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ACQUISITION OF NEW PROPERTY PORTFOLIO
Fairvest Property Holdings Limited
Incorporated in the Republic of South Africa
(Registration number: 1998/005011/06)
Linked unit code: FVT ISIN: ZAE000034658
(“Fairvest” or “the Company”)
ACQUISITION OF NEW PROPERTY PORTFOLIO
1. ACQUISITION AGREEMENT CONCLUDED
1.1. Linked unitholders of the Company are hereby advised that the
Company has entered into an agreement (“Acquisition Agreement”) with
Vukile Property Fund Limited (“Vukile”) and Vukile’s subsidiary,
MICC Properties Proprietary Limited (“MICC”) (Vukile and MICC being
hereafter referred to as the “Sellers”), to acquire from the Sellers
a portfolio of retail properties, as detailed in paragraph 4 below
(“Acquisition Portfolio”), including the associated rental
enterprise conducted in respect of the Acquisition Portfolio (“the
Acquisition”).
1.2. The effective date of the Acquisition shall occur on fulfilment of
the conditions precedent to the Acquisition Agreement or on 1
December 2013, whichever is the later date (“Effective Date”).
1.3. Linked unitholders are referred to the joint announcement released
by Vukile and the Company earlier today (“Joint Announcement”), for
further particulars regarding the strategic alignment between Vukile
and the Company.
2. RATIONALE FOR THE ACQUISITION
The Acquisition is consistent with the Company’s growth strategy
whereby the Company will focus on acquiring retail assets with a
weighting in favour of non-metropolitan areas and lower LSM sectors.
Furthermore, the Acquisition is concluded in the context of the
Company and Vukile having agreed to a strategic relationship, with
Vukile and its subsidiary MICC acquiring a linked unitholding in the
Company, following implementation of the Acquisition and Acquisition
Issue (see paragraph 3 below), of 31.7% of the Company’s enlarged
issued linked unit capital.
Such a strategic relationship will provide the Company with the
opportunity to access Vukile’s deal flow in regard to retail assets
that fall outside of Vukile’s strategic focus, but within the
Company’s, and which is expected to add substantially to the Company’s
pipeline, and, more broadly, will provide the opportunity for the
Company to benefit from the experience and expertise of Vukile as a
strategic investor.
In addition, settling the full Purchase Consideration through the
issuing of the Acquisition Linked Units will reduce the Company’s loan
to value levels to just above 20%, thereby allowing Fairvest headroom
to make significant further yield-enhancing acquisitions through debt
funding.
3. PURCHASE CONSIDERATION
3.1. The purchase consideration due under the Acquisition Agreement for
the Acquisition Portfolio (“Purchase Consideration”) includes a base
purchase consideration of R231 597 000 (“Base Purchase
Consideration”), which Base Purchase Consideration shall increase at
the rate of 0.02% per day, compounded for every day from and
including 1 October 2013 up to, but excluding, the Effective Date
(“Purchase Consideration Increase”).
3.2. The estimated aggregate Purchase Consideration for the Acquisition
Portfolio is R233.9 million, based on an anticipated Effective Date
of 1 December 2013, and which includes VAT at the rate of 0%.
3.3. In terms of the Acquisition Agreement, the Company is to settle the
Purchase Consideration by issuing new ordinary linked units
(“Acquisition Linked Units”) to the Sellers at an issue price of
R1.40 per ordinary linked unit (“Acquisition Issue”). Based on the
estimated aggregate Purchase Consideration of R233.9 million, it is
anticipated that 167 045 236 Acquisition Linked Units will be issued
to the Sellers.
4. THE ACQUISITION PORTFOLIO
4.1. In terms of the Acquisition Agreement, the Company will purchase the
Kimberley Kim Park property from Vukile (“Vukile Property”) and all
remaining properties from MICC (“MICC Properties”).
4.2. Details of the Acquisition Portfolio
4.2.1. MICC Properties
Property Geographical Sector Gross Average Independent
Name and Location lettable Gross valuation
Address area Rental per (R’m)
(“GLA”) m2
(m2) (R/m2)
Durban KwaZulu Retail 4,777 136.6 67.2
Qualbert Natal
Centre
Malamulele Limpopo Retail 6,193 97.5 69.5
Plaza
Giyani Spar Limpopo Retail 5,485 76.1 47.0
Centre
Total 16,455 183.7
4.2.2. Vukile Property
Property Geograph Sector Estimate Gross Estimate Average Independ
Name and ical d lettable d Gross ent
Address Location Purchase area Purchase Rental valuatio
consider (“GLA”) consider per m2 n
ation (m2) ation (R/m2) (R’m)
(R’m) per GLA
(R/m2)
Kimberley Northern Retail 52.8 10,498 5,025 66.4 49.5
Kim Park Cape
Notes:
i. The estimated total Purchase Consideration of R233.9 million
comprises the Base Purchase Consideration of R231.6 million and
Purchase Consideration Increase of R2.3 million (assuming an
Effective Date of 1 December 2013). The calculation of the
estimated Purchase Consideration is dealt with in paragraphs 3.1
and 3.2 above.
ii. The estimated combined purchase consideration for the MICC
Properties is R181.1 million, while the estimated Purchase
Consideration per GLA (R/m2) for the MICC Properties, taken as a
whole, is R11,005.
iii. The properties were independently valued as at 1 November 2013
by Brian van Vuuren of JHI Properties Proprietary Limited, a
registered professional valuer in terms of the Property Valuers
Profession Act, 2000.
4.3. The annualised weighted average rental escalation at 1 September
2013, based on existing leases, is 7.7%.
4.4. The forward average acquisition yield for the 12 months commencing
from the anticipated Effective Date of the Acquisition is 9.6%.
4.5. The weighted average gross rental per m2 per month at 1 September
2013, excluding vacant GLA, for the Acquisition Portfolio is R87.7.
5. CONDITIONS PRECEDENT
The Acquisition is subject to the fulfilment of the following
conditions precedent (“Conditions Precedent”) –
5.1. that the boards of directors of the Sellers approve the Acquisition
Agreement by not later than 24 October 2013;
5.2. that the board of directors of the Company approves the Acquisition
Agreement by not later than 24 October 2013;
5.3. that the mortgagees in respect of the Acquisition Portfolio consent,
within 30 (thirty) days after the Conditions Precedent in paragraphs
5.1 and 5.2 above have been fulfilled, to the release of the
Acquisition Portfolio from the operation of the existing mortgage
bonds;
5.4. that all approvals required by law or regulation or the JSE in order
to give effect to the Acquisition Agreement, are obtained, by not
later than 17h00 on 31 January 2014; and
5.5. that the sale of the Acquisition Portfolio in terms of the
Acquisition Agreement is unconditionally approved by the Competition
Authorities in terms of the Competition Act, No. 89 of 1998 (as
amended) or is conditionally approved on terms and conditions which
each of the parties to the Acquisition Agreement confirms in writing
to the others by not later than 17h00 on 31 January 2014.
6. ADDITIONAL MATERIAL TERMS
6.1. The Acquisition Agreement provides for warranties that are normal
for a transaction of this nature.
6.2. The Sellers and the Company shall use their respective best
endeavours to procure the simultaneous transfer of the properties
forming part of the Acquisition Portfolio to the Company, to the
extent that it is practically possible to do so without permitting
undue delays after the Effective Date, with the date of registration
of transfer to the Company in the relevant title deeds registry of a
property comprising part of the Acquisition Portfolio, being
referred to as the “Transfer Date”.
6.3. In terms of the Acquisition Agreement, should any distribution which
is payable by the Company at any time in respect of the Acquisition
Linked Units include any income which is attributable to any period
prior to the Transfer Date (the “Relevant Distribution”), then the
Sellers antecedently waive their right to such portion of the
Relevant Distribution amount payable in respect of each Acquisition
Linked Unit which relates to such pre Transfer Date period, the
amount so waived being referred to as the “Waived Amount”. The
Waived Amount shall be an amount per Acquisition Linked Unit
equivalent to the portion of the Relevant Distribution which is
attributed to each Acquisition Linked Unit in respect of any period
prior to the Transfer Date (on the assumption that the Relevant
Distribution per Linked Unit accrued in an equal amount per day over
the six month distribution reporting period to which the Relevant
Distribution relates).
6.4. The Company shall be liable for interest to the Sellers, calculated
at a rate of 9.8% NACM (net annual compounded monthly in arrears),
on the outstanding balance of the Purchase Consideration from time
to time, from and including the Effective Date up to but excluding
the Transfer Date.
7. PRO FORMA FINANCIAL EFFECTS
The consolidated pro forma financial effects of the Acquisition and
the Acquisition Issue, as set out below, are the responsibility of the
Directors. The consolidated pro forma financial effects are presented
in a manner consistent with the basis on which the historical
financial information has been prepared and in terms of the Company’s
accounting policies. The pro forma financial effects have been
presented for illustrative purposes only and, because of their nature,
may not give a fair reflection of the Company’s financial position
following the implementation of the Acquisition and the Acquisition
Issue.
The table below summarises the consolidated pro forma financial
effects of the Acquisition and the Acquisition Issue on the Company,
based on the audited statement of financial position of Fairvest at 30
June 2013 and on the assumption that, for calculating the net asset
value (“NAV”) per linked unit and tangible net asset value (“TNAV”)
per linked unit, the Acquisition and the Acquisition Issue were
effected on 30 June 2013.
30 June 2013 Pro forma results Change
Before the after the (%)
Acquisition and Acquisition and
Acquisition Issue Acquisition Issue
(audited)
NAV and TNAV per ordinary 151.0 145.2 (3.9%)
linked unit (cents)
NAV and TNAV per ordinary 151.0 145.2 (3.9%)
linked unit excluding
deferred tax(cents)
Number of ordinary linked 359 762 526 808 46.4%
units in issue (‘000)
Notes and assumptions
- The “Before the Acquisition and Acquisition Issue” column set out
above has been extracted from the audited statement of financial
position of Fairvest at 30 June 2013.
- Represents the Acquisition for R233.9 million, comprising the Base
Purchase Consideration of R231.6 million and Purchase Consideration
Increase of R2.3 million assuming an Effective Date of 1 December
2013.
- The Acquisition is funded by issuing 167.05 million ordinary linked
units at an issue price of R1.40 per ordinary linked unit.
- Acquisition costs of R10.0 million are assumed to be funded from
existing debt facilities, and will incur interest at 8.0%. The
investment property is revalued to R233.2 million, the value
attributed by the independent valuer, resulting in a downward
revaluation adjustment of R10.6 million (fair value adjustment to
debentures). Acquisition costs are assumed to be R10.0 million and
are to be capitalised to investment property as part of the initial
cost in terms of IAS 40 Investment Property.
- The NAV and NTAV per linked unit is based on the actual number of
Linked Unitholders in issue at 30 June 2013 and on the basis that
the Acquisition and the Acquisition Issue were effected on 30 June
2013.
- All adjustments except for total estimated transaction costs are
expected to have a continuing effect.
8. FORECAST FINANCIAL INFORMATION
Set out below are the forecast statements of comprehensive income
(“Forecasts”) of the Acquisition Portfolio on a stand-alone basis for
the 7 months ending 30 June 2014 and year ending 30 June 2015
(“Forecast Periods”).
The Forecasts have been prepared on the assumption that the
Acquisition will be implemented on 1 December 2013.
The Forecasts include forecast figures 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. The Forecasts have been prepared in
compliance with IFRS and in accordance with the Company’s accounting
policies.
The Forecasts have not yet been finally reviewed and reported on by a
reporting accountant in terms of section 8 of the JSE Listings
Requirements.
7 months
ending Year ending
30 June 2014 30 June 2015
R'000 R'000
Rental income 21 682 39 586
Straight-line rental accrual 1 149 951
Revenue 22 831 40 537
Property expenses (8 708) (16 106)
Net property income 14 123 24 431
Asset management fee (719) (1 305)
Operating profit 13 404 23 126
Fair value adjustment to investment
properties (10 661) -
Fair value adjustment to debentures 9 834 (684)
Finance cost (190) (1)
Profit before debenture interest 12 387 22 441
Debenture interest (12 065) (22 175)
Profit before taxation 322 266
Taxation (322) (266)
Total comprehensive income attributable to
shareholders - -
Reconciliation between earnings headline
earnings and distributable earnings
Profit for the year - -
Adjusted for:
Debenture interest 12 065 22 175
Earnings (Linked Units) 12 065 22 175
Adjusted for:
Fair value adjustment to investment
properties 10 661 -
Fair value adjustment to debentures (9 834) 684
7 months
ending Year ending
30 June 2014 30 June 2015
R'000 R'000
Headline earnings (Linked Units) 12 892 22 859
Adjusted for:
Straight-line rental accrual(net of
taxation) (827) (684)
Amortisation of debt raising fees
Distributable earnings (Linked Units) 12 065 22 175
Actual number of ordinary linked units in
issue 167 045 236 167 045 236
Weighted average number of ordinary linked
units in issue 167 045 236 167 045 236
Distribution per ordinary linked unit (cents) 7.22 13.27
Earnings and headline earnings per ordinary
linked unit (cents) 7.22 13.27
Earnings and headline earnings per Ordinary
Share (cents) - -
Notes and assumptions:
The Forecasts incorporate the following material assumptions in
respect of revenue and expenses that can be influenced by the
Directors:
- the Forecasts are based on an analysis of historical information
and information provided by the Property Manager and independent
valuer;
- the properties underlying the Forecasts comprise only the
Acquisition Portfolio;
- contracted revenue is based on existing lease agreements including
stipulated increases, all of which are valid and enforceable;
- uncontracted revenue comprises 17.7% and 35.3% of basic and
operating cost rentals for the seven months ending 30 June 2014 and
year ending 30 June 2015 respectively;
- 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;
- 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;
- a vacancy profile (including possible bad debts) has been forecast
for each property;
- property operating expenditure has been forecast on a line-by-line
basis for each property based on management’s review of historical
expenditure, view on inflation and discussion with the Property
Manager; and
- fair value adjustments to investment properties have been provided
for, as further set out below.
The Forecasts incorporate the following material assumptions in
respect of revenue and expenses that cannot be influenced by the
Directors:
- the effective date of transfer of the Acquisition Portfolio is 1
December 2013;
- the Acquisition Portfolio is acquired for a Purchase Consideration
of R233.9 million comprising the Base Purchase Consideration of
R231.6 million and Purchase Consideration Increase of R2.3 million.
The Acquisition is funded by issuing 167.05 million ordinary linked
units at an issue price of R1.40 per ordinary linked unit;
- acquisition costs of R10.0 million, capitalised to investment
property, are assumed to be funded from existing debt facilities,
and will incur interest at 8.0% p.a.;
- in terms of the Asset Management Agreement with the Asset Manager,
Fairvest shall pay the Asset Manager a monthly fee equivalent to
1/12th of 0.5% of the aggregate of the market capitalisation and
the borrowings of Fairvest;
- Fairvest will pay the Property Manager for all property management
services a monthly fee equivalent to 3.0% of gross monthly income
collected from the Acquisition Portfolio (excluding VAT); and
- there will be no unforeseen economic factors that will affect the
lessees’ abilities to meet their commitments in terms of existing
lease agreements.
Material items of expenditure within the property expenses line item
include:
- R1.02 million in rates, R4.53 million in electricity and
R0.65 million in property management fees in respect of the
7 months ending 30 June 2014; and
- R1.88 million in rates, R8.38 million in electricity and
R1.19 million in property management fees in respect of the year
ending 30 June 2015.
Electricity expenses have been assumed to increase in line with
guidance issued by Eskom of annual increases in the region of 8%.
Forecast asset management fees, administrative expenses and property
management fees are not comparable with historic expenditure due to
the changes in asset and property management. Other material
expenditure items are not expected to change by more than 15% between
historical and forecast expenditure.
9. CATEGORISATION AND FURTHER DOCUMENTATION
9.1. The Acquisition constitutes a Category 1 acquisition in terms of the
JSE Listings Requirements and, as such, will require linked
unitholder approval.
9.2. The Acquisition Issue involves the issuing of the Acquisition Linked
Units, which together will hold more than 30% of the voting power of
all linked units in the issued linked unit capital of the Company,
and therefore requires the approval of linked unitholders by way of
a special resolution in terms of section 41(3) of the Companies Act,
No 71 of 2008 (as amended).
9.3. Should the Acquisition and the Acquisition Issue be approved by
linked unitholders, the Acquisition Linked Units to be issued in
terms of the Acquisition Issue will increase the issued linked unit
capital of the Company by more than 25%. Accordingly, the Company
is required, in terms of the JSE Listings Requirements, to issue
revised listing particulars.
9.4. Accordingly, a circular, incorporating revised listing particulars,
detailing the terms of the Acquisition and containing a notice
convening a general meeting, will be posted to linked unitholders in
due course.
10. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Linked unitholders are referred to the Company’s cautionary
announcement dated 29 August 2013 and are advised that as particulars
of the Acquisition have now been disclosed in this announcement and
the Joint Announcement, caution is no longer required to be exercised
by linked unitholders when dealing in the Company’s securities.
10 October 2013
Cape Town
Sponsor and Corporate Advisor: PSG Capital
Transaction Advisor: Java Capital
Date: 10/10/2013 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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