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Early exercise and amendment to Fourways Development option 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)
EARLY EXERCISE AND AMENDMENT TO FOURWAYS DEVELOPMENT OPTION
AND WITHDRAWAL OF CAUTIONARY
1. INTRODUCTION
Shareholders are referred to the cautionary announcement released by Accelerate on the Stock Exchange
News Service of the JSE Limited on 22 June 2015 and are advised that Accelerate has now concluded an
agreement with Fourways Precinct Proprietary Limited (“Fourways Precinct”) and Azrapart Proprietary
Limited (”Azrapart") to secure the development of approximately 90 000m² of additional retail space,
adding to the existing Fourways Mall Shopping Centre on the terms set out in this announcement.
2. BACKGROUND
Fourways Precinct and Accelerate entered into a sale agreement, dated 7 November 2013 (“Fourways
Development Sale Agreement”), governing the sale of Exxact Mobile, Fourways Game, Fourways Mall
shopping centre, Fourways View and Sasol Delta (“Fourways Development Letting Enterprises”) from
Fourways Precinct to Accelerate.
In terms of the Fourways Development Sale Agreement, Fourways Precinct remained the owner of the
bulk development rights attaching to the Fourways Development Letting Enterprises, and exclusive holder
of the right to develop the bulk (“Development Rights”). The Fourways Development Sale Agreement
provides that, on completion of the developments contemplated in the Fourways Development Sale
Agreement, the Fourways Development Letting Enterprises and the letting enterprise conducted on the
buildings constructed pursuant to the Development will be combined (“Combined Letting Enterprises”)
based on the revenue contribution of each of Accelerate and Fourways Precinct at such time.
In order to ensure that both Accelerate and Fourways Precinct hold equal shares in the Combined Letting
Enterprises, the Fourways Development Sale Agreement provides that after the constitution of the
Combined Letting Enterprises referred to above, each of Accelerate and Fourways Precinct had an option
(“the Option”) to acquire from the other such further undivided shares (“the Acquisition”) in the
Combined Letting Enterprises, for a purchase price calculated at a capitalisation rate of 7% (“Acquisition
Capitalisation Rate”).
3. THE ACQUISITION
Fourways Precinct intends to exercise its Development Rights by developing the land and buildings on
which the Fourways Development Letting Enterprises are conducted (“Fourways Development Land”).
The development is intended to be a retail development which will also include the upgrade and
refurbishment of the Fourways Mall Shopping Centre (“Development”). As part of the Development,
Fourways Precinct will, at its own cost, undertake fundamental infrastructure and traffic upgrades to
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significantly improve access to the Fourways Mall Shopping Centre, which upgrades will have significant
benefits for the Fourways Development Letting Enterprises.
Further to the intention above, Accelerate has entered into an agreement with Fourways Precinct to early
exercise the Option now to acquire that percentage undivided share from Fourways Precinct as will result
in Accelerate holding a 50% undivided share in the Combined Letting Enterprises post Development. The
Acquisition will ensure that Accelerate retains a 50% share in this pre-eminent Northern Johannesburg
shopping centre.
In addition, Fourways Precinct will sell the Development Rights to Azrapart, an entity wholly owned by
Eriologix Proprietary Limited ("Eriologix"), and will cede certain rights and obligations in respect of the
Development Rights, the Fourways Development Sale Agreement and its ownership in the Combined
Letting Enterprises to Azrapart. Accordingly, the Development and Acquisition will be executed between
Accelerate and Azrapart.
The Acquisition will be concluded upon completion of the Development and the Combined Letting
Enterprises (“Effective Date”) which is being completed at the risk of Azrapart.
Accelerate's risk in respect of the Development will be mitigated by –
- the income guarantee provided for in the Fourways Development Sale Agreement to make good any
loss of income as a result of the Development (“Income Guarantee”); and
- step in rights in its favour to the effect that if Azrapart is unable to complete the Development, then
Accelerate is entitled to procure the completion of the Development and in that event, Accelerate’s
undivided share in the Combined Letting Enterprises will be adjusted upwards in accordance with the
contribution it makes to the completion of the Development.
3.1. Head Lease
Fourways Precinct, Azrapart and Accelerate shall, to the extent required, enter into a head lease
relating to the existing buildings situated on the Fourways Development Land and the new
buildings constructed pursuant to the Development.
Under the head lease Fourways Precinct shall, for a period of five years from the date on which the
Development is completed, lease the vacant premises in the Combined Letting Enterprises from
Azrapart and Accelerate in their capacities as owners of the Combined Letting Enterprises, and
make good, on an aggregate basis, any shortfall arising calculated with reference to a pre-agreed
letting schedule.
3.2. Calculation of Undivided Share
In calculating Accelerate and Azrapart’s respective undivided shares in the Combined Letting
Enterprises, the parties shall apply an agreed formula which is dependent upon the respective
revenue contributions of Accelerate and Azrapart.
3.3. Acquisition Consideration
The amount to be paid by Accelerate to Azrapart, on completion of the Development, shall be
determined as follows:
3.3.1. the Acquisition Capitalisation Rate will be 8% as opposed to 7% previously agreed and
shall applied to the differential in the 12-month net forward income for the Combined
Letting Enterprises required by Accelerate to equalise its undivided share in the Combined
Letting Enterprises;
3.3.2. the consideration payable by Accelerate for the Acquisition will be an amount not less
than R700 million (“Acquisition Consideration”);
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3.3.3. if the calculated Acquisition Consideration is less than R700 million, Fourways Precinct will
pay the difference to Accelerate within 15 business days of registration of transfer of the
Acquisition shares to Accelerate. Payment will be made at the election of Fourways
Precinct, either:
3.3.3.1. in cash;
3.3.3.2. by Accelerate repurchasing sufficient Accelerate shares from Fourways Precinct
(the value of the Accelerate shares to be repurchased at the 30 trading day
volume weighted average price of the Accelerate shares on the JSE Limited), for
an aggregate nominal consideration of R1, provided that the repurchase shall
be subject to obtaining all necessary regulatory and shareholder approvals; or
3.3.3.3. a combination of cash and repurchase of Accelerate shares.
4. RATIONALE FOR THE ACQUISITION
The Acquisition will have a significant benefit to Accelerate:
4.1. allowing Azrapart, as developer, to begin construction on the new Fourways Mall and to complete
the Development;
4.2. providing exposure to a modern super-regional mall in Northern Johannesburg; and
4.3. Accelerate being in a position to take better advantage of the significant growth potential of
Fourways Mall and the surrounding Fourways node, a node in which Accelerate has a major
interest.
5. FINANCIAL EFFECTS OF THE ACQUISITION
As a result of the construct of the Acquisition, and the requirement for Accelerate to only settle the
Acquisition Consideration on completion of the Development, there are no financial effects on the existing
operations of Accelerate, given that the Acquisition will not become effective in the next two financial
years.
Nevertheless, shareholders are advised as follows:
5.1. all forecast financial information contained herein is based on the proposed letting plan for the
Combined Letting Enterprises and has not been reviewed or reported on by a reporting accountant.
5.2. the annualised income of the Combined Letting Enterprises, at an assumed Effective Date of
1 October 2017, is anticipated to be approximately R525 million.
5.3. the value of the Combined Letting Enterprises at the Effective Date, at a yield of 8%, would be
R6.56 billion;
5.4. on the date of constituting the Combined Letting Enterprises, the net income of the existing
Fourways Mall equates to R204 million (the guaranteed income at the time under the Income
Guarantee); and
5.5. based on the aforementioned, Accelerate would own 38.9% of the Combined Letting Enterprises
and would thus be required to acquire 11.1% of the Combined Letting Enterprises for a
consideration of approximately R730 million.
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6. CONDITIONS PRECEDENT
The Acquisition is subject to the fulfilment of the following conditions precedent:
6.1. South African Competition Authorities’ approval;
6.2. the board of directors of Accelerate approving the exercise of the Option;
6.3. the shareholders of Accelerate, excluding related parties and their associates, approving the
Acquisition;
6.4. funding agreements being entered into and becoming unconditional; and
6.5. underlying agreements relating to, inter alia, the sale of the Development Rights to Azrapart being
entered into.
7. CATEGORISATION
The Acquisition represents a Category 1 transaction for Accelerate, in terms of the Listings Requirements
of the JSE (“Listings Requirements”) as the relative categorisation of the Acquisition at the Effective Date
cannot be determined at the time of this announcement. In addition, the Acquisition is a related party
transaction in terms of the Listings Requirements.
8. RELATED PARTY TRANSACTION
Fourways Precinct and Azrapart are both wholly owned subsidiaries of Eriologix which is associated with
Michael Georgiou, the chief executive officer and major shareholder of Accelerate, thus resulting in the
Acquisition being classified as a related party transaction in terms of the Listings Requirements.
9. FAIRNESS OPINION
QuestCo Propriety Limited has been appointed as the independent professional expert (“Independent
Expert”) to consider the terms and conditions of the Acquisition, in terms of the Listings Requirement
pertaining to related party transactions. The opinion of the Independent Expert will be set out in the
circular to be sent to shareholders.
10. CIRCULAR
A circular, setting out the terms of Acquisition and incorporating a Notice of General Meeting convening
a general meeting of Accelerate shareholders in order to consider and, if deemed fit, pass the resolutions
necessary to authorise the Acquisition, will be posted in due course.
11. WITHDRAWAL OF CAUTIONARY
Accelerate shareholders are advised that, following the release of this announcement, they are no longer
required to exercise caution when dealing in their Accelerate securities and the cautionary announcement
is hereby withdrawn.
12. CONCLUSION
In addition to the number of recent value enhancing office acquisitions concluded by Accelerate, the
Acquisition represents a significant step for Accelerate in fulfilling its strategic objectives in relation to the
redevelopment of the Fourways node and delivering on undertakings made to shareholders on listing.
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The Accelerate board believes that the Acquisition further enhances Accelerate’s underlying portfolio in
a manner that is consistent with Accelerate’s investment strategy to build a quality primarily retail biased
portfolio.
Fourways
29 June 2015
Lead Investment Bank and Transaction Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Investment Bank
Investec Bank Limited
Sponsor
KPMG Services Proprietary Limited
Legal and competition advisors
Glyn Marais Inc.
Reporting accountants
Ernst & Young Advisory Services Proprietary Limited
Independent Expert
Questco Proprietary Limited
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Date: 29/06/2015 08:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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