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Detailed terms announcement relating to the acquisition of the letting enterprise conducted in certain of the sectio
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)
DETAILED TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF THE LETTING
ENTERPRISE CONDUCTED IN CERTAIN OF THE SECTIONAL TITLE UNITS IN THE SECTIONAL
TITLE SCHEME KNOWN AS PORTSIDE, CAPE TOWN
1. INTRODUCTION
Shareholders are hereby advised that Accelerate has entered into a binding agreement
(“Agreement”) with Old Mutual Life Assurance Company (South Africa) Limited (“OMLACSA”) to
acquire the letting enterprise conducted in certain sectional title units in the sectional title
scheme known as Portside (“the Acquisition”).
2. THE ACQUISITION
2.1. Background to the Acquisition
OMLACSA and FirstRand Bank Limited (“FirstRand”) are the owners of sectional title
units in the sectional title scheme known as Portside in respect of the land and building
situated on Erf 170319 Cape Town ("Portside Building"). OMLACSA is the owner of and
conducts a letting enterprise (the "Letting Enterprise") on sectional title units numbered
1, 3 to 9 (both inclusive) and 13 to 22 (both inclusive) situated on the lower ground floor
3, upper ground floor 4 and floors 9 to 19 in the Portside Building having:
2.1.1. 27,158 square meters of rentable office space;
2.1.2. 742 square meters of rentable retail space; and
2.1.3. 686 parking bays,
(collectively, the “Sale Property”).
2.2. Terms of the Acquisition
Accelerate has agreed to acquire the Letting Enterprise on the following terms:
2.2.1. Acquisition consideration of R840 million plus value added tax (“VAT”) at the
rate of 0% (“the Acquisition Consideration”);
2.2.2. OMLACSA shall provide Accelerate with a rental guarantee amounting to
R120.1 million plus VAT (“the Rental Guarantee”). Accelerate is entitled to
utilise the Rental Guarantee at its sole discretion which is intended to bridge
any shortfall in rental income which may arise from current vacancies.
2.2.3. In addition to the Rental Guarantee above, OMLACSA shall pay an amount of
R35 million plus VAT to Accelerate as a contribution towards tenant
installations (“TI Contribution”), over and above the existing structures in
place.
2.3. Right of first refusal
2.3.1. FirstRand currently has a right of first refusal to acquire the Sale Property,
which FirstRand will be required to waive as a suspensive condition to the
Agreement.
2.3.2. Accelerate understands from OMLACSA that FirstRand does not intend to
exercise its right of first refusal to purchase the Sale Property as a whole, but
that FirstRand is considering acquiring sectional title units 21 and/or 22 of the
Sale Property, corresponding to the 18 and 19 floors of the Portside
Building (“FirstRand Floors”).
2.3.3. In the event that FirstRand exercises its right of first refusal to purchase the
FirstRand Floors, then the Acquisition Consideration, Rental Guarantee and TI
Contribution for the Letting Enterprise shall be adjusted downwards as follows:
Acquisition Consideration
2.3.3.1. by an amount of R80 million for sectional title unit 21 (18 floor), with
a reduction in gross rentable area of approximately 2,773 square
metres and 70 parking bays which are allocated to the section; and
2.3.3.2. by an amount of R85 million for sectional title unit 22 (19 floor), with
a reduction in gross rentable area of approximately 2,773 square
metres and 70 parking bays which are allocated to the section;
Rental Guarantee
2.3.3.3. by an amount of R10 million plus VAT for each of sectional title unit
21 and sectional title unit 22 (R20 million in total plus VAT); and
TI Contribution
2.3.3.4. by an amount of R2.5 million plus VAT for each of sectional title unit
21 and sectional title unit 22 (R5 million in total plus VAT).
2.4. Current vacancies and application of the Rental Guarantee
At the date of signature of the Agreement, the Letting Enterprise had vacancies of
approximately 16,500 square meters of gross rentable area of 27,900 square meters of
the Sale Property. This vacancy assumption is based on contractual lease
arrangements in place at such date. In light of the existing vacancies, OMLACSA has
provided the Rental Guarantee to compensate Accelerate for such vacancies.
Based on existing tenanting and knowledge of the Cape Town market, Accelerate
targets to achieve a net property yield of 7.5% to 31 March 2017, which will escalate at
7% per annum. On this basis, Accelerate believes that the Rental Guarantee will
provide sufficient rental support to ensure the aforementioned targets are achieved for a
period in excess of 5 years (“Anticipated Rental Guarantee Term”) from the date upon
which the transfer of the Sale Property is to be registered in the Cape Town Deeds
Office in the name of Accelerate, anticipated to be 31 March 2016 (“Transfer Date”).
The assumptions used by Accelerate management in arriving at the Anticipated Rental
Guarantee Term, include:
2.4.1. Current vacancies are tenanted within a 24 month period;
2.4.2. New leases are entered into at market related rentals escalated at 7% per
annum;
2.4.3. Operating costs are escalated at 7% per annum; and
2.4.4. Portfolio vacancies of 5%.
2.5. Rationale
Accelerate will benefit from the Acquisition as a result of:
2.5.1. the Sale Property being an iconic, premium grade, 5 star-green rated office
building;
2.5.2. geographic diversification and reduced concentration risk in Gauteng;
2.5.3. in accordance with its pre-listing strategy providing further exposure to the
developing financial district in the Cape Town central business
district/Foreshore, with high growth potential;
2.5.4. Rental Guarantee from OMLACSA to utilise as a buffer in the interim while
management secures leases for the vacant gross lettable area (“GLA”);
2.5.5. an increase in Accelerate’s GLA (including the recent KPMG portfolio
acquisition) from 497,434 square meters to 522,670 square meters; and
2.5.6. an improvement in the overall Accelerate portfolio quality with a reduction in
vacancies and a significant improvement in Accelerates’ weighted average
lease expiry past 2019 (including the recent KPMG portfolio acquisition) from
28.8% to 34.8%.
2.6. Settlement of the Acquisition Consideration
2.6.1. Accelerate will pay the Acquisition Consideration to OMLACSA in cash on the
Transfer Date.
2.6.2. Accelerate, at its election, will settle the Acquisition Consideration either
through the utilisation of:
2.6.2.1. internal cash proceeds available to Accelerate following its
successful capital raise concluded on 30 July 2015;
2.6.2.2. funded debt package; and/or
2.6.2.3. the allotment and issuance of new Accelerate shares through a
renounceable vendor consideration placement.
3. SUSPENSIVE CONDITIONS
The Acquisition is subject to the fulfillment of the following suspensive conditions:
3.1. Accelerate providing OMLACSA with written confirmation that it has obtained funding for
the Acquisition;
3.2. Accelerate obtains board approval for the Acquisition;
3.3. OMLACSA obtains the requisite internal approval for the Acquisition;
3.4. Competition Authorities’ approval; and
3.5. FirstRand waiving its right of refusal to purchase the Sale Property, other than either or
both of the FirstRand Floors, as the case may be.
4. FINANCIAL EFFECTS OF THE ACQUISITION
The financial forecasts of the Acquisition, including the assumptions on which they are based,
and the financial information from which they are prepared are the responsibility of the
Accelerate board of directors (“Accelerate Board”) and 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”).
The forecast financial information presented in the table below has been prepared in
accordance with Accelerates accounting policies and in compliance with IFRS. The financial
forecasts for the Acquisition for the years ending 31 March 2017 and 31 March 2018 have been
prepared based on the assumption that the Acquisitions are implemented on 1 April 2016.
Rm 31 March 2017 31 March 2018
Turnover 80.5 86.2
Operating costs (16.8) (18.0)
Net property income 63.7 68.2
Funding cost (46.8) (46.8)
Earnings available for distribution 17.0 21.5
Assumptions:
1. The above financial information is based on the assumption that Accelerate acquires the Letting
enterprise conducted on all the sectional title units comprising the Sale Property, including both
FirstRand Floors.
2. Assumes that Transfer Date is aligned to Accelerates year end and accordingly neither of the
financial periods have been apportioned.
3. Calculated based on contractual rental agreements and utilising a portion of the Rental
Guarantee to achieve a targeted net property yield of 7.5% for the years ended 31 March 2017
and 31 March 2018.
4. Transaction costs and incidentals of R10 million have been provided for in the Acquisition
Consideration.
5. Assumed that the Acquisition Consideration is settled through internal cash of R300 million and
a R550 million funded through debt facilities.
6. Indicative cost of funding assumed at approximately 8.5% per annum.
5. CATEGORISATION
The Acquisition represents a Category 2 transaction for Accelerate, in terms of the Listings
Requirements.
6. INDEPENDENT VALUATIONS OF THE PROPERTY ACQUISITIONS
The Accelerate Board is satisfied that the value of the Acquisition is 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. CONCLUSION
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
portfolio, and diversifying the funds exposure to a strategic office node in Cape Town, with
strong growth potential.
Fourways
24 August 2015
Merchant bank and Transaction Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Legal and competition advisors
Glyn Marais Inc.
Date: 24/08/2015 08:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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