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EQUITES PROPERTY FUND LIMITED - Acquisition of Crossroads and Attyard

Release Date: 30/09/2014 16:41
Code(s): EQU     PDF:  
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Acquisition of Crossroads and Attyard

EQUITES PROPERTY FUND LIMITED
(formerly VB Transport (Proprietary) Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
JSE share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
(“Equites”)


ACQUISITION OF CROSSROADS AND ATTYARD


1.    INTRODUCTION

      Equites has concluded agreements (“acquisition agreements”) for:

      -      the acquisition of all of the issued shares and claims in Nascispan Proprietary Limited (“Nascispan”) from Skymax
             Trust (of which Giancarlo Lanfranchi is a beneficiary), Chiluan Holdings Proprietary Limited (in which Andrea
             Taverna-Turisan has a beneficial interest) and Riaan Gous (“the Crossroads vendors”). The sole business of
             Nascispan comprises ownership of the industrial distribution facility known as Crossroads (“Crossroads”) situated in
             Milnerton, Cape Town (“the Crossroads acquisition”); and

      -      the acquisition of an industrial warehouse known as Attyard (“the Attyard acquisition”) situated in 160 Gunners
             Circle, Epping Industria, Cape Town (“Attyard”) from Tradefirm 150 Proprietary Limited (in which Andrea Taverna-
             Turisan has a beneficial interest) (“the Attyard vendor”),

      (collectively, “the acquisitions”).

      The effective date of both acquisitions is 1 September 2014 (“the effective date”).


2.    RATIONALE FOR THE ACQUISITIONS

      2.1.       The Crossroads acquisition:

                 2.1.1.         The property was constructed during 2013 and is a quality A-grade truck distribution centre. The
                                building is well built and meets Equites’ criteria of owning quality A-grade tenanted industrial
                                facilities. The tenant, Crossroads Distribution Proprietary Limited, is contracted to transport
                                petroleum from the Chevron refinery to the Cape Town International Airport. It is a stable,
                                sustainable business. Moreover there are a further 9 years left on the lease which makes it an
                                attractive acquisition.

                 2.1.2.         Equites has been able to acquire Crossroads at an attractive price from the Crossroads vendors.

      2.2.       The Attyard acquisition:

                 2.2.1.         As communicated at the time of listing, the acquisition of brownfields redevelopment properties
                                will form a significant part of the expansion strategy of Equites and the Attyard acquisition is in
                                line with this strategy. The property is located in an area which is ideal for distribution warehouses,
                                it is accessible and well-suited to redevelopment. The two current tenants, Servest Landscaping and
                                FAM Motor Dealers CC, are on leases with redevelopment clauses and it is the intention of Equites
                                to develop a modern A-grade distribution centre on the site.

                 2.2.2.         Equites has been able to acquire Attyard at an attractive price from the Attyard vendor.


3.    DETAILS OF CROSSROADS AND ATTYARD

          Name of property                              Crossroads                                Attyard
          Region                                        Cape Town                                 Cape Town
          Sector                                        Industrial                                Industrial
          Monthly weighted average rental per m2        R107.2 m2                                 R31.0 m2
          Rentable area GLA                             2 888 m2                                  5 478 m2
                                                                                                                                  

4.   TERMS OF THE ACQUISITIONS

     4.1.     The Crossroads acquisition

              4.1.1.         The purchase consideration payable for the shares and claims of Nascispan is an amount of
                             R10 083 938 (“Crossroads purchase consideration”) being the estimated net asset value of
                             Nascispan (“Nascispan NAV”) at the effective date, based on the agreed value of R42 029 000 in
                             respect of Crossroads less Nascispan’s outstanding obligations in terms of its debt funding in an
                             amount R31 945 062.

              4.1.2.         An effective date balance sheet will be prepared and the Crossroads purchase consideration will be
                             adjusted if the estimated Nascispan NAV differs from that as per the effective date balance sheet,
                             provided that the purchase consideration cannot be increased by more than 20%.

              4.1.3.         The Crossroads purchase consideration will be discharged by Equites against delivery of Nascispan
                             to Equites:

                             4.1.3.1.        in cash in an amount equal to the face value of the respective claims of the
                                             Crossroads vendors against Nascispan; and

                             4.1.3.2.        the balance in Equites shares, to be issued at a price equal to the volume weighted
                                             average trading price of Equites shares for the 30 days preceding the effective date.
                                             90% of these shares will be issued on the effective date, with the balance to be
                                             issued following finalisation of the effective date balance sheet, subject to any
                                             adjustment thereof, and provided further that if there is a downward adjustment
                                             greater than the outstanding portion of the purchase consideration, the difference
                                             will be refunded to Equites in cash.

              4.1.4.         The agreement governing the Crossroads acquisition provides for warranties and indemnities that
                             are standard for acquisitions of this nature.

     4.2.     The Attyard acquisition

              4.2.1.         The purchase consideration (“Attyard purchase consideration”) of R18 100 000 will be payable
                             in cash against transfer of ownership (“transfer date”) of Attyard into Equites’ name.

              4.2.2.         Interest will accrue on the Attyard purchase consideration at the prime rate with effect from the
                             effective date until the transfer date.

              4.2.3.         The agreement governing the Attyard acquisition provides for warranties and indemnities that are
                             standard for acquisitions of this nature.


5.   CONDITIONS PRECEDENT

     All of the conditions precedent have been fulfilled and the acquisitions are unconditional.


6.   SMALL RELATED PARTY CONSIDERATIONS

     Giancarlo Lanfranchi, Andrea Taverna-Turisan and Riaan Gous are directors of Equites and therefore each of the
     Crossroads acquisition and the Attyard acquisition constitute a small related party transaction in terms of the JSE’s Listings
     Requirements.

     In accordance with the JSE Listings Requirements, the board of Equites hereby confirms that it is of the opinion that the
     acquisitions are fair insofar as shareholders are concerned, having had regard to the independent property valuation of
     Attyard prepared by Michael Gibbons of Mills Fitchet, who is an independent external registered professional valuer in
     terms of the Property Valuers Profession Act, No. 47 of 2000, and the fairness opinion on Nascispan prepared by BDO
     Corporate Finance Pty Ltd. Copies of the independent property valuation and the fairness opinion will be open for
     inspection at the registered office of the company (31 Brickfield Road, East Parking Level 4, Upper Eastside, Woodstock,
     7925) for a period of 28 days from the date of this announcement.

     On the basis of the aforegoing, neither of the transactions is subject to shareholder approval.


7.   FORECAST FINANCIAL INFORMATION OF THE CROSSROADS ACQUISITION

     Set out below are the forecast revenue, net property income, net profit and distributable earnings of Crossroads (“the
     Crossroads forecasts”) for the six months ending 28 February 2015 and the year ending 29 February 2016 (“the
                                                                                                                           

Crossroads forecast periods”). The Crossroads forecasts have been prepared on the assumption that the Crossroads
acquisition will be implemented on 1 September 2014 and on the basis that the Crossroads forecasts include forecast results
for the duration of the forecast periods.

The Crossroads 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 Equites. The Crossroads forecasts have not been reviewed or
reported on by independent reporting accountants.

The Crossroads forecasts presented in the table below have been prepared in accordance with the accounting policies of
Equites and in compliance with IFRS.

                                                                           Forecast for the six           Forecast for the
                                                                               months ending                 year ending
                                                                            28 February 2015            29 February 2016
                                                                                         R’000                      R’000

 Rental income                                                                          2 059                      4 294
 Straight-line rental income accrual                                                      743                      1 318
 Revenue                                                                                2 802                      5 612

 Net property income*                                                                   2 691                      5 378

 Net profit#^                                                                           4 303                      2 217

 Distributable earnings                                                                   672                      2 826
* Includes the effects of straight-lining rental income
# Includes the effects of fair value adjustment to investment properties
^ Includes the effects of finance costs

7.1.     The Crossroads forecasts incorporate the following material assumptions in respect of revenue and expenses that
         can be influenced by the directors of Equites:

         7.1.1.         The Crossroads forecasts are based on Crossroads only.

         7.1.2.         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.

         7.1.3.         Contracted revenue is based on existing lease agreements including stipulated increases, all of
                        which are valid and enforceable.

         7.1.4.         There is no uncontracted revenue for the duration of the Crossroads forecast periods.

         7.1.5.         No leases are due to expire during the Crossroads forecast periods.

         7.1.6.         The aggregate acquisition cost of R10.17 million (comprising the Crossroads purchase
                        consideration of R10.08 million and acquisition costs of R0.09 million) is assumed to be settled as
                        follows:

                        7.1.6.1.       R8.75 million of the aggregate acquisition cost is assumed to be funded through the
                                       issue of 0.84 million Equites shares at an issue price of R10.44 per Equites share,
                                       the 30 day volume weighted price per Equites share at 1 September 2014; and

                        7.1.6.2.       the balance of R1.42 million from existing interest-bearing borrowings which are
                                       assumed to incur interest at an effective rate of 7.7% per annum.

         7.1.7.         The Crossroads acquisition is accounted for in terms of IAS 40: Investment Property. Investment
                        property is initially recognised at the acquisition consideration attributable to the underlying
                        investment (including acquisition costs of R0.09 million in aggregate). Subsequently at the
                        reporting period end the investment property is measured at fair value, the value attributed by the
                        independent valuer of R45.00 million, resulting in a fair value adjustment of R2.89 million for the
                        six months ending 28 February 2015.

7.2.     The Crossroads forecasts incorporate the following material assumptions in respect of revenue and expenses that
         cannot be influenced by the directors:

         7.2.1.         An effective date of acquisition of 1 September 2014.
                                                                                                                                   

              7.2.2.         Equites will pay Swish Property Administration CC for all property management services a
                             monthly fee equivalent to 1.5% of gross monthly income collected (including VAT).

              7.2.3.         There will be no unforeseen economic factors that will affect the lessees’ abilities to meet their
                             commitments in terms of existing lease agreements.


8.   FORECAST FINANCIAL INFORMATION OF THE ATTYARD ACQUISITION

     Set out below are the forecast revenue, net property income, net profit and distributable earnings of the Attyard property
     (“the Attyard forecasts”) for the six months ending 28 February 2015 and the year ending 29 February 2016 (“the
     Attyard forecast periods”). The Attyard forecasts have been prepared on the assumption that the Attyard acquisition will
     be implemented on 1 September 2014 and on the basis that the Attyard forecasts include forecast results for the duration of
     the forecast periods.

     The Attyard 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 Equites. The Attyard forecasts have not been reviewed or reported on
     by independent reporting accountants.

     The Attyard forecasts presented in the table below have been prepared in accordance with the accounting policies of
     Equites and in compliance with IFRS.

                                                                             Forecast for the six               Forecast for the
                                                                                  months ending                     year ending
                                                                               28 February 2015                29 February 2016
                                                                                           R’000                          R’000

      Rental income                                                                       1 111                           2 336
      Straight-line rental income accrual                                                    62                              44
      Revenue                                                                             1 173                           2 380

      Net property income*                                                                1 045                           2 110

      Net profit#^                                                                        1 898                             722

      Distributable earnings                                                                289                             678
     * Includes the effects of straight-lining rental income
     # Includes the effects of fair value adjustments to investment properties
     ^ Includes the effects of finance costs

     8.1.     The Attyard forecasts incorporate the following material assumptions in respect of revenue and expenses that can
              be influenced by the directors of Equites:

              8.1.1.         The Attyard forecasts are based on Attyard only.

              8.1.2.         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.

              8.1.3.         Contracted revenue is based on existing lease agreements including stipulated increases, all of
                             which are valid and enforceable.

              8.1.4.         Uncontracted revenue amounts to 0.0% for the six months ending 28 February 2015 and 14.5% for
                             the year ending 29 February 2016.

              8.1.5.         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.

              8.1.6.         The aggregate acquisition cost of R18.15 million (comprising the Attyard purchase consideration
                             of R18.10 million and acquisition costs of R0.05 million) is assumed to be settled from existing
                             interest-bearing borrowings which are assumed to incur interest at an effective rate of 7.7% per
                             annum.

              8.1.7.         The Attyard acquisition is accounted for in terms of IAS 40: Investment Property. Investment
                             property is initially recognised at the acquisition consideration attributable to the underlying
                             investment (including acquisition costs of R0.05 million in aggregate). Subsequently at the
                                                                                                                                  

                                reporting period-end the investment property is measured at fair value, the value attributed by the
                                independent valuer of R19.70 million, resulting in a fair value adjustment of R1.55 million for the
                                six months ending 28 February 2015.

      8.2.     The Attyard forecasts incorporate the following material assumptions in respect of revenue and expenses that
               cannot be influenced by the directors:

               8.2.1.           An effective date of acquisition of 1 September 2014.

               8.2.2.           Equites will pay Swish Property Administration CC for all property management services a
                                monthly fee equivalent to 1.5% of gross monthly income collected (including VAT).

               8.2.3.           There will be no unforeseen economic factors that will affect the lessees’ abilities to meet their
                                commitments in terms of existing lease agreements.


9.    UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITIONS

      The unaudited pro forma financial effects of the acquisitions are based on the unaudited consolidated pro forma statement
      of financial position of Equites at 28 February 2014 as presented in the pre-listing statement issued on 6 June 2014 (which
      in turn was based on the audited statement of financial position of Equites as at 28 February 2014).

      The unaudited pro forma financial effects of both the Attyard acquisition and the Crossroads acquisition on Equites’ net
      asset value and tangible net asset value per share are not significant and have not been presented.

30 September 2014


Corporate advisor and sponsor
Java Capital


Attorneys to Equites
DLA Cliffe Dekker Hofmeyr


Independent expert
BDO
Date: 30/09/2014 04:41:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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