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VUKILE PROPERTY FUND LIMITED - Notice of General Meeting and Withdrawal of Cautionary in relation to the Encha Transaction

Release Date: 05/06/2013 17:11
Code(s): VKE     PDF:  
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Notice of General Meeting and Withdrawal of Cautionary in relation to the Encha Transaction

VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE Share code: VKE NSX Share code: VKN
ISIN: ZAE000056370
(Granted REIT status with the JSE)
(“Vukile” or “the company”)


NOTICE OF GENERAL MEETING AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT IN RELATION TO THE ENCHA TRANSACTION


INTRODUCTION

Unitholders are referred to the previous announcements released on SENS relating to Vukile’s proposed
empowerment transaction (“the transaction”) with the Encha Property Group (“Encha”).

The transaction will involve the acquisition by Vukile of four to five investment grade substantially national
government tenanted buildings for an aggregate acquisition cost of approximately R1.335 billion of which:

   - four of the buildings being Navarre Wachthuis, the Koedoe Arcade (Pretoria), De Bruyn Park (Pretoria) and the
     Bloemfontein Fedsure Building (the “Acquisition properties”) will be acquired with effect from the earlier of 1
     August 2013 or the first day of the calendar month following the month in which the last of the suspensive
     conditions to the transaction are fulfilled; and
   - the Pretoria Momentum building (the “Option Property”) will be acquired subject to the exercise of an option,
     the exercise of which is conditional on the conclusion of a minimum five year lease renewal with the
     Department of Public Works (“DPW”) as tenant (“the Option”). This deal structure protects Vukile against the
     risks of acquiring the Momentum Pretoria building without a minimum five year lease with the DPW having
     been secured over the Momentum Property building and facilitates the determination of the purchase price
     payable for the Momentum Pretoria building with reference to the agreed contractual net property income to be
     derived from the lease extension;
   - the Encha group will invest its approximate R490 million (assuming the Option is exercised) of ungeared net
     equity into Vukile as part of a broader long term and sustainable transformation transaction;
   - an equity funding platform (the “equity funding platform”) will be established to facilitate the acquisition by
     Encha of up to R1 billion additional equity in Vukile which will both entrench the Encha group’s strategic
     equity holding in Vukile and enhance Vukile’s empowerment credentials.

NOTICE OF GENERAL MEETING

Unitholders are advised that a circular (“the circular”) has today been posted to unitholders and which circular
contains a notice of general meeting of Vukile unitholders (the “general meeting”). The general meeting will be held
at 11:00 on 5 July 2013 at the registered offices of Vukile (One-on-Ninth, Corner Glenhove Road and Ninth Street,
Melrose Estate, 2196).

FINANCIAL EFFECTS AND FORECASTS

Pro forma financial effects

The unaudited pro forma financial effects of the transaction on Vukile’s net asset value and net tangible asset value
per linked unit, as at 31 March 2013 are set out below.

The unaudited pro forma financial effects are the responsibility of the directors of Vukile and have been prepared for
illustrative purposes only, to provide information on how the transaction may have impacted on the historical financial
results of Vukile for the year ended 31 March 2013.

Due to its nature, the pro forma financial information may not give a fair reflection of Vukile’s financial position,
changes in equity, results of operations and cash flows subsequent to the transaction.
                                                                                                                                    

The table below reflects the unaudited pro forma financial effects of the transaction on a Vukile unitholder:

                            As at 31   After acquisition   % change   After acquisition   % change   After equity funding    % change
                         March 2013       of Acquisition                    of Pretoria                 platform specific
                                              properties                   Momentum                         issue for cash
                                                                               building
Net asset value per           13.69              13.78        0.7%               13.85       0.5%                  14.37        3.7%
linked unit (R)
et tangible asset            13.19              13.31        0.9%              13.40        0.7%                  13.96        4.2%
value per linked unit
(R)
Net asset value per           13.71              13.79        0.6%              13.86        0.5%                  14.38        3.7%
linked unit
excluding deferred
tax (R)
Net tangible asset            13.20              13.33        1.0%              13.41        0.6%                  13.97        4.2%
value per linked unit
excluding deferred
tax (R)


Notes and assumptions:
  - The amounts set out in the “As at 31 March 2013” column have been extracted, without adjustment, from the
      audited results of Vukile for the year ended 31 March 2013.
  - The adjustments reflect the impact on the historical financial position of Vukile as at 31 March 2013 assuming
      that the transaction was implemented on 31 March 2013.
  - The pro forma financial effects of the acquisition on Vukile’s earnings and headline earnings per linked unit
      have not been disclosed as Vukile has published a distribution forecast of (i) the Acquisition properties and (ii)
      the Acquisition properties and the Option Property.
  - The pro forma financial effects of the specific issue of units for cash under the equity funding platform on
      Vukile’s earnings and headline earnings per linked unit have not been disclosed as Vukile has received a
      dispensation from showing the pro forma statement of comprehensive income and effects of such specific issue
      of units for cash in terms of paragraph 11.13 (note 2) of the JSE Listings Requirements.

Distributable income forecasts

The distributable income forecasts of the Acquisition properties and the Option Property have been set out on the
following two scenarios:
-     Scenario 1 assumes only the Acquisition properties are acquired during the forecast period and with effect from
      1 August 2013; and
-     Scenario 2 assumes the Acquisition properties are acquired with effect from 1 August 2013 and the Option
      Property is acquired with effect from 1 November 2013.

Vukile unitholders are advised that such forecasts should be read in conjunction with the reporting accountants report
thereon set out in Annexure 7 to the circular.

General notes and assumptions to the forecasts:

-       The forecasts have been prepared under IFRS, using the accounting policies of the issuer in the manner as
        outlined in the SAICA Revised guide on forecasts issued in September 2005.
-       Leases expiring during the periods have been forecast on a lease-by-lease basis, with particular regard as to the
        likelihood of existing tenants renewing their leases. Where appropriate, a vacancy provision has been allowed
        based on the expected lettability of the particular premises. Revenues forecast for the period after the expiry of
        the leases have been included in uncontracted revenue and have been based on current market-related rentals.
        The annual escalations in rental income (including recoveries and other income) are forecast as follows:
           i. Once-off escalation post expiry of existing lease 6% to 7%
          ii. Expected escalation rates on new leases 8% to 10%; and
         iii. Operating cost and rates recoveries are based on the existing contracted arrangements.
                                                                                                                        

Scenario 1
                                                               Forecast for the eight          Forecast for the year
                                                                     months ending                            ending
                                                                     31 March 2014                  31 March 2015
                                                                               R'000                           R'000
 Total revenue                                                               107 215                         166 170
 Forecast net profit from property operations                                 78 604                         120 115
 (Loss) /Profit after taxation                                             (88 008)*                         62 103*
 Debenture interest                                                           48 386                          80 841
 Initial yield                                                                  9.5%                            9.5%

Rental income is calculated on the following bases:
-     Contracted rental income for the 8 months to 31 March 2014 is 88% and for the 12 months to 31 March 2015 is
      86% based on existing signed lease agreements; and
-     Uncontracted rental income for the 8 months to 31 March 2014 is 12%; and for the 12 months to 31 March
      2015 is 14%.
Total revenue includes straight-line rental accruals of R11.2 million for the 8 months to 31 March 2014 and R11.0
million for the year ending 31 March 2015.


Scenario 2

                                                               Forecast for the eight          Forecast for the year
                                                                     months ending                            ending
                                                                     31 March 2014                  31 March 2015
                                                                               R'000                           R'000
 Total revenue                                                               126 170                         213 624
 Forecast net profit from property operations                                 86 263                         138 566
 (Loss) /Profit after taxation                                             (97 806)*                         81 208*
 Debenture interest                                                           51 310                          92 197
 Initial yield                                                                  9.5%                            9.5%

Rental income is calculated on the following bases:
-     Contracted rental income for the 8 months to 31 March 2014 is 94% and for the 12 months to 31 March 2015 is
      95% based on existing signed lease agreements; and
-     Uncontracted rental income for the 8 months to 31 March 2014 is 6%; and for the 12 months to 31 March 2015
      is 5%.
Total revenue includes straight-line rental accruals of R11.6 million for the 8 months to 31 March 2014 and R11.9
million for the year ending 31 March 2015.

* The loss after taxation for the eight months ending 31 March 2014 arises from a fair value adjustment of the
Acquisition properties and, if applicable, the Option Property, as the directors’ valuations of the respective properties
are lower than the purchase price payable for the respective properties.


WITHDRAWAL OF CAUTIONARY

Following the publication of the financial effects of the transaction unitholders are no longer required to exercise
caution when dealing in their Vukile units in relation to the transaction.

Unitholders are however referred to the announcement released on SENS on 26 April 2013 in relation to the potential
acquisition by Vukile of the Wingspan property portfolio and are advised that discussions in this regard are ongoing
and as such unitholders are advised to continue to exercising caution when dealing in their Vukile units.

Johannesburg
5 June 2013


Corporate adviser and JSE sponsor: Java Capital
                                               
Reporting accountants: Grant Thornton

Legal advisor: Bowman Gilfillan Incorporated

NSX sponsor: IJG Securities (Pty) Ltd

Date: 05/06/2013 05:11:00 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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