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Establishment of Capital Property Fund as an internally managed corporate REIT and an abridged pre-listing statement
CAPITAL PROPERTY FUND
(a portfolio in Capital Property Trust Scheme, a collective investment
scheme in property registered as such in terms of the Collective
Investment Schemes Control Act, No. 45 of 2002) (“Act”)
(Approved as a REIT by the JSE)
JSE share code: CPL ISIN: ZAE000001731
(“Capital”)
Managed by Property Fund Managers Limited
(Registration number 1980/009531/06)
(“PFM”)
CAPITAL PROPERTY FUND LIMITED
(previously Friedshelf 1497 Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2013/226575/06)
JSE share code: CPF ISIN: ZAE000186821
(“New Capital” or “the company”)
ESTABLISHMENT OF CAPITAL PROPERTY FUND AS AN INTERNALLY MANAGED CORPORATE
REIT AND AN ABRIDGED PRE-LISTING STATEMENT FOR NEW CAPITAL
CAPITAL CONVERSION CIRCULAR
1. Introduction
Capital unitholders are referred to the previous announcements, the last of which was published on SENS on
17 April 2014, relating to a proposed transaction that would have the effect of restructuring Capital as a
corporate Real Estate Investment Trust (“REIT”) and internalising the management of Capital in a manner that
would better align the interests of Capital’s management with those of investors (“the transaction”).
2. Background and rationale
2.1. On 28 March 2014 the Registrar of Collective Investment Schemes (“Registrar”) issued Board Notice
42 of 2014 (“Notice”) in terms of the Act entitled “Conditions for the wind-up of a Collective
Investment Scheme in Property under certain circumstances”. The Notice sets out the process for
winding up a Collective Investment Scheme in Property (“CISIP”) and converting the CISIP to a
corporate REIT governed by the JSE Listings Requirements. Subject to the approval of Capital
unitholders, the transaction will be given effect to in accordance with the provisions of the Notice. The
Registrar has given its approval to the conversion of Capital to a corporate REIT as contemplated in the
Notice.
2.2. The Notice has been issued in the context of the introduction of the REIT regime. As this resulted in the
alignment of the fiscal consequences of investing in a CISIP and a property loan stock company, the
key rationale for Capital being established as a CISIP no longer exists and with the investor preference
for corporate REITs, which are better understood by institutional investors, the board of directors of
PFM (“the board”) considered it appropriate to restructure Capital as a corporate REIT.
2.3. The board believes that Capital is now at a stage where it is preferable to internalise its asset
management function. The internal management model is considered consistent with investor
preferences and best practice globally regarding management and governance for the sector.
3. Mechanics of the transaction
3.1. Prior to implementation of the transaction, Capital has undertaken an internal restructure in terms of
which Capital has, with effect from 1 June 2014, disposed of its directly held properties and listed
property securities into newly established wholly-owned fixed property companies with the result that
Capital holds all of its immovable properties and listed property securities (“assets”) indirectly via
wholly-owned fixed property companies.
3.2. In terms of the transaction and with effect from 30 June 2014, Capital will dispose of all of its assets
comprising its holdings in its wholly-owned fixed property companies to New Capital in consideration
for shares in New Capital, which shares will be issued directly to Capital’s unitholders on behalf of
Capital. New Capital will, subject to receiving the requisite consent of noteholders, simultaneously
assume Capital’s obligations under the domestic medium term note programme established by Capital
on 23 November 2011 in terms of which Capital has issued commercial paper and bonds (“DMTN
programme”). In addition, New Capital has indemnified PFM, Capital and the Capital Trustee against
any claims which may be brought against any of them in respect to any claim arising out of or in
connection with any contractual or delictual claim of any nature incurred by Capital (“the
amalgamation”).
3.3. Capital unitholders recorded in the Capital register on the record date, being, Friday, 4 July 2014 will
receive New Capital shares on a pro rata basis in the ratio of one New Capital share for every one
Capital unit held on the record date.
3.4. Current unitholders in Capital will become direct shareholders in New Capital. They will therefore
continue to be invested in the same base of assets in which they are currently invested via their holding
of Capital units, namely all of the immovable property and listed property securities held directly by
Capital and shares in Capital’s wholly-owned fixed property companies.
3.5. Simultaneous with the issue of the New Capital shares to Capital unitholders, New Capital will secure a
listing by way of an introduction in the “Industrial and Office REITs” sector of the JSE, in terms of the
FTSE classification, under the abbreviated name: “CAPPROP”, JSE share code: CPF and
ISIN: ZAE000186821 with effect from the commencement of trade on Monday, 30 June 2014. In this
regard, Capital has posted a pre-listing statement dated 9 May 2014 (“New Capital pre-listing
statement”) to Capital unitholders which contains full details of New Capital. An abridged version of
the New Capital pre-listing statement is set out below.
3.6. Resilient Property Income Fund Limited (“Resilient”) disposed of all of the shares it held in PFM to
New Capital in consideration for 70 754 717 shares in New Capital.
3.7. Following implementation of the transaction, Capital will no longer hold any assets and liabilities and
will no longer qualify for a listing on the JSE in terms of the JSE Listings Requirements. Accordingly,
the listing of Capital on the main board of the JSE will be terminated with effect from Monday,
7 July 2014.
3.8. The net effect of the above will be to establish Capital as an internally-managed corporate REIT rather
than as an externally managed CISIP.
3.9. The Registrar and the Capital Trustee have indicated that they have no objection to the transaction,
subject to unitholders approving the transaction by passing a resolution at a general meeting convened
for that purpose. The Competition authorities have given their approval to the transaction.
4. Conditions precedent
The transaction is subject to the approval by:
4.1. Capital unitholders of the resolution proposed in the notice of general meeting; and
4.2. DMTN programme noteholders of the assumption by New Capital of the existing obligations under the
DMTN programme.
5. Financial effects of the transaction
5.1. The pro forma financial effects of the transaction on a Capital unitholder in terms of basic earnings per
unit, headline earnings per unit and distribution per unit for the year ended 31 December 2013 and net
asset value per unit as at 31 December 2013 are set out below.
5.2. Due to their nature, the pro forma financial effects may not give a fair reflection of Capital or New
Capital’s financial position, changes in equity, results of operations and cash flows subsequent to the
transaction.
5.3. The pro forma financial effects are the responsibility of the directors and has been prepared for
illustrative purposes only, to provide information on how the transaction may have impacted a Capital
unitholder based on the historical financial results of Capital for the year ended 31 December 2013.
5.4. The pro forma financial effects have been prepared in accordance with Capital’s accounting policies, in
terms of the International Standard on Assurance Engagements 3420 – Assurance Engagements to
Report on the Compilation of Pro Forma Financial Information included in a Prospectus, The Guide on
Pro Forma Financial Information issued by SAICA and in compliance with IFRS.
5.5. The consolidated pro forma statement of comprehensive income for the year ended 31 December 2013
and the consolidated pro forma statement of financial position as at 31 December 2013 and the
explanatory notes thereto are set out in Annexure 4 of the Capital conversion circular and should be
read in conjunction with the independent reporting accountants’ assurance report thereon which is
presented in Annexure 5 of the Capital conversion circular.
5.6. The table below reflects the pro forma financial effects of the transaction on a Capital unitholder:
Unadjusted Pro forma Percentage
before the after the change
transaction transaction (%)
Distribution per unit (cents) 75.62 75.24 (0.50)
Basic earnings per unit (cents) 238.12 185.86 (21.95)
Headline earnings per unit (cents) 163.34 114.23 (30.07)
Net asset value per unit (Rand) 10.31 9.88 (4.17)
Net tangible asset value per unit (Rand) 10.31 9.88 (4.17)
Weighted average number of units in issue 1 606 986 279 1 677 740 996 4.40
Units in issue at 31 December 2013 1 606 986 279 1 677 740 996 4.40
Notes and assumptions
1. The amounts set out in the “Unadjusted before the transaction” column have been extracted,
without adjustment, from the audited financial statements in Capital’s integrated report for the year
ended 31 December 2013.
2. The transaction is assumed to be implemented on 1 January 2013 for statement of comprehensive
income purposes and on 31 December 2013 for statement of financial position purposes.
3. In terms of IFRS 3: Business Combinations, the amounts set out in the “Pro forma after the
transaction” column were calculated by consolidating the audited financial statements in Capital’s
integrated report for the year ended 31 December 2013, the audited financial statements of PFM for
the year ended 31 December 2013 and the audited financial statements of New Capital for the
period from 4 December 2013, being the date of incorporation to 31 January 2014, subject to the
assumptions and adjustments set out below. New Capital will acquire the shares in PFM and the
transaction will be accounted for under IFRS 3: Business Combinations. In accordance with this
standard, at the date of the transaction the fair value of the intangible asset was determined to be
R750 million. This was the only asset of PFM. The asset was valued on a relief from royalty or cost
approach using inputs generated from the agreement signed initially between PFM and Capital as
this was an arms-length agreement and was considered representative of potentially similar
agreements.
4. Prior to the implementation of the transaction, Resilient will dispose of all the shares held in PFM
to New Capital in consideration for 70 754 717 shares in New Capital. On implementation of the
transaction, the 70 754 717 shares in New Capital will represent the value of R750 million
attributed to PFM by Resilient and Capital on 5 April 2013, being the date the parties announced on
SENS that they had agreed a transaction that would have the effect of internalising the management
of Capital. Accordingly, although there will be no additional finance costs, there are additional
dividends payable as a result of the additional number of shares in issue.
5. Estimated once-off transaction costs of R6.6 million have been assumed to be paid in cash. R1
million of the estimated transaction costs, which relate to the listing of the New Capital shares, was
deducted against the stated capital of New Capital in accordance with IAS 32 (Financial
Instruments: Presentation) and the balance of R5.6 million were expensed in accordance with the
revised IFRS 3 (Business Combinations).
6. The acquisition of PFM has been accounted for under the revised IFRS 3 (Business Combinations)
whereby an intangible asset has been recognised. The intangible asset has been expensed over the
period of the management contract. As the management agreement with PFM will cease to exist
following implementation of the transaction, it has been assumed that the intangible asset is
expensed fully. No deferred taxation has been recognised in respect of the excess which is
attributable to being an intangible asset.
7. The “Pro forma after the transaction” column has been based on the following statement of
comprehensive income assumptions:
7.1 Inter-company fees and expenses were eliminated.
7.2 The additional distributable income which results from the transaction is assumed to be earned
evenly throughout the period.
7.3 Other than in respect of estimated transaction costs set out in note 5 above to record estimated
transaction costs, all adjustments have a continuing effect.
8. The “Pro forma after the transaction” column has been based on the following statement of
financial position assumption:
8.1 Inter-company receivables and payables were eliminated.
8.2 The directors are not aware of any other matters or circumstances arising subsequent to
31 December 2013 that require any additional disclosure or adjustment to the pro forma
financial effects.
6. Notice of general meeting
6.1. Capital unitholders are hereby advised that Capital has posted a circular dated 9 May 2014 (“the
Capital conversion circular”) to Capital unitholders, containing full details of the transaction, full
financial effects of the transaction and a notice of general meeting to approve the amalgamation, the de-
listing of Capital and the winding up of Capital, the issue of 70 754 717 New Capital shares to Resilient
and the payment of the costs associated with the transaction.
6.2. A general meeting of Capital unitholders will be held at 10:00 on Monday, 9 June 2014 at the registered
office of Capital (4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191) to consider and, if
deemed fit, pass with or without modification the proposed resolution necessary to implement the
transaction.
6.3. A copy of the New Capital pre-listing statement has been posted to Capital unitholders together with a
copy of the Capital conversion circular and should be read in conjunction with the Capital conversion
circular as it contains important information for Capital unitholders about New Capital, as required by
the JSE Listings Requirements.
7. Related party considerations
7.1. As Resilient is a material unitholder in Capital and the sole shareholder of New Capital, the transaction
is, from a Capital perspective, being treated as a disposal to a related party under the JSE Listings
Requirements, requiring:
7.1.1. a statement by the directors of PFM confirming whether the transaction is fair insofar as
unitholders are concerned; and
7.1.2. unitholder approval at the general meeting.
7.2. Resilient will own 100% of New Capital prior to implementation of the transaction. Although Resilient
and its associates may be taken into account in determining a quorum at the general meeting, the votes
of Resilient and its associates as Capital unitholders will not be taken into account in determining the
validity of the resolution authorising the transaction.
7.3. In addition, the holding of Capital units by Andries de Lange, who is a director of each of Resilient and
PFM, may be taken into account in determining a quorum at the general meeting, but his votes as a
Capital unitholder will not be taken into account in determining the validity of the resolution
authorising the transaction.
7.4. As required in terms of the JSE Listings Requirements, the board of PFM hereby confirms that it is of
the opinion that the transaction is fair insofar as unitholders are concerned, having had regard to the
fairness opinion prepared by the independent expert, Grant Thornton Advisory Service (Proprietary)
Limited, a copy of which is set out in Annexure 2 of the Capital conversion circular.
8. Salient dates of the transaction
The salient dates and times for the implementation of the transaction are set out below:
2014
Capital conversion circular and New Capital pre-listing statement posted to Capital
unitholders on Friday, 9 May
Announce posting of the Capital conversion circular, notice of general meeting and
abridged pre-listing statement on SENS on Friday, 9 May
Announce posting of the Capital conversion circular, notice of general meeting and
abridged pre-listing statement in the press on Monday, 12 May
Last day to trade to be recorded in the Capital register in order to be eligible to vote at
the general meeting Friday, 23 May
Record date in order to be eligible to participate in and vote at the general meeting Friday, 30 May
Receipt of forms of proxy in respect of the general meeting of Capital unitholders by
10:00 on Thursday, 5 June
The general meeting of Capital unitholders to be held at 10:00 on Monday, 9 June
Results of the general meeting released on SENS on Monday, 9 June
Results of the general meeting published in the press on Tuesday, 10 June
Finalisation announcement released on SENS on Friday, 20 June
Finalisation announcement published in the press on Monday, 23 June
Last day to trade in Capital units on the JSE to participate in the transaction Friday, 27 June
Capital’s assets delivered to New Capital and Capital units suspended from the
commencement of trade Monday, 30 June
Anticipated listing of New Capital on the JSE from the commencement of trade on Monday, 30 June
Trading in New Capital shares with the JSE share code: CPF and ISIN:ZAE000186821
commences on Monday, 30 June
Record date to participate in the delisting and to be entitled to receive New Capital
shares Friday, 4 July
New Capital shares issued to Capital unitholders pursuant to the transaction Monday, 7 July
Accounts at CSDP or broker updated in respect of dematerialised Capital unitholders Monday, 7 July
Expected date of posting of New Capital share certificates to certificated Capital
unitholders Monday, 7 July
Delisting of Capital units from the JSE at commencement of trade Monday, 7 July
All dates and times are local dates and times in South Africa. The above dates and times are subject to change.
Any changes will be released on SENS and published in the press.
ABRIDGED PRE-LISTING STATEMENT FOR NEW CAPITAL
This abridged pre-listing statement relates to the proposed listing by way of introduction of all of New Capital’s issued
ordinary shares in the “Industrial and Office REITs” sector of the JSE, in terms of the FTSE classification, under the
abbreviated name: “CAPPROP”, JSE share code: CPF and ISIN:ZAE000186821 with effect from the commencement
of trade on Monday, 30 June 2014.
The abridged pre-listing statement is not an invitation to the public to subscribe for shares in New Capital. It is issued
in compliance with the JSE Listings Requirements to provide information to Capital unitholders with regards to New
Capital. This announcement contains the salient information in respect of New Capital, which is more fully described
in the New Capital pre-listing statement which was sent to Capital unitholders on 9 May 2014. For a full appreciation
of New Capital, the Capital conversion circular and the New Capital pre-listing statement should be read in their
entirety.
1. Overview and background
1.1. New Capital was incorporated on 4 December 2013 as a private company and converted to a public
company on 3 April 2014. New Capital’s financial year end is 31 December. The company’s registered
address is 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191.
1.2. New Capital’s strategy is the investment in and development of A-grade distribution and warehousing
facilities in nodes preferred by corporate tenants and premium-grade office blocks in nodes such as the
Sandton CBD.
2. The board of New Capital
2.1. Pursuant to the transaction, the board of PFM will become the board of New Capital. The board is
currently made up of 12 directors of whom 7 are independent non-executive and 5 are executive.
2.2. The full names, business addresses and positions of the directors are set out below:
Name Wilhelm Christian Ross (Willy)
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive chairman
Name Barry Lester Stuhler
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Managing director
Name Iraj Abedian
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Abraham Albertus Bornman (Rual)
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Financial director
Name Andries de Lange
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Executive director
Name David John Lewis
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Executive director
Name Jan Naude Potgieter
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Protas Thamsanqa Phili
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Andrew Edward Teixera
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Executive director
Name Urbanus Johannes Van Der Walt (Banus)
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Tshiamo Daphne Vilakazi
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Trurman Michael Zakhe Zuma
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Independent non-executive director
Name Fareed Ismail Wania
Business address 4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
Position Alternate director to Andrew Teixeira
All of the directors are South African nationals.
3. Management
3.1. Asset management
The asset management function will be undertaken by the board of New Capital.
3.2. Property management
The property management function of the property portfolio of New Capital will be outsourced to the
existing property managers who are JHI Properties Proprietary Limited, Promprops CC trading as
Prominent Properties, Broll Property Group Proprietary Limited and Braamcor Management Services
Proprietary Limited. Further details of the respective property managers and the property management
agreements are set out in the New Capital pre-listing statement.
4. Action required
If you are in any doubt as to what action to take, you should consult your broker, attorney or other professional
advisor immediately.
5. Further copies of the New Capital pre-listing statement
Copies of the New Capital pre-listing statement may be obtained during normal office hours from Friday,
9 May 2014 until Monday, 9 June 2014 from the following places and at www.capitalproperty.co.za:
Capital Property Fund Limited
4th Floor, Rivonia Village
Rivonia Boulevard
Rivonia, 2191
Java Capital Trustees and Sponsors Proprietary Limited
2 Arnold Road
Rosebank, 2196
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House
19 Ameshoff Street
Braamfontein
Johannesburg, 2001
9 May 2014
Corporate advisor and sponsor
Java Capital
Independent reporting accountants
Deloitte
Attorneys, tax and competition law advisors
Cliffe Dekker Hofmeyr
Independent expert
Grant Thornton
Date: 09/05/2014 01:38:00 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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