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SYC - Announcement of REIT status, update and financial effects and withdrawal of cautionary
Sycom Property Fund
A Collective Investment Scheme
in Property ("CISP") registered in terms of
the Collective Investment Schemes Control
Act, No. 45 of 2002 ("CISCA"), and managed by
Sycom Property Fund Managers Limited ("SPFM")
(Registration number 1986/002756/06)
JSE share code: SYC
ISIN: ZAE000019303
("Sycom" or the "Fund")
ANNOUNCEMENT OF REIT STATUS, UPDATE AND FINANCIAL EFFECTS RELATING TO: (I) THE ACQUISITION OF THE REMAINING 50%
OF THE SOMERSET MALL SHOPPING CENTRE FROM AECI PENSION FUND (THE "APF ACQUISITION"); (II) THE DISPOSAL OF
THE SOMERSET MALL SHOPPING CENTRE TO HYPROP INVESTMENTS LIMITED ("HYPROP") AND (III) A SPECIFIC REPURCHASE
OF SYCOM PARTICIPATORY INTERESTS ("SYCOM UNITS"), FORECASTS AND PROFIT ESTIMATE RELATING TO THE APF ACQUISITION
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
1.1 Sycom unitholders ("Unitholders") are referred to the detailed cautionary announcement published on 28 March 2013
by Sycom advising Unitholders that:
i. SPFM had received an offer from AECI Pension Fund ("APF" and the "APF Offer") to acquire from APF
the remaining 50% undivided share in the property enterprise known as the Somerset Mall Shopping Centre,
Western Cape ("Somerset Mall") not already owned by Sycom (the "APF Portion") for a cash consideration of
R1.15 billion and that Sycom intended accepting the APF Offer;
ii. SPFM concluded an agreement with Hyprop on 28 March 2013 (the "Hyprop Transaction"), in terms of which,
inter alia, Hyprop will acquire from Sycom the Somerset Mall, comprising:
a) the APF Portion; and
b) the remaining 50% undivided share in Somerset Mall currently owned by Sycom (the "Sycom Portion"),
as a composite acquisition for a total consideration of R2.3 billion, the entire consideration of
which will be settled by the delivery and transfer to SPFM (on behalf of Sycom) of 81 500 000
Sycom Units currently owned by Hyprop (the "Repurchase") (comprising approximately 32.8% of the
total Sycom Units in issue and 97% of Hyprop's holding in Sycom) (the "Consideration Units"),
whereafter the Consideration Units will be cancelled and their listing terminated.
1.2 The cash consideration payable by Sycom in respect of the APF Portion will be funded using a combination of the
proceeds of the Sycom rights offer (the "Rights Offer"), the result of which was published on SENS on Monday, 27 May 2013
and Sycom's loan facilities, in compliance with the gearing limitations prescribed in the deed of trust for the
Sycom Property Trust Scheme entered into between SPFM and the Sycom trustee (the "Deed").
1.3 The purpose of this announcement is to provide an update on and present the financial effects and, where applicable,
forecasts of the APF Acquisition, the Hyprop Transaction and the Repurchase (collectively, the "Transactions").
2. UPDATE ON THE TRANSACTIONS AND ATTAINMENT OF REIT STATUS
2.1 The APF Acquisition
On 18 April 2013 Sycom accepted the APF Offer and on 29 April 2013 confirmed to APF that it was satisfied with the
results of the due diligence investigation, a condition precedent to the APF Acquisition. The APF Acquisition is
still subject to the relevant regulatory and unitholder approvals being obtained. A further update on these approvals
and the timing of the posting of the circular to Sycom Unitholders, incorporating a notice of general meeting for the
approval of the Transactions (the "Circular") will be published in due course.
2.2 The Hyprop Transaction
The Hyprop Transaction was subject to various conditions, the current status of fulfilment of which is set out below:
i. Hyprop has concluded its due diligence investigation and is satisfied with the results thereof;
ii. the independent expert has advised the Board of Directors of SPFM that it is of the opinion that the Hyprop Transaction
is both fair and reasonable to Sycom Unitholders. The full opinion will be included in the Circular;
iii. Sycom has today attained Real Estate Investment Trust ("REIT") status and will qualify as a REIT retrospectively
from 1 April 2013; and
iv. the Hyprop Transaction is still subject to various regulatory and Unitholder approvals, details of which will be
included in the Circular, the timing of posting of which will be announced in due course.
3. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTIONS
The unaudited and unreviewed pro forma financial effects of the Transactions set out below have been prepared to reflect the financial position
of Sycom after adjusting for the Transactions (the "Adjustments"), on the assumption that the Adjustments took place on 1 April 2012
in respect of the statement of comprehensive income and on 30 September 2012 in respect of the unreviewed statement of financial
position and on the basis set out in the notes below.
The unaudited and unreviewed pro forma financial effects are the responsibility of the directors of SPFM and have been prepared for illustrative
purposes only, to illustrate the effects on Sycom's financial position following the Adjustments. Due to the nature of the unaudited and unreviewed
pro forma financial effects, they may not fairly present Sycom's financial position subsequent to the Adjustments. The unaudited and unreviewed pro
forma financial effects have been reported on by the independent reporting accountants, whose reports regarding the compilation of
the pro forma financial effects will be provided in the Circular to Unitholders relating to the Transactions, to be issued in due course.
The unaudited and unreviewed pro forma financial effects have been prepared in accordance with IFRS, the revised Guide on Pro Forma Financial
Information issued by SAICA and Sycom's accounting policies.
The table below reflects the unaudited and unreviewed and pro forma financial effects of the Transactions on a Sycom Unitholder:
(ii) % (iii) %
(iii) (i) Change Change %
Pro forma (i) (ii) Pro forma After Change after after Change after
Adjustment After Pro forma After APF Adjustment Hyprop after APF Hyprop Rights Offer &
Before1 2, 4 and 5 Rights Offer Adjustment2 Acquisition 3 and 4 Transaction 6 Rights Offer Acquisition Transaction Transactions8
Basic earnings per
Unit (cents) 74.32 0.36 74.68 75.58 150.26 30.57 180.83 0.48 101.21 20.34 142.14
Diluted basic earnings
per Unit (cents) 74.32 0.36 74.68 75.58 150.26 30.57 180.83 0.48 101.21 20.34 142.14
Headline earnings
per Unit (cents) 78.83 (0.16) 78.67 (1.74) 77.06 0.34 77.45 (0.20) (2.04) 0.51 (1.54)
Diluted headline earnings
per Unit (cents) 78.83 (0.16) 78.67 (1.74) 77.06 0.34 77.45 (0.20) (2.04) 0.51 (1.54)
Distributions per Unit
(cents) 84.43 (0.82) 83.61 (1.74) 81.87 2.72 84.59 (0.97) (2.08) 3.32 1.17
Net asset value per Unit
(cents) 2 388.16 35.46 2 423.62 77.32 2 500.94 (130.78) 2 370.16 1.49 3.19 (5.23) (2.21)
Weighted average number
of Units at 30 September
2012 ('000) 248 604 33 028 281 632 281 632 (81 500) 200 132 13.29 (28.94) (28.94)
Diluted weighted average
number of Units at
30 September 2012 248 604 33 028 281 632 281 632 (81 500) 200 132 13.29 (28.94) (28.94)
Units in issue at
30 September 2012 248 604 33 028 281 632 281 632 (81 500) 200 132 13.29 (28.94) (28.94)
Notes and assumptions:
1. The unaudited financial information in the "Before" column has been extracted, without adjustment, from the published unaudited
interim results of Sycom for the six months ended 30 September 2012.
2. The pro forma adjustments to the statement of comprehensive income have been calculated after completion of the Rights Offer
(details of which are set out in the circular to Unitholders dated 29 April 2013) ("Rights Offer Circular") on the assumption
that the Rights Offer was implemented on 1 April 2012 and that the Transactions (including the Repurchase) were implemented on
1 April 2012. The pro forma APF Acquisition adjustments to the statement of comprehensive income have been calculated on the
assumption that the APF Acquisition was implemented on 1 April 2012 and that the acquisition was financed by the net proceeds
of the Rights Offer (after Rights Offer costs) of R888.6 million and bank loan at JIBAR +1.5% (R279 million).
3. The pro forma Hyprop Transaction adjustments to the statement of comprehensive income have been calculated on the assumption
that the Hyprop Transaction was implemented on 1 April 2012 and that the 81 500 000 Consideration Units were cancelled and
delisted on that date.
4. The notes and assumptions made in respect of the Rights Offer adjustments are set out in the Rights Offer Circular.
5. Transaction costs amounting to R11 366 000 (excluding VAT) have been incurred in relation to the Rights Offer of which
R11 160 000 has been written off to Unitholders capital and the remaining R206 000 expensed.
6. Other than the adjustment for transaction costs as explained in note 5 above, all adjustments made to the statement of
comprehensive income are expected to have a continuing effect. Interest expense on the APF Acquisition will continue after
the implementation of the Hyprop Transaction and the reduction in management fee will continue after the implementation of the
Hyprop Transaction.
7. The distribution per Unit has been calculated after taking into account the following adjustments:
- the number of Units in issue has been calculated after completion of the fully subscribed Rights Offer on the assumption
that the Rights Offer was implemented on 1 April 2012; and
- it has been assumed that all Units pursuant to the Rights Offer will qualify for the distribution for the six months ended
30 September 2012.
8. The percentage change on basic, diluted and headline earnings as well as distribution per Unit after the APF Acquisition
has been calculated as compared to the post Rights Offer adjustments.
9. It has been assumed that no Units will be repurchased pursuant to the exercise of appraisal rights.
4. FORECAST FINANCIAL INFORMATION RELATING TO THE APF ACQUISITION
Set out below are the forecast statements of comprehensive income of 50% of Somerset Mall after the APF Acquisition,
for the two-year periods ending 31 March 2014 and 31 March 2015 and the profit estimate for the year ended 31 March 2013
("Forecasts" and "Forecast Periods"). For ease of comparison, the Forecasts have been prepared on the assumption that the
APF Acquisition will be implemented on 1 April 2013 and on the basis that the Forecasts include forecast results for the
Forecast Periods. It is however expected that the APF Acquisition will be implemented on or about 1 August 2013.
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 SPFM. The Forecasts must be read in
conjunction with the independent reporting accountants' limited assurance report thereon which will be
included in the Circular. The Forecasts have been prepared in compliance with IFRS and in accordance
with Sycom's accounting policies.
Forecast statement of comprehensive income for the years ending 31 March 2014 and 31 March 2015
and profit estimate for the year ended 31 March 2013 in respect of the APF Acquisition of 50% of
Somerset Mall.
Profit estimate Forecast for Forecast for
for the year to the year to the year to
ZAR 31 March 2013 31 March 2014 31 March 2015
Revenue 74 154 287 76 243 689 80 324 355
Rental revenue and net recoveries 74 127 825 78 051 380 83 099 581
Straight-lining of rental revenue adjustments 26 462 (1 807 691) (2 775 226)
Net property operating expenses (4 351 880) (4 493 228) (4 783 577)
Net rental and related revenue 69 802 407 71 750 461 75 540 778
Fair value changes on investment property
and listed investments (222 908 538) 3 372 604 2 775 226
Fair value (deficit)/gain on investment
property (222 908 538) 3 372 604 2 775 226
Profit before net finance costs 292 710 945 68 377 857 78 316 004
Net finance costs (20 798 954) (20 798 954)
Interest expense (20 798 954) (20 798 954)
Profit before taxation 292 710 945 47 578 903 51 517 050
Taxation
Profit for the period 292 710 945 47 578 903 51 517 050
Notes and Assumptions
The Forecasts incorporate the following material assumptions in respect of revenue and expenses that can be influenced
by the directors of SPFM. The assumptions disclosed are not intended to be an exhaustive list:
1. The Forecasts are based on an analysis of historical information, information provided by Somerset Mall Property
Management Company (Proprietary) Limited ("SMMC"), the manager of the Somerset Mall, and work performed by
the independent property valuer, Quadrant Properties (Proprietary) Limited (the "Valuer").
2. The property underlying the Forecasts comprises only the APF Portion.
3. Contracted revenue is based on existing lease agreements including stipulated increases, all of which are valid and
enforceable.
4. Uncontracted revenue comprises 17% for the year ended 31 March 2014 and 41% for the year ended 31 March 2015
of gross rental income excluding recoveries, and comprises largely rental income on expected leases with existing
tenants entered into after termination of existing lease agreements. This rental income amounts to R11.6 million for
the year ending 31 March 2014 and R32.1 million for the year ended 31 March 2015. The leases expire on different
dates throughout the year. For part of the year the leases will have contracted revenue until termination date.
5. Straightline-rental adjustments which are taken into account only for IFRS purposes have been forecast on a lease-
by-lease basis, based on current lease agreements and excludes any assumptions of renewals or new leases during
the respective Forecast Periods.
6. Income derived by SMMC from the APF Portion, net of expenses, is nominal or zero and as such has not been taken
into account.
7. Current vacant space has been forecast on a unit-by-unit 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. Renewal
rates on terminating leases are reviewed on a lease-by-lease basis and renewal rental rates are forecast at expected
market rates at the time of renewal.
8. 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.
9. Property operating expenditure has been forecast on a line-by-line basis for the APF Portion based on management's
review of historical expenditure, where applicable. Property operating expenditure has been based on discussions
with, and records of, the property managers and historical costs where available, taking into account the effects of
inflation on them. An assumed inflation rate of between 6% and 8% has been applied.
10. In terms of IFRS, the difference between the aggregate purchase price and the revaluation of the acquisition property,
the APF Portion, has resulted in a fair value adjustment, as further detailed in note 11 below. Fair value adjustments
relating to transaction costs capitalised (difference between aggregate purchase price and revaluation amount) has
been made and added back in the distribution calculation.
11. The APF Portion will be paid for as and when transferred. Transfer is expected on or about 1 August 2013.
12. For purposes of the Forecast, the APF Portion is assumed to be acquired with effect from 1 April 2013 for an
aggregate purchase price of R1 167.7 million (comprising the purchase price for the APF Portion of R1 150 million
and capitalised transaction costs of R17.7 million). The Somerset Mall has been valued on 1 April 2013 at
R1 137.5 million (excl VAT) by the Valuer, as set out in the summary valuation report which will be presented
as an Annexure of the Circular. The expected valuation of the APF Portion on date of the APF Acquisition is
R1 150 million. The valuation results in an upward revaluation adjustment of R222.9 million on 31 March 2013 on
the 50% of Somerset Mall already owned by Sycom. The valuation on acquisition of the APF Portion results in an
upward valuation of R12.5 million on the already owned portion and a downward revaluation of R17.7 million on
acquisition of the APF Portion, resulting in a net downward revaluation of R5.2 million on the whole of Somerset
Mall on the acquisition of the APF portion as at 1 April 2013.
13. R1 167.7 million (comprising the purchase price and transaction costs) is assumed to be funded through interest-
bearing borrowings and the Rights Offer proceeds. These interest-bearing borrowings are assumed to incur interest
at a flat rate of JIBAR + 1.5%.
14. Material expenditure items in respect of the APF Portion comprise electricity (30% of total expenditure) and rates
and taxes (25% of total expenditure). Electricity expense increased by 15.3% between the year ended 31 March
2012 and the Profit Estimate year ended 31 March 2013, however recoveries of the electricity expense increased at
a similar rate.
15. The Forecasts exclude any fees paid by Sycom to SPFM in terms of the Deed, which fees are calculated and paid at
the Fund level;
The Forecasts incorporate the following material assumptions in respect of revenue and expenses that cannot be
influenced by the directors of SPFM:
16. 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 the APF Portion as circumstances which
affect the Fund's business, but which are outside of the control of the directors, will not change in a way that will
materially affect the trading situation of the Fund.
17. No properties will be acquired and no properties will be disposed of during the Forecast Period.
18. No material refurbishment capital expenditure or any other material capital expenditure is forecast for the year
ending 31 March 2014.
19. Distributions will be paid to Unitholders in accordance with the provisions of the Deed.
20. Consumption based recoveries are consistent with the Valuer's property income statements.
5. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Unitholders are referred to the cautionary announcements published by Sycom, the last being on
25 April 2013 and are advised that following the release of the financial effects and Forecasts in respect
of the Transactions, caution is no longer required to be exercised by Unitholders when dealing in their
Sycom Units.
31 May 2013
Sponsor, corporate advisor and investment bank
ABSA
MEMBER OF BARCLAYS
Legal advisor
DLA CLIFFE DEKKER HOFMEYR
Independent reporting accountants and auditors
KPMG
Independent expert on the Hyprop transaction
QUESTCO
Date: 31/05/2013 04:59:00 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.
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