portfolio consists of the properties known as 99 Market Street, 64 Eloff Street, 189
Schoeman Street, 18 Rissik Street and 124 Main Street (collectively, “the acquisition properties”).

The aggregate purchase price of R1 005.1 million as previously stated has been revised in negotiations
following the release of the announcement on SENS on 5 December 2012. The revised purchase prices
payable by Rebosis in respect of each acquisition are as follows:

Acquisition                                                                                Purchase price payable
99 Market Street acquisition                                                                      R142.6 million*
64 Eloff Street acquisition                                                                        R53.5 million
189 Schoeman Street acquisition                                                                   R257.7 million
18 Rissik Street acquisition                                                                      R193.6 million#
124 Main Street acquisition                                                                       R413.0 million
Total                                                                                           R1 060.4 million


* The purchase price includes an amount of R14.0 million allocated for refurbishments and will be adjusted to the
  extent that all or a portion of the refurbishment amount is expended by the vendor before transfer of the property.

# The purchase price includes an amount of R31.3 million allocated for refurbishments and will be adjusted to the
  extent that all or a portion of the refurbishment amount is expended by the vendor before transfer of the property.

As further advised on 5 December 2012, it is the intention of the company to fund the aggregate purchase
price of the acquisitions through a combination of an issue of linked units in terms of a vendor consideration
placement and/or a specific issue of linked units for cash (“specific issue”) and debt funding.

The purpose of this announcement is to present the financial effects of the acquisitions.

FORECAST FINANCIAL INFORMATION

Set out below are the forecast statements of comprehensive income of the Nthwese office portfolio
(“forecasts”) for the four months ending 31 August 2013 and the year ending 31 August 2014 (“forecast
periods”). The forecasts have been prepared on the assumption that the acquisitions will be implemented on
1 May 2013 and on the basis that the forecasts include forecast results for the forecast periods.
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 Rebosis and have been reported on by the
independent reporting accountants whose report will be provided in the circular to be issued, in due course,
in connection with the acquisition of the Nthwese office portfolio.

The forecasts have been prepared in compliance with IFRS and in accordance with Rebosis’ accounting
policies.

                                                                               Forecast for the
                                                                                    four months     Forecast for the
                                                                                         ending          year ending
                                                                                 31 August 2013       31 August 2014
                                                                                          R’000                R’000
 Rental revenue and recoveries                                                           43 480              145 499
 Straight-line rental income accrual                                                     13 987               28 598
 Rental revenue                                                                          57 467              174 097

 Net property income                                                                     44 071              132 731

 Net operating profit*                                                                   43 011              129 550

 Total profit/(loss) and comprehensive income for the four months/year after
                                                                                         62 756               (2 914)
 debenture interest*

 Distributable earnings                                                                  19 002               60 866

* Includes the effects of straight-lining rental income and asset management fees.

The forecasts incorporate the following material assumptions in respect of revenue and expenses that can be
influenced by the directors of Rebosis:

1.    The forecasts are based on an analysis of historical information, information provided by the property
      manager and work performed by the independent property valuer, Quadrant Properties (Proprietary)
      Limited (“Quadrant Properties”).
2.    The properties underlying the forecasts comprise only the acquisition properties.
3.    Contracted revenue is based on existing lease agreements including stipulated increases, all of which
      are valid and enforceable.
4.    Uncontracted revenue comprises 0.5% and 5.9% of rental income excluding recoveries of R36.9
      million and R124.6 million for the four months ending 31 August 2013 and the year ending 31 August
      2014, respectively.
5.    No tenant is subject to turnover rental (rental income based on the actual turnover of the tenant).
6.    Current vacant space has been forecast on a property-by-property basis and has been assumed to
      remain vacant unless it is deemed probable that such space will be let, in which case rental is forecast
      at prevailing market rates. Vacant space has been assumed to be let during the forecast periods only if
      management are at an advanced stage of discussions with prospective tenants and where offers to
      tenants have been made.
7.    Leases expiring during the forecast periods have been forecast on a lease-by-lease basis, and have
      been assumed to renew at current market rates unless the lessee has indicated its intention to terminate
      the lease.
8.    Property operating expenditure has been forecast on a line-by-line basis for each property based on
      management’s review of historical expenditure, where available, and discussion with the property
      manager.
9.    In terms of IFRS, the difference between the aggregate purchase price and the revaluation of the
      acquisition properties has resulted in a fair value adjustment, for the four months ending 31 August
      2013, as further detailed in note 11 below. No fair value adjustments have been provided for the
      acquisition properties in respect of the year ending 31 August 2014.
10.   Properties will be paid for as and when they are transferred. Although transfer of the acquisition
      properties is expected on 1 June 2013, the effective date of the acquisitions is 1 May 2013.
11.   All the acquisition properties are assumed to be acquired with effect from 1 May 2013 for an
      aggregate purchase price of R1 061.7 million (comprising the purchase price for the acquisition
      properties of R1 060.4 million and capitalised transaction costs of R1.3 million). The acquisition
      properties have been valued at R1 140.5 million by Quadrant Properties, the independent property
      valuer. The valuation results in an upward revaluation adjustment of R62.8 million after deducting
      deferred tax of R16.0 million.
12.   R532.8 million (comprising the cash portion of the purchase price for the acquisition properties of
      R530.2 million and transaction costs of R2.6 million) of the aggregate purchase price is assumed to be
      funded through interest-bearing borrowings. These interest-bearing borrowings are assumed to incur
      interest at an effective melded fixed and variable rate of 7.5% per annum.
13.   R546.7 million of the aggregate purchase price, including transaction costs, will be settled through the
      issue of 46 726 216 linked units at a market related price (estimated using the 30 day volume weighted
      average price immediately prior to the date of this announcement).
14.   R530.2 million of the proceeds of the issue of linked units are assumed to be utilised to partially fund
      the acquisitions while R4.1 million is assumed to be utilised to settle transaction costs and the balance
      of R12.4 million is assumed to be interest received on linked units issued cum distribution.
15.   Total transaction costs are assumed to be approximately R6.7 million of which R1.3 million is
      capitalised, R4.2 million deducted against stated capital and the balance of R1.2 million relating to
      debt raising costs deducted against non-current liabilities. It has been assumed that R2.6 million of the
      transaction costs will be settled in cash (funded by interest-bearing borrowings), with the balance of
      R4.1 million being settled through the issue of linked units.
16.   Rebosis is assumed to have a loan-to-value ratio of approximately 28.5% once all properties that have
      been contracted for, have been transferred.

The forecasts incorporate the following material assumptions in respect of revenue and expenses that cannot
be influenced by the directors:

17.   There will be no unforeseen economic factors that will affect either the lessees’ ability to meet their
      commitments in terms of the existing lease agreements or the forecast future profitability of these
      properties.
18.   In terms of the asset management agreement with Billion Asset Managers (Proprietary) Limited,
      Rebosis pays the asset manager a monthly fee equivalent to 1/12th of 0.3% of the aggregate of the
      market capitalisation and the borrowings of Rebosis.
19.   In terms of the property management agreement with Billion Property Services (Proprietary) Limited,
      Rebosis pays the property manager a monthly fee equivalent to 2.5% of gross revenue collected from
      or paid to tenants (including VAT) for providing the services of a property management agent in
      respect of letting, property maintenance and property accounting.
20.   Debenture interest will be paid to linked unitholders in accordance with the provisions of the
      debenture trust deed.
21.   Consumption based recoveries are consistent with the independent property valuer’s property income
      statements.

Material items of expenditure within the operating costs line items include:

1.    R1.2 million in property management expenses, R2.1 million in repairs and maintenance and R6.0
      million in electricity costs in respect of the four months ending 31 August 2013; and
2.    R4.1 million in property management expenses, R5.5 million in repairs and maintenance and R18.9
      million in electricity costs for the year ending 31 August 2014.


UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITIONS

Set out below is the unaudited pro forma financial effects of the acquisitions.

The unaudited pro forma financial effects have been prepared to reflect the financial position of Rebosis
after adjusting for the acquisitions, the vendor consideration placement and/or the specific issue and the debt
raising for the acquisitions (collectively, “the adjustments”), on the assumption that the adjustments took
place on 31 August 2012 and on the basis set out in the notes to the unaudited pro forma financial effects
below.

The unaudited pro forma financial effects are the responsibility of the directors of Rebosis and have been
prepared for illustrative purposes only, to illustrate the effects on Rebosis’ financial position following the
adjustments. Due to the nature of the unaudited pro forma financial effects, it may not fairly present
Rebosis’ financial position subsequent to the adjustments. The unaudited pro forma financial effects have
been reported on by the independent reporting accountants whose report will be provided in the circular to
be issued, in due course, in connection with the acquisition of the Nthwese office portfolio.

The unaudited pro forma financial effects have been prepared in accordance with IFRS, The Guide on Pro
forma Financial Information issued by SAICA and Rebosis’ accounting policies.

The table below reflects the unaudited pro forma financial effects of the acquisitions on a Rebosis linked
unitholder:
  
                                                                                                             Change
                                                                                                          after the
                                                                Pro forma after     Pro forma after    acquisitions
                                                               the rights offer    the acquisitions             (%)
                                                                         Note 1              Note 3

 Net asset value per linked unit (Rands)                                  10.18               10.52           3.3%
 Net tangible asset value per linked unit (Rands)                          9.87               10.25           3.9%
 Net asset value per linked unit (excl. deferred tax)(Rands)              10.97               11.24           2.5%
 Net tangible asset value per linked unit
                                                                          10.66               10.97           2.9%
 (excl. deferred tax)(Rands)


 Number of linked units in issue                                    307 183 417          353 909 633          15.2%



Notes and assumptions:

1.    The “Pro forma after the rights offer” column has been extracted, without adjustment, from the
      unaudited pro forma financial information set out in the rights offer circular to Rebosis linked
      unitholders issued on 14 January 2013.
2.    The acquisitions comprise the acquisitions of properties and the related property-letting businesses as
      going concerns. The acquisitions are initially accounted for at cost, and then subsequently fairly
      valued in terms of IAS 40, in accordance with the company’s accounting policy of accounting for
      investment property at fair value.
3.    The “Pro forma after the acquisitions” column has been calculated after taking in to account the
      following adjustments:
           a. The acquisition properties are to be acquired for an aggregate purchase price of R1 061.7
               million (comprising the purchase price for the acquisition properties of R1 060.4 million and
               capitalised transaction costs of R1.3 million). The acquisition properties have been valued at
               R1 140.5 million by Quadrant Properties, the independent property valuer. The valuation
               results in an upward revaluation adjustment of R64.1 million after deducting deferred tax of
               R14.7 million.
           b. R532.8 million (comprising the cash portion of the purchase price for the acquisition
               properties of R530.2 million and transaction costs of R2.6 million) of the aggregate purchase
               price is assumed to be funded through interest-bearing borrowings. The capitalised
               transaction costs include debt raising costs of R1.2 million that are assumed to be funded
               from the debt facility. These interest-bearing borrowings are assumed to incur interest at an
               effective melded fixed and variable rate of 7.5% per annum.
           c. R546.7 million of the aggregate purchase price, including transaction costs, will be settled
               through the issue of 46 726 216 linked units at a market related price (estimated using the 30
               day volume weighted average price immediately prior to the date of this announcement).
           d. R530.2 million of the proceeds of the vendor consideration placement and/or the specific
               issue are assumed to be utilised to partially fund the acquisitions while R4.1 million is
               assumed to be utilised to settle transaction costs and the balance of R12.4 million is assumed
               to be interest received on linked units issued cum distribution.
           e. Total transaction costs are assumed to be approximately R6.7 million of which R1.3 million
               is capitalised, R4.2 million deducted against stated capital and the balance of R1.2 million
               relating to debt raising costs deducted against non-current liabilities. It has been assumed that
               R2.6 million of the transaction costs will be settled in cash (funded by interest-bearing
               borrowings), with the balance of R4.1 million being settled through the issue of linked units.

WITHDRAWAL OF CAUTIONARY

Rebosis linked unitholders are referred to the cautionary announcement dated 11 February 2013 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 linked units.

27 March 2013


Corporate advisor and sponsor
Java Capital


Independent reporting accountants
PKF (Jhb) Inc.

Date: 27/03/2013 04:49:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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