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ACCELERATE PROPERTY FUND LTD - Acquisition of Parktown Crescent Properties (Pty) Ltd and Wanooka Properties (Pty) Ltd and withdrawal of cautionary

Release Date: 16/02/2015 14:00
Code(s): APF     PDF:  
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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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