DELTA PROPERTY FUND LIMITED - Announcement regarding the acquisition of letting enterprises and properties

Release Date: 02/06/2015 07:21
Code(s): DLT
 
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Announcement regarding the acquisition of letting enterprises and properties

Delta Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/005129/06)
Share code: DLT
ISIN: ZAE000172052
("Delta" or “the Company”)
REIT status approved


ANNOUNCEMENT REGARDING THE ACQUISITION OF LETTING ENTERPRISES AND PROPERTIES


1. Introduction

    Delta shareholders are advised that Delta ('the Purchaser'), has entered into various agreements with
    Orthotouch Limited (“the Vendor”) for the acquisition of 15 property letting enterprises (“the Acquisition”)
    together with their related immovable properties (“the Properties”) as detailed in paragraph 4 below.

    The effective date of the Acquisition is anticipated to be 1 August 2015.

2. Rationale for the Acquisition

    The Acquisition is in line with Delta’s strategy of actively pursuing yield accretive investment opportunities
    and leveraging its expertise as a sovereign underpinned REIT. Delta has historically upgraded lower grade
    assets to achieve good yield compression. Delta has an existing portfolio of three smaller assets located in
    the Bloemfontein central business node. The Acquisition provides an opportunity to further diversify
    Delta’s geographic spread into Bloemfontein and offers redevelopment and letting opportunities which
    may lead to further value extraction for Delta shareholders.

    The property manager who will be responsible for the Properties has significant representation in the
    regions in which the Properties are located. The Acquisition supports Delta’s strategy of bulking up in
    regions where it has existing asset management and property management representation.

    The majority of the Properties are leased on a month-to-month basis to predominantly national and
    provincial government tenants at below market rentals and this has been confirmed through a due
    diligence process. The board of directors of Delta (“the Directors”) are of the opinion that, following
    refurbishments and upgrades to the assets, longer term leases at market related rates can be negotiated.

    During the refurbishment of the properties Delta intends to make use of local contractors, sub-contractors
    and labour in order to support local employment creation.

    The Acquisition is yield accretive at 11.4% based on actual income and excludes any existing vacancies in
    the Properties. Delta is of the opinion that it will be able to take advantage of this significant upside
    potential by filling these vacancies at market related rates.

    The Acquisition culminates two years of extensive negotiations, including financial and legal due
    diligences, conducted by independent 3rd party advisers. During the legal due diligences the pending legal
    action with the Vendor was identified. In order to mitigate the risk, it was decided that Section 34 notices
    would be published and this process is currently underway.
3. Consideration for the Acquisition

   The aggregate net purchase consideration for the Acquisition is R507 000 000 (five hundred and seven
   million Rand) (the “Purchase Consideration”).

   The Purchase Consideration excludes ancillary costs related to the Acquisition in the amount of R8 943 823
   (eight million nine hundred and forty three thousand eight hundred and twenty three Rand) (“the
   Acquisition Costs”).

   No income has been attributed to vacant space in terms of determining the Purchase Consideration.

   All capital expenditure requirements identified through the due diligence process have been negotiated
   into the Purchase Consideration.

   The Purchase Consideration will be settled through a combination of debt funding (vendor loan of
   R202 800 000) and the issue of additional Delta shares to the vendor (R304 200 000).

4. Details of the Properties

   Details of each Property, including inter alia the location, sector, weighted average rental per square
   meter, the purchase prices as well as the valuations attributed to the Properties, are set out below.

                                                                          Single or multi   Weighted average                              Income including
                       Location             Sector               GLA m2                                          Purchase Consideration                        Value (2)
Property name                                                                  tenanted      rental per m2 (1)                                  vacancies

22 & 24 George Lubbe   Bloemfontein, Free
Str                    State                Office, Government    6 250           Single                32.17               15 070 554          2 173 630     15 070 554

                       Bloemfontein, Free
Absa United            State                Office, Government    6 237            Multi                70.14               39 517 443          4 654 221     39 517 443

                       Bloemfontein, Free
African Life           State                Office, Government    8 452            Multi                77.94               51 909 242          7 428 949     51 909 242

                       Bloemfontein, Free
Classic Building       State                Office, Government    2 999            Multi                22.38                5 145 983            658 224      5 145 983

                       Bloemfontein, Free
CNA Building           State                Office, Government    2 489            Multi                78.92               17 537 987          2 103 875     17 537 987



Domitek                Welkom, Free State   Office, Government    1 710            Multi                48.80               11 903 315            887 108     11 903 315



Edgars Kroonstad       Welkom, Free State   Office, Government    5 903            Multi                56.43               27 235 661          3 361 823     27 235 661

                       Bloemfontein, Free
Fort Drury             State                Office, Government   10 476            Multi               108.76              102 712 664         13 019 776    102 712 664

                       Bloemfontein, Free
Katleho                State                Office, Government    5 911           Single                65.64               39 630 735          4 530 047     39 630 735

                       Bloemfontein, Free
Laboria House          State                Office, Government    3 954            Multi                66.10               15 288 397          2 608 919     15 288 397

                       Bloemfontein, Free
Nedbank Building       State                Office, Government    2 457            Multi                74.01               13 680 822          1 817 143     13 680 822

                       Bloemfontein, Free
SA Eagle               State                Office, Government    3 490            Multi                66.23               18 547 201          2 250 582     18 547 201


Sediba, Fountain VLU   Bloemfontein, Free
Building               State                Office, Government   10 282            Multi                80.37               78 915 324          8 655 029     78 915 324

Standard Bank           Nelspruit,
Nelspruit               Mpumalanga          Office, Government    4 537            Multi                85.61               34 782 050          3 453 095     34 782 050

                        Bloemfontein, Free
Trustfontein/Transtel   State               Office, Government    6 369            Multi                80.03               35 122 622          5 162 104     35 122 622

                                                                 81 516                                 72.42              507 000 000         62 764 524    507 000 000



            Notes:

                           1.      Based on the net rental income, excluding parking and/or recoveries, for the 12 month period from the anticipated date of transfer.
                           2.      No independent valuation has been performed on the Acquisition. The value attributed to the Acquisition of R507 000 000 (five hundred and seven million Rand) (“the Value”) was
                                   derived at by Delta’s asset management company, MPI Property Asset Management Proprietary Limited.

5. Conditions precedent

The Acquisition is subject to, inter alia, the fulfilment or waiver of the following suspensive conditions:


    5.1. written consent by the counter-parties to the lease agreements, relating to the Acquisition,
         consenting to the assignment of all of the respective Vendor’s rights and obligations in terms of the
         leases to Delta;
    5.2. approval by the JSE Limited (“the JSE”) and Competition Commission, to the extent required; and
    5.3. written confirmation from Delta confirming that Delta has the required funding available and/or
         confirmation that Delta has arranged for sufficient equity on such terms and conditions as are
         acceptable to the respective Vendor.

6. Unaudited pro forma financial effects of the Acquisition

The unaudited pro forma financial effects of the Acquisition on the net asset value and net tangible asset value
per Delta share have not been disclosed as they are not significant.

7. Forecast information on the Properties (“Forecasts”)

The Forecasts, including the assumptions on which they are based and the financial information from which
they are prepared, are the responsibility of the Directors. The Forecasts have not been reviewed or reported
on by the independent reporting accountants.

The Forecasts presented in the tables below have been prepared in accordance with Delta’s accounting
policies and in compliance with International Financial Reporting Standards.

Summarised Forecast in respect of the Acquisition: 
                                                                               For the 7 months          For the 12 months
                                                                                          ended                      ended
                                                                                      29-Feb-16                  28-Feb-17
Rental income                                                                        42 946 164                 77 685 981
Straight-line rental income accrual                                                     362 927                     27 097
Total revenue                                                                        43 309 091                 77 713 079
Net operating profit before finance charges                                          31 973 640                 58 319 269
Net operating profit after finance charges                                           20 068 137                 34 450 270
Net profit after tax                                                                 20 068 137                 34 450 270
Distributable earnings attributable to shareholders                                  20 068 137                 34 450 270


        Notes:

             1.   The forecast information for the 7 months ending 28 February 2016 has been calculated from the anticipated
                  effective date of the Acquisition, 1 August 2015.
             2.   Contracted revenue is based on existing lease agreements. Uncontracted revenue in respect of the Acquisition
                  amounts to 71.6% for the seven months ending 29 February 2016 and 84.6% for the year ending 28 February 2017.
             3.   The income above does not take into account any income attributable to vacant space in the Forecasts.
             4.   Net operating profit after finance charges includes asset management fees, property management fees and
                  transaction costs.
             5.   Distributable income excludes any antecedent interest from the issue of new shares.
             6.   Finance charges have been assumed at an all-in rate of 8.75%.

8. Categorisation

The Acquisition is categorised as Category 2 transaction in terms of the JSE Limited Listings Requirements and
accordingly does not require approval by Delta shareholders.


2 June 2015


Investment bank and sponsor

Nedbank

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