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ARROWHEAD PROPERTIES LIMITED - Connaught Properties

Release Date: 05/06/2015 16:40
Code(s): AWB AWA     PDF:  
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Connaught Properties

ARROWHEAD PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2011/000308/06)
JSE share code: AWA ISIN: ZAE000158101
JSE share code: AWB ISIN: ZAE000158119
(Approved as a REIT by the JSE)
(“Arrowhead” or “the company”)


CONNAUGHT PROPERTIES


1.    Introduction and rationale

      Linked unitholders are referred to the previous announcements in relation to the listing of Indlupace Properties
      Limited (“Indluplace”), a subsidiary of Arrowhead, as a stand-alone Residential REIT.

      In order to avoid delays to the Indluplace listing it was necessary to put potential acquisitions by Indluplace on
      hold. However the Arrowhead group is continually considering acquisition opportunities including, in
      particular, in the residential space where there is a significant potential acquisition pipeline. One of the
      potential residential acquisitions reached the stage where, in order to secure the opportunity, it was necessary to
      conclude an agreement with the seller.

      In this regard, linked unitholders are advised that Arrowhead has concluded an agreement with Connaught
      Properties Proprietary Limited (“Connaught”), in terms of which Connaught has agreed to sell its R420 million
      residential property portfolio (“the Connaught portfolio”) to either Indluplace or, if Indluplace does not agree
      to become bound as purchaser under the agreement by 30 June 2015, Arrowhead (“the purchaser”).

2.    The Connaught portfolio

      The Connaught portfolio comprises a portfolio of 1 182 residential units in 9 high rise buildings located in
      Joubert Park and Hillbrow together with a small component of ancillary retail*. Based on the estimated net
      income figures set out below, the portfolio will be acquired at an average forward yield of 10.5%.

      Details of the properties, including property name, geographical location, gross lettable area (“GLA”), weighted
      average rental per square metre as at 31 May 2015, the average residential rental per unit, the purchase
      considerations and estimated net income attributed to the properties, all of which are residential, are as follows:
                                                                          Weighted
                                                                     average rental                 Average             Purchase              Estimated
                            Geographical                           per square metre        residential rental       consideration            net income
       Property name        location                GLA (m2)                 (R/m2)             per unit (R)              (R’000)        (R’000/annum)
       Blaauwberg           Gauteng                     8 768                       65                  5 497               44 000                  4 620
       Curzon Court         Gauteng                     1 877                       74                  3 839               10 250                  1 076
       Geraldine Court      Gauteng                     4 800                       66                  3 995               22 500                  2 363
       Kings Ransom         Gauteng                    20 033                       78                  4 919              117 000                 12 285
       Matroosberg          Gauteng                    10 599                       66                  4 836               56 250                  5 900
       Midhill Gardens      Gauteng                     4 149                       76                  3 936               25 000                  2 625
       Morgenster           Gauteng                     2 782                       63                  4 472               13 000                  1 365
       Park Mews            Gauteng                     3 768                       79                  3 080               23 000                  2 415
       Sentinel             Gauteng                    21 115                       71                  4 293              109 000                 11 445
       Total                                           77 892                       72                  4 474              420 000                 44 100
      *The Connaught portfolio comprises a small retail component consisting of 38 shops with a weighted average rental of R94/m 2 and a GLA of 3183m2
    
      Details of the Connaught portfolio as at 31 May 2015 based on unit type, average rental, number of units,
      percentage of units, number of vacant units and percentage of vacant units are set out in the table below:




                                Average rental                        Percentage of    Number of vacant            Vacancy
       Unit Type                     (R/month)   Number of units           units (%)              units                (%)
       Bachelor                          2 954               332                 28                   7                  2
       One bedroom                       3 727               144                 12                   3                  2
       Two bedroom                       4 638               256                 22                   5                  2
       Three bedroom                     5 355               315                 27                   6                  2
       Other                             6 645               135                 11                   3                  2
       Total                             4 474             1 182                100                  24                  2

      The board of directors of the Arrowhead is satisfied that the aggregate value attributed to the Connaught
      portfolio is in line with the aggregate purchase consideration payable. The directors are not independent and are
      not registered as professional valuers or as professional associate valuers in terms of the Property Valuers
      Profession Act, No 47 of 2000.

3.    Terms of the acquisition

      3.1.     The effective date of the acquisition is the date of registration of transfer of ownership of each of the
               properties in the Connaught portfolio into the name of the purchaser (the “transfer date”), from which
               date all risk and benefit attaching to the properties will vest in the purchaser.

      3.2.     The aggregate purchase price of R420 000 will be paid as follows:

               3.2.1.       R399 000 000 in cash; and

               3.2.2.       R21 000 000 by the allotment and issue to the seller of 2 100 000 Indluplace shares at an
                            issue price of R10.00 per share (or 1 086 956 Arrowhead A linked units at an issue price
                            of R9.60 per A linked unit and 1 086 956 Arrowhead B linked units at an issue price of
                            R9.72 per B linked unit or, in the event that Arrowhead is the purchaser), which shares or
                            linked units, as the case may be, are to be held in escrow for a period of 18 months as
                            security for any claim which the purchaser may have.

      3.3.     Should any of the properties in the Connaught portfolio not be registered in the purchaser’s name by 28
               September 2015, then the purchase consideration in respect of such properties will increase by 0.5% per
               month (6% per annum) from 29 September 2015 to the transfer date and this increase will be payable in
               cash.

      3.4.     The agreement is subject to the fulfilment or waiver of the following conditions:

               3.4.1.       Connaught providing the purchaser with approved building plans in respect of the
                            properties;

               3.4.2.       the purchaser securing the written approval of its investment committee to the conclusion
                            and implementation of the agreement;

               3.4.3.       the purchaser securing finance in order to proceed with the acquisition;

               3.4.4.       Connaught and the purchaser concluding an escrow agreement in terms of which, as
                            security for any claim which the purchaser may have against the seller arising out of the
                            agreement, 2 100 000 Indluplace shares or should the purchaser be Arrowhead, 1 086 956
                            A linked units and 1 086 956 B linked units, which will be issued by the purchaser in part
                            settlement of the purchase price, will be held in escrow;

               3.4.5.       all the requisite approvals from any regulatory authorities including, but not limited to, the
                            Competition Authorities;
             
               3.4.6.       to the extent that any third party enjoys any pre-emptive or similar rights over the
                            properties, such person waiving such pre-emptive rights; and

               3.4.7.       as soon as practically possible after the date of fulfilment of the last of the conditions
                            precedent set out above, the acquisition being advertised in terms of section 34 of the
                            Insolvency Act, 24 of 1936.

      3.5.     The agreement provides for warranties and indemnities that are normal for an acquisition of this nature.

4.    Categorisation

      If Indluplace does not elect to purchase the Connaught portfolio and Arrowhead is the purchaser, then the
      acquisition will be a category 2 transaction for Arrowhead in terms of the JSE Listings Requirements. If
      Indluplace elects to purchase the Connaught portfolio, it is anticipated that the acquisition will be a category 2
      transaction for Indluplace in terms of the JSE Listings Requirements.

5 June 2015


Sponsor

Java Capital

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