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Acquisition of Medscheme Building
TOWER PROPERTY FUND LIMITED
(Registration number 2012/066457/06)
JSE share code: TWR ISIN: ZAE000179040
(Approved as a REIT by the JSE)
(“Tower”)
ACQUISITION OF MEDSCHEME BUILDING
1. Introduction
Shareholders are advised that Tower has concluded an agreement for the acquisition (the “acquisition”) of the
entire issued share capital of and claims against Micawber 219 (RF) Proprietary Limited (“Micawber”), which
owns the Medscheme Building situated at 38 Conrad Street, Florida North and the rental enterprise conducted
in respect thereof (the “Medscheme building” or the “property”) from Coco Haven 31 Proprietary Limited
(the “seller”) for an aggregate purchase consideration of R110 615 000 (exclusive of VAT) (the “purchase
consideration”).
The acquisition is in line with Tower’s strategy of targeting good quality properties with the potential to
generate and sustain strong rental income streams. The property is well located with a strong, blue chip tenant,
Medscheme Holdings Proprietary Limited (“Medscheme”). Medscheme, part of the listed Afrocentric
Investment Corporation Limited, is a multi-medical aid scheme administrator operating both locally and
internationally. The property forms part of the company’s head office.
The tenant has occupied the premises since 2002 with rentals escalating annually by 11%. The weighted
average rental amounts to R158 per meter squared. The tenant has renewed its lease with effect from
1 December 2014 for 5 years. Rentals for the new period have reverted to more sustainable, market related
rentals. The new weighted average rental amounts to R93.50 per meter squared for a fully repairing lease.
2. Terms of the acquisition and conditions precedent
The effective date of the acquisition will be 31 August 2014 and the closing date of the acquisition will be
1 September 2014. The purchase consideration will be settled in Tower shares (the “consideration shares”) on
the closing date. The issue price of the consideration shares will be the lower of R8.70 and the last available
volume weighted average traded price per Tower share as at the closing date, for the period from
18 August 2014 to the day before the closing date. The agreement includes undertakings, warranties and
indemnities which are normal for an acquisition of this nature.
The acquisition is not subject to any conditions precedent.
3. Property specific information
The property specific information required in terms of the JSE Listings Requirements in relation to the property
including property name and address, geographical location, rentable area, and weighted average rental per
square metre is set out below.
Property name and address Erf 337, Florida North Extension 9 in extent 1.6913ha,
known as 38 Conrad Street, Florida North
Sector Office
Geographical location Johannesburg
Rentable Area (m2) 7 967
Weighted Average rental per m2 R158*
* With effect from 1 December 2014 the weighted average rental per m2 will be a market related R93.50.
No independent valuation has been carried out and the board of Tower is of the view that the purchase
consideration of R110 615 000 represents the value of the property.
4. Categorisation of the acquisition
The acquisition is classified as a Category 2 transaction in terms of the JSE Listings Requirements. Accordingly
it is not subject to approval by Tower’s shareholders.
5. Forecast financial information of the acquisition
Set out below are the forecast revenue, net property income, net operating profit and distributable earnings of
Micawber (“the Micawber forecasts”) for the nine months ending 31 May 2015 and the year ending 31
May 2016 (“the forecast periods”). The Micawber forecasts have been prepared on the assumption that the
acquisition will be implemented on 31 August 2014 and on the basis that the Micawber forecasts include
forecast results for the duration of the forecast periods.
The Micawber forecasts, including the assumptions on which they are based and the financial information from
which they are prepared, are the responsibility of the directors of Tower. The Micawber forecasts have not been
reviewed or reported on by independent reporting accountants.
The Micawber forecasts presented in the table below have been prepared in accordance with Tower’s
accounting policies and in compliance with IFRS.
Forecast for the nine Forecast for the
months ending year ending
31 May 2015 31 May 2016
R’000 R’000
Contractual rental income 9 245 10 629
Straight-line rental income accrual 828 1 272
Revenue 10 073 11 901
Net property income* 9 556 11 003
Net operating profit# 9 140 10 448
Total comprehensive profit for the period#^ 9 118 10 419
Distributable earnings 8 290 9 147
* Includes the effects of straight-lining rental income
# Includes the effects of asset management fees
^ Includes the effects of finance costs
5.1 The Micawber forecasts incorporate the following material assumptions in respect of revenue and
expenses that can be influenced by the directors of Tower:
5.1.1 The Micawber forecasts are based on the Medscheme building only.
5.1.2 Property operating expenditure has been forecast on a line-by-line basis based on
management’s review of historical expenditure, where available, and discussion with the
existing property manager.
5.1.3 Contracted revenue is based on existing lease agreements and rental guarantees including
stipulated increases, all of which are valid and enforceable.
5.1.4 There is no uncontracted revenue for the duration of the forecast periods.
5.1.5 No leases are due to expire during the forecast periods.
5.1.6 The aggregate acquisition cost of R110.97 million (comprising the acquisition price of
R110.62 million and acquisition costs of R0.35 million) is assumed to be settled as follows:
5.1.6.1 R110.62 million of the aggregate acquisition cost is assumed to be funded by
issuing 12.71 million Tower shares at an issue price of R8.70; and
5.1.6.2 the balance of R0.35 million to be settled in cash which is assumed to incur
interest at an effective rate of 8.3% per annum.
5.1.7 The acquisition is accounted for as the acquisition of investment property in terms of IAS
40: Investment Property and is initially recognised at the cost of acquisition. Directly
attributable costs of acquisition (costs directly attributable to the acquisitions) are capitalised
as part of the cost of the asset.
5.1.8 Tower has adopted the fair value model to account for investment properties and after initial
recognition, a gain or loss arising from a change in fair value is recognised in profit or loss
for the period in which it arises. The fair value adjustments are assumed to be made in the
period in which the acquisition becomes effective.
5.1.9 The fair value of the Medscheme building is assumed to equate to R110.62 million, the cost
of the acquisition including capitalised costs of acquisition. Accordingly, no fair value
adjustment is recognised.
5.2 The Micawber forecasts incorporate the following material assumptions in respect of revenue and
expenses that cannot be influenced by the directors:
5.2.1 An effective date of acquisition of 31 August 2014.
5.2.2 In terms of the asset management agreement with Tower Asset Managers Proprietary
Limited, Tower will pay the manager a monthly fee equivalent to 1/12th of 0.5% of the
aggregate of the market capitalisation and the borrowings of Tower.
5.2.3 Tower will pay Spire Property Management Proprietary Limited for all property
management services a monthly fee equivalent to 1.5% of gross monthly income collected
(including VAT).
5.2.4 There will be no unforeseen economic factors that will affect the lessees’ abilities to meet
their commitments in terms of existing lease agreements.
6. Unaudited pro forma financial effects of the acquisition
The unaudited pro forma financial effects of the acquisition on Tower’s net asset value and tangible net asset
value per share, based on the unaudited consolidated statement of financial position as at 31 May 2014, are not
significant and have not been presented.
31 July 2014
Corporate advisor and sponsor Legal advisor
Java Capital Cliffe Dekker Hofmeyr
Date: 31/07/2014 04:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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