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Acquisition of Parktown Crescent Properties (Pty) Ltd and Wanooka Properties (Pty) Ltd and withdrawal of cautionary
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 PARKTOWN CRESCENT PROPERTIES PROPRIETARY LIMITED AND WANOOKA
PROPERTIES PROPRIETARY LIMITED AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement released on the Stock Exchange News Service on 9
February 2015, shareholders are advised that Accelerate has entered into an agreement to
acquire the entire issued ordinary share capital of Parktown Crescent Properties Proprietary
Limited (“PCP”) (“PCP Shares”) and 30% of the issued ordinary share capital of Wanooka
Properties Proprietary Limited (“Wanooka”) (“Wanooka Shares”), representing the remaining
shares in Wanooka not already owned by PCP (“the Acquisitions”).
2. THE ACQUISITIONS
2.1. Background to the Acquisitions
PCP and Wanooka are owned by certain of the directors and ex-directors of KPMG Inc.
and certain of the directors and ex-directors of KPMG Services Proprietary Limited
(“KPMG Services”) (collectively, “the Sellers”) and were established as property
holding companies for 6 properties currently tenanted by KPMG Inc. and KPMG
Services (“the KPMG Properties”) across various centers in South Africa as set out in
the table in paragraph 2.3 below.
2.2. Terms of the Acquisitions
Accelerate has agreed to acquire the PCP Shares and Wanooka Shares for the
Acquisition consideration set out in paragraph 2.4 below and on the basis of KPMG Inc.
and KPMG Services entering into new leases with Accelerate, through PCP and
Wanooka, on the following high level terms:
2.2.1. A fifteen year lease period effective from 1 September 2014, with an initial
rental of R64 500 000 per annum.
2.2.2. Rental escalation rate:
2.2.2.1. Year 1 to 12 at 8% per annum;
2.2.2.2. Year 13 rental will revert to market rental less 10%;
2.2.2.3. Year 14 and 15 at 8% per annum; and
2.2.2.4. Escalation shall occur annually on 1 September, with the first
escalation occurring on 1 September 2015.
2.2.3. All leases shall be fully repairing, insuring and maintaining triple net leases,
with the lessee being responsible for all expenses, including but not limited
to insurance and all operating and maintenance costs relating to the leased
properties and all rates and taxes.
2.3. Details of the KPMG Properties
Property/ Location Acquisition GLA m2 Lease Net income Gross rental Indicative Yield
description Consideration Expiry per annum per m2 from Effective Date
(R’m) (R’m) (R/m2)
Offices Parking/ Total Year 1 Year 2 Year 3
stores
KPMG Erf 931 Parktown 20 096 14 739 34 835 30/08/2029
Crescent and Township and Erf
the Parkade 939 Parktown
Township
Wanooka Erf 888 Parktown 6 762 1 358 8 120 30/08/2029
Place (office) Township
Polokwane Erf 7416 Bendor 1 484 140 1 624 30/08/2029
office
Port Elizabeth Sectional title 1 054 23 1 077 30/08/2029
office unit 1 as depicted
on Sectional Plan
Number SS
403/2004, in the
scheme known as
Erf 2931 Mount
Road, including
the exclusive use
areas
Bridge Link Erf 931 Parktown - 437 437 30/08/2029
Extension 3
Township
Secunda Sectional title 830 18 848 30/08/2029
office unit 43 as
depicted on
Sectional Plan
Number SS
179/1999 in the
scheme known as
Secunda
Medforum,
including the
exclusive use
areas
Total 850.0 30 226 16 715 46 941 64.5 114.6 8.1% 8.7% 9.4%
Notes:
i. The Acquisition Consideration of R850 million has been calculated exclusive of the
Wanooka debt Early Settlement Penalties of approximately R20 million and upfront TI Allowance of
R10 million (as defined below).
ii. The above excludes third party and necessary regulatory costs relating to the
fulfilment of the conditions precedent to the Acquisitions.
iii. Assumes a lease commencement date of 1 September 2014.
iv. Gross rental per m2 has been calculated evenly across both office and parking/stores
rentable areas based on an initial gross rental of R64.5 million.
v. Columns headed “Yield – year 1”, “Yield – year 2” and “Yield – year 3” have been
calculated assuming an Effective Date of the Acquisitions of 1 July 2015 and for the
twelve month rental period ending 30 June 2016, 30 June 2017 and 30 June 2018,
respectively.
vi. The forward yields included in the above table have not been reviewed or reported on
by a reporting accountant in terms of Section 8 of the Listings Requirements of the JSE
Limited (“Listings Requirements”) and comprises solely of contractual gross lease
rentals.
2.4. Rationale
The Acquisitions will have a significant benefit to Accelerate as a result of:
2.4.1. Providing exposure to a high quality office portfolio;
2.4.2. The long-term lease with a strong tenant in a defensive business;
2.4.3. The long dated lease tenor of fifteen years;
2.4.4. There being no vacancies in the KPMG Properties for the full fifteen year
period;
2.4.5. Favourable contractual lease escalations of 8% for the first 12 years; and
2.4.6. An improvement in the overall Accelerate portfolio quality with a reduction
in vacancies and a significant improvement in Accelerates’ weighted average
lease expiry past 2018.
2.5. Acquisition Consideration
2.5.1. The effective date of the Acquisitions shall be the first day of the month
following the date upon which all the conditions precedent to the
Acquisitions are fulfilled (“Effective Date”).
2.5.2. The consideration for the Acquisitions is R850 million less (i) the outstanding
debt obligations and (ii) the net current liabilities of PCP and Wanooka as at
31 August 2014 (“Acquisition Consideration”).
2.5.3. The Acquisition Consideration has been calculated with reference to, and
shall be adjusted for, the following:
2.5.3.1. Increased by an amount of R10 million in respect of a tenant
installation allowance (“TI Allowance”); and
2.5.3.2. Grossed-up by an amount equivalent to the Acquisition Consideration
multiplied by a rate of 6.5% per annum and pro-rated accordingly, from
1 September 2014 (“Calculation Date”) to the Effective Date, which gross-up
shall be added to the Acquisition Consideration,
2.5.4. Up until the Effective Date, the Sellers shall continue to pay the capital and
interest on the outstanding debt obligations in Wanooka in accordance with
their terms (“Debt Obligations”);
2.5.5. It is Accelerate’s intention to settle the outstanding Debt Obligations at the
Effective Date. All costs associated with the early settlement of the Debt
Obligations (“Early Settlement Penalties”) shall be borne by Accelerate,
provided that such Early Settlement Penalties shall not exceed an amount of
R20 million. To the extent that the Early Settlement Penalties exceed or are
less than R20 million any excess or shortfall amount, as the case may be,
shall be offset against the Acquisition Consideration;
2.5.6. The profit before tax accrued by PCP and Wanooka from the Calculation Date
to the Effective Date shall be for the benefit of Accelerate;
2.5.7. Accelerate has a fully funded debt package approved for the Acquisitions;
2.5.8. Accelerate, at its election, will settle the Acquisition Consideration either
through:
2.5.8.1. utilisation of the fully funded debt package; or
2.5.8.2. a combination of the fully-funded debt package referred to above
and the allotment and issuance of new Accelerate shares through
a renounceable vendor consideration placement, subject to shareholder
approval in accordance with the Company’s Memorandum of Incorporation.
3. CONDITIONS PRECEDENT
The Acquisitions are subject to the fulfillment of the following conditions precedent:
3.1. South African Competition Authorities’ approval;
3.2. The leases with Wanooka becoming effective on the terms set out in 2.2 above; and
3.3. There being no material adverse changes between the date of signature of the
Acquisition agreements and the Effective Date.
4. FINANCIAL EFFECTS OF THE ACQUISITIONS
Based on the contractual lease arrangements agreed in terms of the Acquisitions, the net
income of the KPMG Properties will be based on a monthly rental of R5.375 million until
31 August 2015, from which date it will escalate by 8%. At the Effective Date the KPMG
Properties will have a net asset value of R850 million less the then Outstanding Debt
Obligations and net current liabilities at such date and as referred to above, which at 31
August 2014, being PCP and Wanooka’s last financial year end, equated to R284 million.
The provisions of the Memorandum of Incorporation of PCP and Wanooka do not frustrate
Accelerate in any way from compliance with its obligations in terms of the Listings
Requirements. Nothing contained in the Memorandum of Incorporation of PCP and Wanooka
shall relieve Accelerate from compliance with the Listings Requirements.
All forecast financial information contained herein has not been reviewed or reported on
by a reporting accountant.
5. CATEGORISATION
The Acquisitions represent a Category 2 transaction for Accelerate, in terms of the Listings
Requirements.
6. 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 Acquisition Consideration. 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.
7. WITHDRAWAL OF CAUTIONARY
As the terms of the Acquisitions have been announced, caution is no longer required to be
exercised by shareholders when dealing in their Accelerate shares.
8. CONCLUSION
The Accelerate Board believes that the Acquisitions further enhances Accelerate’s underlying
portfolio in a manner that is consistent with Accelerate’s investment strategy to build a quality
portfolio, whilst still retaining a strong retail bias.
Fourways
16 February 2015
Merchant bank and Transaction Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Sponsor
KPMG Services Proprietary Limited
Legal and competition advisors
Glyn Marais Inc.
Reporting accountants
Ernst & Young Advisory Services Proprietary Limited
Date: 16/02/2015 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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