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ACCELERATE PROPERTY FUND LTD - Acquisition of various properties

Release Date: 20/11/2014 07:05
Code(s): APF     PDF:  
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Acquisition of various properties

ACCELERATE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2005/015057/06)
Share code: APF ISIN: ZAE000185815
(“Accelerate” or “the Company”)
(Approved as a REIT by the JSE)


                              ACQUISITION OF VARIOUS PROPERTIES


A.   INTRODUCTION

     Accelerate is pleased to announce that it has agreed terms with the relevant vendors (set out below) for
     the acquisition of two property portfolios comprising of the following immovable properties and letting
     enterprise businesses:

     Portfolio 1
     - Ptn 1 of Erf 53, Eastgate Township and Ptn 7 (a portion of Erf 5) of Erf 53, Eastgate Township (“the
       Ellerine Furnishers Letting Enterprise”);
     - Erf 30, Steeledale Township (“the Accentuate Letting Enterprise”);
     - Erf 315 Eastgate Ext 4 Township (“the MB Technologies Letting Enterprise”);
     - Erf 5880 Pietersburg Township (“the Edgars Letting Enterprise”);
     - Erf 3182 Bryanston Ext 7 Township, Erf 4146 and 4147 Bryanston Ext 13 Township (“the Bryanston
       Lodge Letting Enterprise”); and
     - Erf 3746 & Erf 3747 North End Township, Port Elizabeth (“the Pick ‘n Pay Letting Enterprise”);

     (the “Portfolio 1 Acquisition”);

     Portfolio 2
     - Erf 4687 and Erf 4912 Montague Gardens (“the Shoprite Distribution Centre”) (the “Shoprite
       Acquisition”);

     (collectively the “Property Acquisitions”).


B.   RATIONALE
     The Property Acquisitions are consistent with Accelerate’s strategy to build a quality property portfolio
     that offers long-term distribution and capital growth underpinned by strong underlying contractual cash
     flows. It presents an opportunity for Accelerate to:

     - purchase a sizeable property portfolio with long-term leases underpinned by single tenants;
     - whilst still maintaining its strong retail bias, increase its portfolio weighting within the industrial sector
       and improve its geographical spread;
     - further increase its presence in specific strategic nodes – the Ellerine Furnishers Letting Enterprise
       and MB Technologies Letting Enterprise are within the Charles Crescent precinct, a strategic node
       identified by Accelerate; and
     - increase the potential development/re-development opportunities available to it.

     Details pertaining to the Property Acquisitions are set out in Sections C and D below. The aggregate
     purchase consideration for the Property Acquisitions is R615 million.

     The Portfolio 1 Acquisition and the Portfolio 2 Acquisition are not conditional on each other and constitute
     two separate transactions.

     The acquisition of the separate letting enterprises constituting the Portfolio 1 Acquisition, set out in
     Section A, are each independent acquisitions which are not linked to each other and the transfer of each
     letting enterprise may take place independently of each other.


C.   PORTFOLIO 1 ACQUISITION

1.   OVERVIEW OF PORTFOLIO 1 LETTING ENTERPRISES

     Portfolio 1 consists of six single-tenanted buildings with long term lease profiles in excess of five years
     for five of the six letting enterprises.

     Accelerate has agreed the terms, on an exclusive basis, with the vendors (set out in the table below), to
     acquire the six properties together with all leases and assets, forming necessary parts of the letting
     enterprises as a going concern. The details of the Portfolio 1 Acquisition are set out below:

                                                                                                
      Property                                                     Purchase             Net                 Gross
      (Letting                                                     considera    GLA     Income    Yield     rental      Lease
      Enterprise)   Seller        Location       Description            tion    (m²)      (PA)      (%)     per m²     Expiry
                                                                      (Rmil)              Rmil              (R/m²)                 
      
                                   Charles
                    Amnem          Crescent       B+ grade
      Ellerines(1)  Investments    Eastgate,      office with         150.00    9,074    13.70    9.13     134.79    31/03/19
                    (Pty) Ltd      Sandton,       onsite parking
                                   Johannesburg


                                                  
                     Gsix Props    Steeldale,     Industrial
      Accentuate(2)  (Pty) Ltd     Johannesburg   complex              87.00   12,000      8.65   9.95      66.59    30/10/20
                                                  housing
                                                  Accentuate 
                                                  companies
  

                 
                      Jason &        8 Charles    Modern
      MB              Amy            Crescent     warehouse
      Technologies(3) Property       Eastgate,    building with
                      Developing     Sandton,     offices              97.00    6,000      8.24    8.50     115.3    21/10/21
                      (Pty) Ltd      Johannesburg                         
                 
                                                 

                      Jason &
                      Amy                          CBD double
                      Property       Pietersburg   story retail
                      Developing                   with street       
      Edgars(4)       (Pty) Ltd                    frontage            45.00    4,500      3.85    8.55      79.2    31/10/20
                                                 
                 
          
                                                   Residential
                                                   retirement
                      KOPF                         lodge with
      Bryanston       Electronics    Bryanston,    future development     
      Lodge(5)        CC             Johannesburg  potential           32.00   12,000      2.63    8.22      19.2   31/01/23
                                    
                                                        

                      Silver Blade                    Modern
                      Investments    North End,       distribution
      Pick 'n Pay(6)  17 (Pty) Ltd   Port Elizabeth   centre           57.00    7,983      5.78    10.14    55.83   28/02/20
                                                                             
                                     

                                                                      468.00   51,557     42.90     9.16


Notes:
All Letting Enterprises are single tenanted buildings with zero vacancies.
1. The Ellerine Furnishers Letting Enterprise lease escalates at 8% per annum and has 4 years and 4
   months remaining on such lease, which terminates on 31 March 2019. The seller will provide a head
   lease on the same conditions as the existing Ellerines lease for a period of not less than two years
   from transfer of the Ellerines Furnishers Letting Enterprise to Accelerate. As additional security, the
   seller will pledge R30mil of Accelerate ordinary shares of no par value (“Accelerate Shares”) that it
   receives as part settlement of the purchase consideration, which pledge will be released once all
   obligations have been met.
2. The Accentuate Letting Enterprise lease escalates at 6% per annum and has 5 years and 11 months
   remaining on such lease, which terminates on 30 October 2020.
3. The MB Technologies Letting Enterprise lease escalates at 8% per annum and has 6 years and 11
   months remaining on such lease, which terminates on 31 October 2021.
4. The Edgars Letting Enterprise lease escalates at 6% per annum and has 5 years and 11 months
   remaining on such lease, which terminates on 31 October 2020.
5. The Bryanston Lodge Letting Enterprise lease escalates at 8% per annum and has 8 years and 2
   months remaining on such lease, which terminates on 31 January 2023.
6. The Pick ‘n Pay Letting Enterprise lease escalates at 6.5% per annum and has 5 years and 3 months
   remaining on such lease, which terminates on 28 February 2020

The effective date of the Portfolio 1 Acquisition will be the date of transfer of each of the letting
enterprises comprising the Portfolio 1 Acquisition into the name of Accelerate, which will occur after the
fulfillment of the conditions precedent set out in paragraph 3 below (the “Effective Date”).

The above costs exclude third party and necessary regulatory costs relating to the fulfilment of these
transactions.

2.   PROPOSED FUNDING OF THE PORTFOLIO 1 ACQUISITION

     The purchase consideration of R468 million will be settled as follows:

     -      On the Effective Date of the Portfolio 1 Acquisition, Accelerate will settle the outstanding
            mortgage bonds totaling (approximately R170 million as at the signature date of the Portfolio 1
            Acquisition – being 19 November 2014 in cash (through debt facilities and/or Accelerate
            shares by way of a vendor placement), (“Cash Consideration”); and
     -      The balance of the purchase consideration of approximately R298 million shall be settled by
            the allotment and issue of new Accelerate Shares to the vendors (at an issue price being the
            30 day volume weighted average price (VWAP) of Accelerate Shares immediately preceding
            the Effective Date) to the sellers (“Share Consideration”).



3.   CONDITIONS PRECEDENT TO THE PORTFOLIO 1 ACQUISITION

     The Portfolio 1 Acquisition is subject to the fulfillment of, inter alia, the following conditions precedent:

     a) If Accelerate chooses to utilise debt facilities for the Cash Consideration, Accelerate obtaining the
        necessary funding from a registered bank or financial institution to settle the Cash Consideration;
     b) Accelerate shareholder approval for placing additional Accelerate Shares under the control of
        Accelerate’s directors for the allotment and issue of new Accelerate Shares to settle the Share
        Consideration; and
     c) approval by the Competition Authorities of the acquisition of the Ellerine Furnishers Letting
        Enterprise, the Accentuate Letting Enterprise and the MB Technologies Letting Enterprise.



4.   CATEGORISATION

     The Portfolio 1 Acquisition represents greater than 5% of Accelerate’s market capitalisation in terms of
     the Listings Requirements of the JSE (“JSE Listings Requirements”), and accordingly will be classified
     as a Category 2 transaction.


D.   SHOPRITE ACQUISITION


1.   THE SHOPRITE LETTING ENTERPRISE

     Accelerate has agreed the terms, on an exclusive basis, with C-Max Investments 300 Proprietary Limited
     to acquire the Shoprite Distribution Centre, situated in Montague Gardens, Cape Town, together with all
     leases and assets, forming necessary parts of the letting enterprise as a going concern (the “Shoprite
     Letting Enterprise”)
       
     The Shoprite Letting Enterprise is a well located multipurpose property with good facilities. The Shoprite
     lease has 2 years and 3 months remaining on such lease, which terminates on 28 February 2017.
     Shoprite also has an additional three year option.

     The effective date of the Shoprite Acquisition will be the date of transfer of the Shoprite Letting Enterprise
     into the name of Accelerate.

     The details of the Shoprite Letting Enterprise are set out below:

                                                                                                             
        Property                                                                            Net                 Gross
        (Letting                                                   Purchase      GLA     Income      Yield     rental     Lease
        Enterprise)    Seller        Location    Description  consideration      (m²) (PA) Rmil                per m²     expiry
                                                                    (Rmil)                                     (R/m²)      
                                                                                                              

                                                 Modern
                       C-Max         Montague    distribution
        Shoprite       Investments   Gardens,    centre with        147.00     26,135     20.30      13.81    60.85       28/02/2017
                      (Pty) Ltd      Cape Town   coldroom
                                                 facilities



       The above costs exclude third party and necessary regulatory costs relating to the fulfilment of this
       transaction.

     2. PROPOSED FUNDING OF THE SHOPRITE ACQUISITION

       The purchase consideration of R147 million will be settled fully in cash (through a combination of
       Accelerate shares by way of a vendor placement and/or debt facilities) on the date of registration of
       transfer of the Shoprite Letting Enterprise into Accelerate’s name.


     3. CONDITION PRECEDENT TO THE SHOPRITE ACQUISITION

       The Shoprite Acquisition is subject to inter alia the approval by the Competition Authorities.


     4. CATEGORISATION

       As the Shoprite Acquisition represents less than 5% of Accelerate’s market capitalisation in terms of the
       JSE Listings Requirements, the disclosure contained in paragraph 1 above is voluntary.


E.     INDEPENDENT VALUATIONS OF THE PROPERTY ACQUISITIONS

       The board of directors of Accelerate (the “Accelerate Board”) is satisfied that the values of each of the
       Property Acquisitions are in line with the purchase prices being paid by Accelerate. The Accelerate
       Board is not registered as professional valuers or as professional associate valuers in terms of the
       Property Valuers Profession Act, No 47 of 2000.


F.     FINANCIAL INFORMATION

       The financial forecasts of the Property Acquisitions, including the assumptions on which they are based
       and the financial information from which they are prepared, are the responsibility of the Accelerate Board
       and have not been reviewed or reported on by the reporting accountant in terms of section 8 of the JSE
       Listing Requirements.

       The forecast financial information presented in the table below has been prepared in accordance with
       the Company's accounting policies and in compliance with IFRS. The financial forecasts, for each of the
       Portfolio 1 Acquisition and the Shoprite Acquisition, for the year ending 31 March 2015 and for year
       ending 31 March 2016 have been prepared on the assumption that the Property Acquisitions are
       implemented with effect from 1 December 2014.

                                              31 March 2015(1)                       31 March 20162
                                                     
                                   Portfolio 1       Shoprite      Total    Portfolio 1      Shoprite        Total
      Rmil                         Acquisition    Acquisition               Acquisition    Acquisition
     
      Revenue                            15.27           6.50      21.77          46.28         20.85        67.14
      Property expenses                  (0.64)             -      (0.64)         (1.91)            -       (1.91)
      Net property income                14.63           6.50      21.13          44.37         20.85        65.23
      Finance cost(3)                    (5.22)        (1.64)      (6.86)        (15.65)        (4.92)      (20.57)
      Net profit after tax                9.41           4.86      14.27          28.72         15.93        44.66
      New shares issued (mil)            16.81           4.92       21.7        50.44(4)      14.75(5)        65.1
      Distribution per new share
      issued (cents)                                               65.78                                     68.60
      
     Assumptions:

      1) 31 March 2015 numbers have been apportioned for 4 months
      2) The financial forecasts are based on signed lease agreements and do not contain uncontracted
         revenue
      3) Indicative cost of funding assumed at approximately 8.2% per annum
      4) It is assumed that the purchase consideration of R468 million for the Portfolio 1 Acquisition will be
         settled by cash of R170 million (funded through debt facilities) and the balance of R298 million by
         the allotment and issue of 50.4 million new Accelerate Shares (issued at the 30 day VWAP of R5.91)
      5) It is assumed that the purchase consideration of R147 million for the Shoprite Acquisition will be
         settled by cash of R60 million (funded through debt facilities) and the balance of R87 million by the
         allotment and issue of 14.7 million new Accelerate Shares

G.   CIRCULAR

     A circular detailing the Property Acquisitions and including a notice of a general meeting for the
     approval from Accelerate shareholders to place additional unissued authorised Accelerate shares
     under the control and authority of the Accelerate Board, who will be authorised to allot and issue any
     such shares for purposes of settlement of the aggregate purchase consideration of the Property
     Acquisitions, will be posted to shareholders in due course.

H.   CONCLUSION

     The Accelerate Board believes that the Property Acquisitions further enhance the quality of Accelerate’s
     underlying portfolio in a manner that is consistent with Accelerate’s investment strategy to build a quality
     portfolio that offers long-term distribution and capital growth underpinned by strong lease covenants and
     above market escalations.



     Johannesburg
     20 November 2014



     Investment Bank and Transaction Sponsor
     Investec Bank Limited

     Sponsor
     KPMG Services Proprietary Limited

     Legal advisors
     Glyn Marais Inc

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