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The Acquisition by SA Corporate Of Afhco Holdings Proprietary Limited (“Afhco”) and Withdrawal of Cautionary
SA Corporate Real Estate Fund
A Collective Investment Scheme in Property registered in terms of the Collective
Investment Schemes Control Act, No. 45 of 2002 ("the Act") and managed by SA Corporate
Real Estate Fund Managers Limited (Registration number 1994/009895/06)("the Manager")
Share Code: SAC ISIN Code: ZAE000083614
(“SA Corporate” or "the Fund")
Registered as a REIT with effect from 1 January 2014
THE ACQUISITION BY SA CORPORATE OF AFHCO HOLDINGS PROPRIETARY LIMITED (“AFHCO”) AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
SA Corporate unitholders (“Unitholders”) are referred to the announcement dated 3 March 2014, wherein SA
Corporate announced the conclusion of a conditional agreement (“Sale Agreement”) whereby SA Corporate,
through its wholly owned subsidiary - SA Retail Properties Proprietary Limited (“SA Retail”), will acquire the entire
issued share capital of Afhco (“Afhco Shares”) from the shareholders of Afhco comprising of the IDEAS Managed
Fund, a policy product of Old Mutual Life Assurance Company (South Africa) Limited (50%) (“OMLACSA”), Wayne
Plit (35.5%) and Renney Plit (14.5%) (the “Sellers”) (the “Proposed Transaction”).
A comprehensive due diligence (“DD”) on Afhco has been concluded by SA Corporate. During this DD period, SA
Corporate performed an extensive analysis on the Afhco group property portfolio (“Afhco Group Portfolio”),
selecting properties within the best located areas in the Johannesburg inner-city central business district (“JHB
Inner City CBD”), the most attractive development opportunities and excluding those properties which are not as
ideally located or have higher vacancies than the rest of the Afhco Group Portfolio.
2. FURTHER RATIONALE FOR THE PROPOSED TRANSACTION
Whilst the core rationale for the Proposed Transaction is to gain exposure to this fast growing component of the
residential property sector, this rationale has been further strengthened through potential opportunities to
consolidate and further develop existing owned city blocks into precincts, which will significantly enhance the
existing income producing property portfolio. The selection of properties to be acquired has focused on achieving
critical mass in precincts strategically located due to their enhanced accessibility being in close proximity to major
transport hubs. Furthermore there are opportunities to expand on the retail offering due to the density of the
surrounding residential areas and the passing foot count.
3. TERMS OF THE PROPOSED TRANSACTION
3.1 The Proposed Transaction involves the acquisition of the Afhco Shares, the underlying assets of which are
comprised of:
3.1.1 The Property Portfolio
The refined Afhco Group Portfolio (the “Property Portfolio”) is located in the general improvement areas of
the JHB Inner City CBD consisting of 27 properties with an approximate value of R953 million (“Portfolio
Value”) equating to a 12 month forward capitalisation rate of approximately 10% (“Transaction Cap Rate”).
The majority of the Property Portfolio consists of office buildings which have been revamped and converted
into residential apartments with a retail element of approximately 30% (by gross leasable area (“GLA”)) that
trades on the ground floors. The residential apartments include a mix of studios, bachelors, 1 bedroom and 2
bedroom units ranging from 18m² to 80m². The Property Portfolio also includes 32,514 m² of residential bulk
(41,826m² of residential bulk including the Stuttafords Building which is described in paragraph 4 below), of
which 22,425 m² is vacant and has been priced separately from the income generating properties at R31.9
million.
The profile of the tenants occupying the residential apartments are predominantly individuals (aged 20 – 40
years) in the LSM band 6 – 8 with a median gross income of approximately R15,000 per month.
The Property Portfolio is held through a combination of wholly owned (“Afhco Subsidiaries”) and jointly
owned subsidiaries (“Joint Subsidiaries”) of the Afhco Group. Afhco has entered into a sale and purchase
agreement with the joint shareholder of 120 End Street Property Investment Proprietary Limited (“120 End
Street”) to acquire its 50% shareholding in 120 End Street prior to the effective date of the Proposed
Transaction (being the first day of the month following the month in which the last of the suspensive conditions
(as detailed in paragraph 3.4) have been fulfilled) (“Effective Date”). The 120 End Street transaction is
subject to the approval of the Competition Authorities.
Approximately R915.3 million (consisting of 25 properties and 3,156 residential apartments) of the Property
Portfolio value is owned by the Afhco Subsidiaries (assuming 120 End Street is classified as a wholly owned
Afhco Subsidiary and Newgate (a property wherein Afhco owns a 50% undivided share) is 100% owned by
Afhco (for the purposes of the number of residential units)). The balance of approximately R38.4 million (2
properties and 221 residential apartments) is held by the co-minority shareholder (“Minority Shareholder”) of
Rapiprop 101 Proprietary Limited (“Rapiprop”) (the holding company of the two properties – Elgin Court and
Jeppe Street Mall).
In addition to Afhco acquiring the remaining 50% in 120 End Street, the Proposed Transaction contemplates
Afhco entering into a sale and purchase agreement (“Minority Agreement”) with the Minority Shareholder of
Rapiprop to acquire its shareholding in the Joint Subsidiary, the extent of which shareholding is to be
acceptable to SA Corporate and the Sellers.
A detailed summary of the Property Portfolio is disclosed in the table below:
Weighted
average
Total No. of Rental/resi Gross
% rental/m²
Property Location GLA % Retail Residential dential unit value
Residential (for
(m²) units (Rand) (R'000)
retail/com
mercial)
64 Siemert
1 1
Afhco Corner Road, New 5,012 0% 100% - - 38 18,878
Doornfontein
*Connaught 219 Bree
and Street, New 2,511 85% 15% 21 3,329 124 31,612
2
Gemdawn Doorfontein
2 Plain Street,
*Anchor cnr Harrison
3 3,527 73% 27% 58 3,267 119 13,901
Towers Street,
Johannesburg
98 De Korte
Bridgeport4 Street, 3,714 78% 22% 61 3,387 92 16,858
Braamfontein
183 Jeppe
Cavendish Street, 5,868 79% 21% 189 2,713 92 59,416
Johannesburg
3 Hoek Street,
Hoeksbury 686 0% 100% - - 117 8,521
Johannesburg
*Letsema 30 Eloff Street,
4,791 0% 100% - - 285 8,268
Block5 Marshalls town
Small Street
Small Street 569 0% 100% - - 407 18,854
Mall
96 Small
Maxwell Court 6,904 85% 15% 117 3,644 202 56,177
Street
50 Stiemens
50 Stiemens6 Street, 1,516 94% 6% 22 5,742 332 11,061
Braamfontein
197 Jeppe
*Moray House7 3,769 57% 43% 32 2,243 138 35,851
Street
28 Albert
Atkinson
Street, 9,253 84% 16% 485 1,935 40 83,885
House8
Marshall Town
Corner Angle,
Van Beek,
Platinum Staib and
9,676 94% 6% 573 1,807 21 82,377
Place8 Beacon Road,
New
Doornfontein
120 End
120 End Street Street, New 33,374 86% 14% 925 3,103 - 250,927
Doornfontein
End Street,
*End Park9 New 3,338 0% 100% - - 30 9,162
Doornfontein
End Street,
*End Park
New 500 0% 100% - - 89 398
Lots9
Doornfontein
Bree Street
cnr. Nugget,
Frank & Hirsch 10,216 87% 13% 350 2,838 91 105,583
New
Doornfontein
Khan Corner,
End Street cnr.
Khan Corner 3,522 83% 17% 107 2,994 100 33,879
Rocky, New
Doornfontein
Rocky Street,
*Mantoll
New 0% 100% - - 57 1,519
Court10 295
Doornfontein
Davies Street,
*Station View11 New 0% 100% - - 22 3,941
2,560
Doornfontein
Davies Street,
*Tollman12 0% 100% - - 15 4,088
New 3,320
Doornfontein
Davies Street,
*Davies
New 500 - - - - -
Street12
Doornfontein
Davies Street,
12
*Rodi Lots New 500 - - - - -
Doornfontein
Davies Street, 2,955
12
*Sidelsky New 964 - - - - -
Doornfontein
13 84 Delvers
Elgin Court 2,949 87% 13% 81 2,934 231 25,214
Street
*Jeppe Street Jeppe Street
13 554 0% 100% 140 - 197 13,189
Mall Mall
14 108 Jeppe 14
Newgate 12,767 39% 61% 216 2,387 99 57,195
Street
Total income
producing 133,155 70% 30% 3,377 3,023 113 953,706
properties
Notes
No independent valuation has been carried out and the value of the Property Portfolio of R953.7 million was arrived at by the
directors of SA Corporate’s management company.
*These properties are all earmarked for development and consist of 32,514m² of residential bulk. A portion of this bulk is
currently occupied by tenants and therefore those respective tenants will be required to vacate the property during the
development period.
1
Afhco corner consists of 3,937m² of office space (currently occupied by Afhco Property Management Proprietary Limited
(“Prop Manco”) and 1,075m² of retail space.
2
Connaught and Gemdawn – Gemdawn currently consists of 21 residential units, while Connaught is 100% vacant. The
planned development will result in an additional 150 residential units being built with a complimentary retail element of
1,555m².
3
The first floor of Anchor Towers is vacant in lieu of the imminent development of 14 additional units. This property is also
sectional title of which Afhco owns 74% of the units
4
This property is sectional title of which Afhco owns 73% of the units
5
Letsema House consists of retail and vacant office space which will be converted to 141 residential units during
development.
6
50 Stiemens is a sectional title building of which Afhco owns 30% of the units. 7 of the 22 units are penthouse suites.
7
Currently there are 27 units - all occupied. The balance of the GLA is vacant. Tenants will need to vacate the building
during development.
8
Atkinson House and Platinum Place are currently undergoing development and will be completed by 1 May 2014. These
two properties will target quality accommodation for a lower LSM for which the debt funding is being provided by a French
development finance institution.
9
End Park is currently 100% occupied with retail and office space, and therefore the existing tenants will need to vacate the
premises during development. End Parks Lots comprises 500m² of yard space which is let out at R8/m²
10
Retail of 295m² is 100% occupied. Residential bulk of 600m² is currently vacant. The intention is to develop 13 residential
units utilising the available bulk.
11
Existing retail of 2,560m². This property has been priced at R1,250/bulk square metre. Total residential bulk available is
3,200m².
12
These properties are all vacant stands and the GLA represents the available bulk for development.
13
Both Elgin Court and Jeppe Street Mall are 50% owned by Afhco. It is SA Corporate’s intention to conclude the Minority
Sale Agreement prior to the Effective Date. The current retail of Jeppe Street Mall of 554m² is 29% vacant. There is 4,438m²
of available residential bulk above the existing retail space, which will be converted to 100 residential units during
development.
14
The property specific information relating to Newgate assumes SA Corporate purchases 100% of the building. The gross
value of R57.2 million relates to Afhco’s 50% undivided share in Newgate only.
3.1.2 Property Management Business
Prop Manco, a wholly owned subsidiary of Afhco, is the contracted property manager for the Property Portfolio.
The Prop Manco is staffed with 80 full time employees who have specific expertise in the management of
inner-city properties. This expertise is focused on tenant profiling, credit vetting, rental collections and physical
management of the Property Portfolio.
3.2 Purchase Consideration
Assuming the Proposed Transaction includes 100% of the Joint Subsidiary through the successful conclusion
of the Minority Agreement, the purchase consideration for the Afhco Shares would be approximately R278
million (“Purchase Consideration”), which is determined based on a Portfolio value of R953 million and Afhco
Group debt of R675 million (“Afhco Group Debt”) as at the signature date of the Sale Agreement being 3
March 2014 (“Signature Date”).
Approximately R8.9 million of the Purchase Consideration (which relates to the two properties – Atkinson
House and Platinum Place) will be deferred (“Deferred Consideration”) by 9 months from the Effective Date.
These two properties are newly developed and the risk of letting these will be borne by the Sellers and not SA
Corporate.
The Purchase Consideration will be subject to the following adjustments (“Purchase Price Adjustments”)
which will be determined at the Effective Date based on the preparation of Effective Date accounts:
- any material defects (latent or patent) in the immovable property that have been identified during
the DD and have not been remedied by the Sellers by the Effective Date;
- any movement in the Afhco Group Debt between the Signature Date and the Effective Date; and
- the net working capital of the Afhco Group at the Effective Date.
In addition to the above Purchase Price Adjustments, the Purchase Consideration will also be subject to an
“earn out” based on the actual net property income (“Actual Income”) generated for the 12 month period
subsequent to the Effective Date. To the extent the Actual Income is less than the forecast property income
(“Forecast Income”) which was used as the basis to determine the Purchase Consideration, the Sellers shall
pay an amount equal to the shortfall between the Actual Income and the Forecast Income capitalised at the
Transaction Cap Rate escalated at SA Corporate’s weighted average cost of capital for the period of the “earn
out”. For the two properties Atkinson House and Platinum Place, the Actual Income calculation will be based
on the 12 month period commencing 9 months after the Effective Date in order to cater for the time lag of
letting out the new residential units and generation of rental income thereof. The adjustment is subject to a
maximum purchase price adjustment of 12.5% of the Property Portfolio Value equating to approximately R121
million. The earn out does not apply if the Actual Income exceeds the Forecast Income. The full benefit of any
surplus will be for the benefit of SA Corporate.
To the extent that Afhco is unsuccessful in securing the respective Minority Shareholder, the Purchase
Consideration will be reduced accordingly.
3.3 Settlement of the Purchase Consideration
The Purchase Consideration will be funded by SA Corporate as follows:
- 30% through the issue of new SA Corporate participatory interests (“SA Corporate PI’s”) at an
issue price of R3.80 per SA Corporate PI equating to approximately R84 million. The SA Corporate
PI’s will be issued ex the entitlement to any distribution prior to the Effective Date; and
- 70% from SA Corporate debt facilities amounting to approximately R195 million.
In addition to the settlement of the Purchase Consideration, SA Corporate intends to take on approximately
R159.8mil of the Afhco Group Debt relating to a facility from the French development finance institution Agense
Francaise Developpement and refinance the balance of the Afhco Group Debt of R515.3 million through new
SA Corporate debt facilities.
3.4 Suspensive conditions
The Proposed Transaction remains subject to the fulfillment of inter alia the following conditions:
- approval of SA Corporate unitholders (“Unitholders”); and
- approval of the relevant regulatory authorities including, the Competition Authorities.
3.5 Development and Relationship agreement with Wayne and Renney Plit (“the Plits”)
SA Corporate has concluded an agreement with the Plits to retain their core competencies and skills to ensure
the seamless integration of Afhco into SA Corporate and to develop/convert the available bulk included in the
Property Portfolio and explore further development opportunities. The Plits have been instrumental in the
development of the JHB Inner City CBD improvement districts. SA Corporate believes that with its access to
capital, the great demand for affordable inner city residential apartments and the Plits’ expertise, SA Corporate
will be able to pursue attractive opportunities in growing the Afhco platform on an accretive basis.
All development properties are anticipated to achieve initial yields of at least 11%. Phase 1 of the development
is planned to commence within 3 months of the Effective Date, with construction being completed within 10
months. Phase 2 of the development will comprise of the construction of the Doorfontein Station Precinct
(which consists of the properties - Tollman, Sidelsky, Rodi Lots, Station View and Davies Street Stand) – a
strategic node, situated alongside 120 End Street and Doornfontein Station.
4. ACQUISITION PIPELINE
In addition to concluding the Minority Agreement, SA Corporate has entered into discussions to purchase the
remaining 50% undivided share in Newgate that Afhco does not already own.
SA Corporate is also in discussion with the Plits to purchase an immovable property referred to as (the
“Stuttafords Building”), which is a vacant development property located on the corner of Pritchard and Rissik
Streets, JHB Inner City CBD. The strategy for the Stuttafords Building is to develop 181 residential units across 9
floors with 926m² of retail. The existing residential bulk available in Stuttafords is 9,312m², therefore the total
residential bulk available across the Property Portfolio (including Stuttafords) for development equates to 41,826m².
SA Corporate will also consider acquiring the remaining Joint Subsidiaries in the Afhco Group in due course,
subject to certain property specific criteria and pricing acceptable to SA Corporate.
5. FINANCIAL EFFECTS
The pro forma financial effects of the Proposed Transaction on the Fund’s net assets and net tangible assets per
PI, based on the financial position as at year end 31 December 2013 are not significant and have not been
presented.
The forecasts have been prepared on the assumption that the Proposed Transaction will be implemented with
effect from 1 June 2014 and include forecast results for the 7 months ending 31 December 2014 and the year
ending 31 December 2015.
The forecasts, including the assumptions on which they are based and the financial information from which they
are prepared, are the responsibility of the board of directors. The forecasts have not been reviewed or reported on
by the independent reporting accountants.
The forecasts presented in the tables below have been prepared in accordance with the Fund’s accounting policies
and in compliance with IFRS.
Forecast 7 months Forecast 12 months
ending ending
31 December 2014 31 December 2015
R'000 R'000
1
Revenue 82,005 146,513
2
Total property expenses -27,599 -48,835
Net operating income before finance charges 54,406 97,678
3
Finance costs -36,242 -74,730
Net profit attributable to Unitholders 18,164 22,948
Distributable income per SA Corporate PI (cents) 0.92 1.16
Notes:
1. Revenue for the reporting periods shown is based on existing income generating properties and assuming all
residential units are let. Uncontracted revenue accounts for approximately 4% of total revenue (if one excludes
Atkinson House and Platinum Place, which are currently under development).
Escalations embedded in total revenue are approximately 10%. Escalations occur in January each year for
residential and vary month to month for retail.
2. Total property expenses include a vacancy and bad debts provision of 5% and total property expenses are
escalated at 8%.
3. Finance costs based on a weighted average cost of debt of 8.6%.
6. CATEGORISATION OF THE PROPOSED TRANSACTION
The Proposed Transaction constitutes a category 2 transaction in terms of the JSE Listings Requirements.
7. WITHDRAWAL OF CAUTIONARY AND FURTHER ANNOUNCEMENT
Unitholders are advised that as negotiations between SA Corporate and the Sellers have been concluded, caution
is no longer required to be exercised by Unitholders when dealing in SA Corporate’s PIs.
With reference to 3.4 above, Unitholders are advised that a resolution for the approval of the Proposed Transaction
has been provided for in the annual general meeting (“AGM”) notice which was posted to Unitholders on 17 April
2014. The AGM will be held on 15 May 2014 at SA Corporate’s registered offices - South Wing, First Floor, Block
A, North Bank Lane, Century City.
A further announcement will be made by SA Corporate upon the conclusion of the Minority Agreement and
fulfillment of the remaining conditions precedent to the Proposed Transaction.
Johannesburg
22 April 2014
Investment Bank and Financial Advisor
Investec Bank Limited
Legal Advisors
Webber Wentzel
Sponsor
Nedbank Capital
Legal Advisors to the Sellers
DLA Cliffe Dekker Hofmeyr
Date: 22/04/2014 05:27:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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