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ANNUITY PROPERTIES LTD - Acquisition of various properties and private placement

Release Date: 29/07/2013 09:00
Code(s): ANP     PDF:  
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Acquisition of various properties and private placement

ANNUITY PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2011/145994/06)
Share code: ANP        ISIN: ZAE000165643
(“Annuity” or “the Company”)




ACQUISITION OF VARIOUS PROPERTIES AND PRIVATE PLACEMENT




A.   INTRODUCTION

     Annuity is pleased to advise holders of Annuity linked units (“Linked unit holders”) that it has agreed terms with
     the relevant vendors for the following properties:

     -     the Clarins SA Portfolio Acquisition;
     -     the McCarthy/Unitrans Portfolio Acquisition; and
     -     the Coricraft Distribution Centre
           (collectively the “Property Acquisitions”).

     The Property Acquisitions are consistent with Annuity’s strategy to build a quality property portfolio that offers
     long-term distribution and capital growth underpinned by strong underlying contractual cash flows and also
     present an opportunity for Annuity to increase its portfolio weighting within the specialised retail and industrial
     sectors.

     Details pertaining to the Property Acquisitions are set out in Section B below. The Property Acquisitions are not
     inter-conditional on one another. The aggregate purchase consideration for the Property Acquisitions is
     approximately R369 million.

B.   THE PROPERTY ACQUISITIONS


1.   THE CLARINS SA PORTFOLIO ACQUISITION

     1.1       THE CLARINS SA PORTFOLIO ACQUISITION

               Annuity has agreed the terms, on an exclusive basis, with the relevant vendors to acquire a portfolio of
               prime office and industrial properties that are exclusively tenanted by Clarins South Africa Proprietary
               Limited (“Clarins SA”). Clarins SA is a subsidiary of the Clarins Group, an international luxury cosmetics
               company, headquartered in France, which manufactures prestige skincare, makeup and fragrance
               products. A major player in the beauty sector, Clarins has an international presence in all segments of
               the cosmetics market with a global network of 20 subsidiaries, over 140 local agents and approximately
               6,000 staff worldwide.

               The portfolio of properties includes:
               -   the Clarins head office property situated at 17A Scott Street, Waverley, Johannesburg (the “Scott
                   Street Property”), together with all leases and assets, forming necessary parts of the letting
                   enterprise as a going concern (the “Scott Street Letting Enterprise”), (collectively, the “Scott
                   Street Acquisition”);
               -   the Clarins industrial property situated at 17 Modulus Road, Ormonde, Johannesburg (the “Modulus
                   Road Property”), together with all leases and assets, forming necessary parts of the letting
                   enterprise as a going concern (the “Modulus Road Letting Enterprise”), (collectively, the
                   “Modulus Road Acquisition”); and
               -   the Clarins office property, situated at 30 Barnett Street, Gardens, Cape Town (the “Dunkley House
                   Property”), together with all leases and assets, forming necessary parts of the letting enterprise as a
                   going concern (the “Dunkley House Letting Enterprise”), (collectively, the “Dunkley House
                   Acquisition”).

      The Clarins SA leases each escalate at a rate of 8.0%, with approximately 3 years and 6 months
      remaining on each such lease.

      The effective date for the acquisition of each Clarins SA property will be the date of transfer of such
      property into the name of Annuity, which is expected to take place on or about 15 September 2013.

1.2   PROPERTY AND OTHER INFORMATION ON THE CLARINS PORTFOLIO ACQUISITION


                                                                Modulus Road              Dunkley House
                                     Scott Street Property
                                                                Property                  Property
                                     Portion 15 of Erf 13,      Erf 85, Theta
                                                                                          Erf 95485, ST
                                     Waverley Township,         Extension 6 Township,
          Description of the                                                              250/1996, Gardens,
                                     Registration Division      Registration Division
          property:                                                                       Local Authority of
                                     I.R. Province of           I.Q. Province of
                                                                                          Cape Town
                                     Gauteng                    Gauteng
                                                                                          Unit 46 SS Dunkley
                                     17A Scott Street           17 Modulus Road,
                                                                                          House, 30 Barnett
          Location:                  Waverley,                  Ormonde,
                                                                                          Street, Gardens, Cape
                                     Johannesburg               Johannesburg
                                                                                          Town
                                     Rand Treasury              Rand Treasury             Dunkley House
          Vendor:
                                     Proprietary Limited        Proprietary Limited       Proprietary Limited
          Single or multi-
                                     Single-tenanted            Single-tenanted           Single-tenanted
          tenanted:
          Grade:                     A Grade                    Industrial / warehouse    B Grade
                  2
          GLA (m ):                  Office: 1,442m²            Industrial: 2,000m²       Office: 360m²
          Weighted average
          gross rental per square    Office: R135.49/m²         Industrial: R41.69/m²     Office: R92.85/m²
          metre (R/m²):
          Weighted average           3.5 years                  3.5 years                 3.5 years
          lease expiry (by GLA):
          Vacancy:                   0%                         0%                        0%
          Purchase
                                     R23,238,074                R10,308,854               R3,653,072
          consideration:



1.3   CATEGORISATION

      As the Clarins Portfolio Acquisition represents less than 5% of Annuity’s market capitalisation in terms of
      the Listings Requirements of the JSE (“JSE Listings Requirements”), the disclosure contained in
      paragraph 1 of this announcement is voluntary.

2.   THE MCCARTHY/UNITRANS PORTFOLIO ACQUISITION

     2.1   THE MCCARTHY/UNITRANS PORTFOLIO ACQUISITION

           Annuity has agreed the terms, on an exclusive basis, with various vendors to acquire a portfolio of
           specialised retail and office properties (“McCarthy/Unitrans Portfolio Acquisition”) situated in a prime
           location within the well established Hendrik Potgieter strip in Roodepoort, which is a prominent mixed-
           use business node of retail, office and vehicle retail showrooms and within close proximity to the N1
           highway and the Clearwater Regional Shopping Centre on the West Rand of Johannesburg.

           The specialised retail properties offer a high quality tenant profile with McCarthy Audi (part of the
           McCarthy Motor Group, a subsidiary of Bidvest Limited) and Unitrans Nissan (operated by Unitrans, a
           subsidiary of KAP International Holdings Limited) occupying approximately 78% of the total specialised
           retail GLA. The office property is predominately tenanted by a combination of large, medium and small
           corporates and professional firms.

           The portfolio of properties includes:
           -   the McCarthy Audi Centre West Rand property situated at corner of Christiaan De Wet Road and
               Rooibok Avenue, Allen’s Nek, Roodepoort (the “McCarthy Audi Property”), together with all leases
               and assets, forming necessary parts of the letting enterprise as a going concern (the “McCarthy
               Audi Letting Enterprise”), (collectively, the “McCarthy Audi Acquisition”);
           -   the Unitrans Nissan Roodepoort property situated at corner of Christiaan De Wet Road and Rooibok
               Avenue, Allen’s Nek, Roodepoort (the “Unitrans Nissan Property”), together with all leases and
               assets, forming necessary parts of the letting enterprise as a going concern (the “Unitrans Nissan
               Letting Enterprise”), (collectively, the “Unitrans Nissan Acquisition”); and
           -   the Warich Close Office Park property situated at corner of Christiaan De Wet Road and Rooibok
               Avenue, Allen’s Nek, Roodepoort (the “Warich Office Park Property”), together with all leases and
               assets, forming necessary parts of the letting enterprise as a going concern (the “Warich Office
               Park Letting Enterprise”), (collectively, the “Warich Office Park Acquisition”).

           The effective date for the acquisition of each McCarthy/Unitrans property will be the date of transfer of
           such property into the name of Annuity, which is expected to take place on or about 1 October 2013.

     2.2   PROPERTY AND OTHER INFORMATION ON THE MCCARTHY/UNITRANS PORTFOLIO
           ACQUISITION


                                        McCarthy Audi             Unitrans Nissan          Warich Office Park
                                        Property                  Property                 Property
                                        Erf 682, Allen’s Nek      Erf 732, Allen’s Nek     Erf 733, Allen’s Nek
                                        Extension 43              Extension 47             Extension 47
            Description of the          Township,                 Township,                Township,
            property:                   Registration Division     Registration Division    Registration Division
                                        I.Q. Province of          I.Q. Province of         I.Q. Province of
                                        Gauteng                   Gauteng                  Gauteng
                                        Corner of Christiaan
                                                                  43 Van Vuuren Street,    39 Van Vuuren Street,
                                        De Wet and Rooibok
                                                                  Allen’s Nek,             Allen’s Nek,
              Location:                 Avenue, Allen’s Nek,
                                                                  Roodepoort,              Roodepoort,
                                        Roodepoort,
                                                                  Johannesburg             Johannesburg
                                        Johannesburg
                                        Time Bandit               Wilrock Properties       Wilrock Properties
              Vendor:
                                        Properties 25             Proprietary Limited      Proprietary Limited
                                        Proprietary Limited
              Single or multi-
                                        Multi-tenanted            Single-tenanted          Multi-tenanted
              tenanted:
              Grade:                    N/A                       N/A                      A Grade
                      2
              GLA (m ):                 Special retail: 4,309m²   Special retail: 4,000m²  Office: 3,212m²
              Weighted average
                                        Special retail:           Special retail:
              gross rental per square                                                      Office: R89.16/m²
                                        R104.53/m²                R112.05/m²
              metre (R/m²):
              Weighted average
                                         4.4 years                 4.6 years                2.6 years
              lease expiry (by GLA):
              Vacancy:                   0%                        0%                       0%
              Purchase
              consideration:             R67,063,384               R68,091,964              R46,594,651
           
             vendor of the Warich Office Park Property will guarantee the gross income of all the tenants to Annuity’s
             satisfaction for a period of 2 years from the date of transfer of the Warich Office Park Property into the
             name of Annuity.

     2.3   CONDITIONS PRECEDENT TO THE MCCARTHY/UNITRANS PORTFOLIO ACQUISITION

           Each of the McCarthy Audi Acquisition, the Unitrans Nissan Acquisition and the Warich Office Park
           Acquisition is subject to the fulfillment of, inter alia, the following conditions precedent:

           a)   the listing of the new Annuity linked units to fund such acquisitions in terms of the JSE Listing
                Requirements; and
           b)   the raising of the necessary debt and equity capital required to fund such acquisitions.

     2.4   CATEGORISATION

           The Unitrans Nissan Acquisition and the Warich Office Park Acquisition are from the same vendor,
           Wilrock Properties Proprietary Limited (“Wilrock”). Wilrock and the vendor for the McCarthy Audi
           Acquisition are considered to be associated companies as defined in terms of the JSE Listings
           Requirements. Accordingly, the purchase considerations of the McCarthy Audi Acquisition, Unitrans
           Nissan Acquisition and the Warich Office Park Acquisition have been aggregated in considering the
           categorisation of the McCarthy/Unitrans Portfolio Acquisition.

           As a result, the McCarthy/Unitrans Portfolio Acquisition constitutes a category 2 transaction in terms of
           the JSE Listings Requirements and accordingly does not require approval by Linked unit holders.

3.   THE CORICRAFT DISTRIBUTION CENTRE ACQUISITION

     3.1   THE CORICRAFT DISTRIBUTION CENTRE ACQUISITION

           Annuity has agreed the terms, on an exclusive basis, with Reflex Property Partners Proprietary Limited to
           acquire the Coricraft distribution centre, situated at Friedlander Street, Stormill, Johannesburg (the
           “Coricraft Distribution Centre Property”), together with all leases and assets, forming necessary parts
           of the letting enterprise as a going concern (the “Coricraft Distribution Centre Letting Enterprise”),
           (collectively, the “Coricraft Distribution Centre Acquisition”).

           The Coricraft Distribution Centre Property is exclusively tenanted by Coricraft Group Proprietary Limited
           (“Coricraft”). Coricraft is a manufacturer and retailer of a wide variety of couches, dining, living and
           bedroom furniture. Coricraft is one of South Africa’s fastest growing retailers and is the leading cash
           furnishing retailer in South Africa through their 34 stores.

           Coricraft is on a 10 year triple net lease which escalates at the higher of 8% or CPI per annum and has 8
           years and 1 month remaining on such lease, which terminates on 31 July 2021. Coricraft will sign a new
           10 year lease upon transfer of the Coricraft Distribution Centre Property into Annuity’s name.

           The effective date of the Coricraft Distribution Centre Acquisition will be the date of transfer of the
           Coricraft Distribution Centre Property into the name of Annuity, which is expected to take place on or
           about 1 October 2013.

3.2   PROPERTY AND OTHER INFORMATION ON THE CORICRAFT DISTRIBUTION CENTRE
      ACQUISITION



                                                           Erven 3, 4, 7, 10 - 13, 117 Stormill Township,
       Description of the property:
                                                           Registration Division I.Q. Province of Gauteng


       Location:                                           Friedlander Street, Stormill, Johannesburg

       Single or multi-tenanted:                           Single-tenanted

       Grade:                                              Industrial / distribution centre
                2
       GLA (m ):                                           Industrial: 19,369m²

       Weighted average gross rental per square
                                                           Industrial: R32.92/m²
       metre (R/m²):

       Weighted average lease expiry (by GLA):             8.1 years, to be extended to 10 years on transfer


       Vacancy:                                            0%


       Purchase consideration:                             R86,145,390


3.3   CONDITIONS PRECEDENT TO THE CORICRAFT DISTRIBUTION CENTRE ACQUISITION

      The Coricraft Distribution Centre Acquisition is subject to the fulfillment of, inter alia, the following
      conditions precedent:

      a)   the delivery of the following documents by the vendor of the Coricraft Distribution Centre to Annuity:
           -    an approved site development plan in respect of the Coricraft Distribution Centre Property;
           -    building plans of the Coricraft Distribution Centre Property approved by the City of
                Johannesburg Metropolitan Municipality (the “Johannesburg Municipality”); and
           -    an occupancy certificate issued by the Johannesburg Municipality
      b)   Competition Authority approval in terms of the Competition Act 89 of 1998.

3.4   CATEGORISATION
              The Coricraft Distribution Centre Acquisition constitutes a category 2 transaction in terms of the JSE
              Listings Requirements and accordingly does not require approval by Linked unit holders.

4.   INDEPENDENT VALUATIONS OF THE PROPERTY ACQUISITIONS

     The directors of Annuity (“Annuity Board”) are satisfied that the values of each of the Scott Street Property,
     Modulus Road Property, Dunkley House Property, McCarthy Audi Property, Unitrans Nissan Property, Warich
     Office Park Property and the Coricraft Distribution Centre Property are in line with the purchase prices being paid
     by Annuity. The Annuity Board is not independent and is not registered as professional valuers or as professional
     associate valuers in terms of the Property Valuers Profession Act, No 47 of 2000.

5.   PROPOSED FUNDING OF THE PROPERTY ACQUISITIONS

     The purchase consideration for the Property Acquisitions is payable in cash against transfer of each of the
     properties into the name of Annuity. The aggregate purchase consideration for the Property Acquisitions (the
     “Aggregate Purchase Consideration”) will be funded through a combination of new and existing debt facilities
     and/or the issue of new Annuity linked units via a private placement (“Private Placement”). The related property
     acquisition and transaction costs will be funded through new debt facilities. In this context the minimum amount
     Annuity will seek to raise via the Private Placement will be approximately R193.6 million.

6.   FINANCIAL EFFECTS

     The financial effects, including the assumptions on which they are based and the financial information from which
     they are prepared, are the responsibility of the Annuity Board and have not been reviewed or reported on by the
     reporting accountant in terms of section 8 of the JSE Listing Requirements.

     The financial effects presented in the tables below have been prepared in accordance with the Company's
     accounting policies and in compliance with IFRS. The financial effects have been prepared on the assumption that
     the Aveng Property Acquisition (Linked unit holders are referred to the announcement dated 14 May 2013 for
     details relating to the Aveng Property Acquisition) will be implemented (transfer of the properties into Annuity’s
     name) on 15 August 2013, the Clarins Portfolio Acquisition will be implemented (transfer of the properties into
     Annuity’s name) on 15 September 2013 and the McCarthy/Unitrans Portfolio Acquisition and Coricraft Distribution
     Centre Acquisition will be implemented (transfer of the property into Annuity’s name) on 1 October 2013.

                                                     Forecast for                                                                                     Forecast for
                                                      the twelve                                                                                       the twelve
                                                        months                                                                                           months
                                                       ending 31                                                                                        ending 31
                                                      March 2014                                                                                       March 2014
                                                      before the                                                                                         after the
                                                         Aveng                                                                                            Aveng
                                                        Property      Adjustment                                                       Coricraft         Property
                                                      Acquisition       for actual      Aveng           Clarins        McCarthy/      Distribution     Acquisition
                                                     and Property     linked units     Property        Portfolio       Unitrans         Centre        and Property
                                                                  1               2               3               4               5               5
                                            Notes    Acquisitions        in issue     Acquisition     Acquisition     Acquisition     Acquisition     Acquisitions

Revenue                                               191,254,259                        4,782,974       2,633,994     12,237,118        5,857,171     216,765,516
Net property income                                   146,737,703                        4,724,562       2,269,959     10,056,736        5,799,182     169,588,142
Net operating profit before interest and
taxation                                              123,229,031                        2,705,055       1,203,181       4,750,005       2,217,689     134,104,961

Number of linked units in issue at end of
period                                          6     187,158,344       1,974,573        6,121,156                -    20,971,154        9,939,853     226,165,080
Weighted average number of linked units
in issue                                        6     187,158,344       1,974,573        3,555,302                -    10,456,849        4,956,310     208,101,378
Earnings per linked units (cents)             6, 7          40.79                                                                                            38.44
Headline earnings per linked unit (cents)     6, 7          49.79                                                                                            49.64
Distribution per linked unit (cents)          6, 7          45.09                                                                                            45.09
General assumptions and notes:


       1.   The forecasts are based on the same material assumptions as are listed in the Circular to Annuity Linked unit holders, dated 25 October 2012;
       2.   The “Adjustment for actual linked units in issue” column reflects the adjustment for actual linked units in issue;
       3.   Based on an assumed 50%/50% debt to equity funding ratio for the Aveng Property Acquisition;
       4.   Based on an assumed 100% debt funding ratio for the Clarins Portfolio Acquisition;
       5.   Based on an assumed 40%/60% debt to equity funding ratio for the McCarthy/Unitrans Acquisition and the Coricraft Distribution Centre
            Acquisition
       6.   Based on an indicative clean price of R5.20 per linked unit for the Private Placement, which is at a 8.9% discount to the 30 day VWAP of Annuity
            prior to the issue date of this announcement; and
       7.   The debt portion will be funded from new debt facilities at an indicative blended fixed and floating interest rate of 7.28%.

7.     UNAUDITED PRO FORMA FINANCIAL INFORMATION

       The unaudited pro forma financial effects are the responsibility of the Annuity Board and have been prepared for illustrative purposes only to provide
       information relating to how the Aveng Property Acquisition and the Property Acquisitions may have impacted Linked unit holders on the relevant
       reporting date and, due to their nature, may not give a fair reflection of Annuity`s financial position after implementation of the Aveng Property
       Acquisition and the Property Acquisitions.

       The unaudited pro forma financial effects have been prepared in accordance with the JSE Listings Requirements, the Guide on Pro Forma Financial
       Information issued by SAICA and the measurement and recognition requirements of IFRS. The accounting policies used to prepare the unaudited pro
       forma financial effects are consistent with those applied in the preparation of the financial statements for the year ended 31 March 2013.

       The table below sets out the unaudited pro forma financial effects of the Aveng Property Acquisition and the Property Acquisitions on net asset value
       ("NAV") and tangible net asset value ("TNAV") per linked unit for the year ended 31 March 2013.

                                                                                                                                              Pro forma
                                                         Pro forma                                                                          results after
                                                       results as per                                                                        the Aveng
                                                         Annuity’s                                                                            Property
                                                         historical                                                         Coricraft        Acquisition
                                                          financial         Aveng           Clarins         McCarthy/      Distribution        and the
                                                      information on       Property        Portfolio         Unitrans        Centre           Property
                                                                     1                                                                                   2
                                                      31 March 2013       Acquisition     Acquisition       Acquisition    Acquisition      Acquisitions

        NAV per linked unit (cents)                              522.0            -1.44           -1.23           -2.74            -3.23            513.36
        TNAV per linked unit (cents)                             522.0            -2.18           -0.94           -4.62            -1.40            512.86

        Number of linked units in issue at end of         189,132,917        6,121,156                  -    20,971,154       9,939,853       226,165,080
        period

The pro forma financial effects have been calculated on the basis of the following assumptions:

 1.       The “Pro forma as per Annuity’s historical financial information on 31 March 2013” column, which is based on the audited financial results for
          the year ended 31 March 2013, reflects the NAV and the TNAV value per linked unit as at 31 March 2013.
 2.       The “Pro forma results after the Aveng Property Acquisition and the Property Acquisitions” column represents NAV and TNAV per linked unit
          including the Property Acquisitions. It includes the effect of the acquisition and transfer of the properties to the value of R360.2 million, being
          the fair value of the Aveng Property Acquisition and the Property Acquisitions in terms of IFRS 3.
 3.       It is assumed that the Aveng Property Acquisition and the Property Acquisitions will be funded by the Private Placement and via debt funding
          as set out in the notes to paragraph 6 of this announcement.
 4.       The total estimated once-off transaction costs to be paid amount to R11.8 million. Property acquisition costs have been expensed in terms of
          IFRS 3 and transaction costs relating to debt have been capitalised to the financial liability in terms of IFRS.

C.   CONCLUSION

     The Annuity Board believes that the Property Acquisitions further enhance the quality of Annuity’s underlying
     portfolio in a manner that is consistent with Annuity’s investment strategy to build a quality portfolio that offers
     long-term distribution and capital growth underpinned by strong lease covenants and above market escalations.

     Illovo
     29 July 2013



     Lead Investment Bank and Transaction Sponsor to Annuity
     Investec Bank Limited

     Joint Investment Bank to Annuity
     Sasfin Capital (A division of Sasfin Bank Limited)

     Sponsor to Annuity
     Rand Merchant Bank (A division of FirstRand Bank Limited)

     Legal advisors to Annuity
     Glyn Marais Inc

Date: 29/07/2013 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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