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Delta's acquisition of Redefine Properties Limited's Government portfolio and withdrawal of cautionary announcement
Delta Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/005129/06)
Share code: DLT
ISIN: ZAE000194049
("Delta" or “the Company”)
REIT status approved
DELTA’S ACQUISITION OF REDEFINE PROPERTIES LIMITED’S GOVERNMENT PORTFOLIO FOR R1.255 BILLION WHICH WILL
REDUCE DELTA’S GEARING; AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
Delta shareholders are referred to the cautionary announcement released on SENS on 5 November 2015 (“Cautionary
Announcement”) relating to the intended acquisition of Redefine Properties Limited’s (“Redefine” or “the Vendor”)
government portfolio.
Further to the Cautionary Announcement, Delta shareholders are advised that Delta has entered into an agreement
with Redefine for the acquisition of 15 property letting enterprises together with their related immovable properties
(“the Properties”) (“the Acquisition”) as detailed in paragraph 4 below.
The effective date of the Acquisition is the later of 1 March 2016, being the anticipated transfer date, or the fulfilment
of all conditions precedent (“the Effective Date”).
2. Rationale for the Acquisition
The Acquisition is in line with Delta’s strategy of actively pursuing yield accretive government tenanted investment
opportunities and leveraging its expertise as a sovereign underpinned REIT. Delta has an existing portfolio of assets
located in Johannesburg, Pretoria and Durban. The Acquisition provides an opportunity to further enhance Delta’s
presence in the aforementioned jurisdictions and offers redevelopment and letting opportunities which will lead to
further value extraction for Delta shareholders.
The Acquisition supports Delta’s strategy of increasing exposure in regions where it has existing asset management
and property management representation.
The Properties are leased to national and provincial government tenants. The board of directors of Delta (“the Board”)
are of the opinion that, following refurbishments and upgrades to the Properties, longer term leases at market related
rates can be negotiated. The significant capital expenditure (“CAPEX”) budget is expected to enhance the acquisition
value of the portfolio.
Furthermore, the Acquisition will be funded entirely by issuance of shares to the Vendor, and is expected to significantly
reduce Delta’s gearing ratio, which will contribute to enhancing Delta’s credit rating.
3. Consideration for the Acquisition
The aggregate net purchase consideration for the Acquisition is R1 255 833 860 (One Billion Two Hundred and Fifty
Five Million, Eight Hundred and Thirty Three Thousand, Eight Hundred and Sixty Rand) (the “Purchase Consideration”)
and excludes the cost of future capital expenditure. Delta intends to spend c.R600 000 000 (Six Hundred Million Rand)
in CAPEX relating to refurbishments and tenant installations on the back of longer term lease contracts secured with
new or existing tenants. The CAPEX is anticipated to be deployed over a 3 year period.
The Acquisition is yield accretive at 13.27% based on actual income and excludes any existing vacancies in the
Properties. This yield excludes the impact of the anticipated CAPEX.
The Purchase Consideration excludes ancillary costs related to the Acquisition in the amount of R11 336 350 (Eleven
Million, Three Hundred and Thirty Six Thousand, Three Hundred and Fifty Rand) (“the Acquisition Costs”), which were
taken into account when calculating the yield above.
The Purchase Consideration will be wholly settled through the issue of 162 043 079 (One Hundred and Sixty Two
Million, Forty Three Thousand and Seventy Nine) Delta shares (the “Consideration Shares”) to the Vendor at an issue
price of R7.75000 per share. The Vendor will not be entitled to any distributions which shall accrue to the Consideration
Shares relating to periods prior to the Effective Date, and these will be repaid to Delta. Approval of the Board will be
required to enable the Vendor to dispose of the Consideration Shares.
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.
Weighted average rental Purchase Net Income Value(2)
Property name Location Sector GLA m2 Single or multi tenanted Vacancy
per m2 (1) (ZAR) Consideration (ZAR) (ZAR)
Durban, Kwazulu Office-
2 Devonshire Place 8 123 Single 76.39 0.61% 39 000 000 5 749 669 39 000 000
Natal Government
Johannesburg, Office-
17 Harrison Street 12 379 Single 96.82 0.96% 87 600 000 10 381 801 87 600 000
Gauteng Government
Commisioner Cape Town, Office-
4 019 Single 110.26 0.00% 40 000 000 4 565 895 40 000 000
House Bellville Western Cape Government
Domus Pretoria, Gauteng Office-Other 5 443 Multi 79.17 16.39% 41 600 000 4 936 699 41 600 000
Hatfield Forum
Pretoria, Gauteng Office-Other 6 390 Multi 58.14 15.81% 44 000 000 2 781 511 44 000 000
East
Hollard House & Johannesburg, Office-
10 415 Single 72.14 8.90% 72 600 000 9 899 467 72 600 000
Parkade Gauteng Government
Office-
Isivuno House Pretoria, Gauteng 23 694 Single 102.75 0.00% 227 000 000 19 495 682 227 000 000
Government
Johannesburg,
Kay Street Parking Parking 61 bays Single 812.20 0.00% - 466 492 -
Gauteng
Office-
Nosa Pretoria, Gauteng 3 770 Single 91.49 0.00% 24 000 000 3 706 517 24 000 000
Government
Durban, KwaZulu 2 985 m2
and
Pine Parkade Retail / Parking Multi 141.76 20.36% 71 000 000 8 583 154 71 000 000
Natal 1430 bays
Office-
Poyntons Pretoria, Gauteng 73 187 Single 75.92 7.96% 352 000 000 62 319 817 352 000 000
Government
Durban, KwaZulu Office-
Shell House 14 022 Single 99.15 0.00% 90 236 460 13 274 491 90 236 460
Natal Government
Shorburg Pretoria, Gauteng Office-Other 15 041 Multi 73.20 8.84% 89 800 000 10 913 850 89 800 000
Standard Bank Nelspruit,
Office-Other 2 374 Multi 123.76 0.00% 24 200 000 3 130 904 24 200 000
Nelspruit Branch Mpumalanga
Pietermaritzburg,
Treasury House Office-Other 9 764 Multi 89.93 0.89% 52 797 400 7 921 882 52 797 400
KwaZulu Natal
191 668 1 255 833 860 168 127 831 1 255 833 860
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 R1 255 833 860 (One Billion Two Hundred and Fifty Five Million, Eight Hundred and Thirty
Three Thousand, Eight Hundred and Sixty Rand) was derived at by Delta’s asset management company, Delta Property Asset Management Proprietary Limited.
3. Commissioner House Bellville, Hatfield Forum East, Poyntons and Nosa (the “Pre-emptive Properties”) are subject to pre-emptive rights with the anchor government tenants
4. Pine Parkade and Treasury House (the “Leasehold Properties”) are subject to leasehold agreements with their relevant municipalities
5. Conditions precedent
The Acquisition is subject to, inter alia, the fulfilment or waiver of the following suspensive conditions:
5.1. Approval by investment committees of both Redefine and Delta;
5.2. Formal approval by Delta’s board of directors;
5.3. The appointment of a Redefine executive director to Delta’s board of directors;
5.4. Regulatory approvals necessary for a transaction of this nature, including but not limited to, the approval by the
Johannesburg Stock Exchange and South African Competition authorities;
5.5. In respect of the Pre-Emptive Properties, the pre-emptive rights holders not exercising their pre-emptive rights
within the period stipulated in the relevant Pre-Emptive Properties lease agreements;
5.6. In respect of the Leasehold Properties, the conclusion of a written deed of cession between the Vendor and
owners of the land in respect of the Leasehold Properties, in terms of which it is agreed for the leasehold rights
contained within the land leases held by the Vendor to be ceded to Delta.
6. Value of the net assets that are the subject of the Acquisition
The value of the net assets that are the subject of the Acquisition is R1 255 833 860 (One Billion Two Hundred and Fifty Five
Million, Eight Hundred and Thirty Three Thousand, Eight Hundred and Sixty Rand).
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 12 months For the 12 months
ended ended
28-Feb-17 28-Feb-18
Rental income 270,710,365 283,301,481
Straight-line rental income accrual 2,397,445 (41,647)
Total revenue 273,107,810 283,259,835
Net operating profit before finance charges 163,363,165 188,004,883
Net operating profit after finance charges 160,503,343 171,401,529
Net profit after tax 160,503,343 171,401,529
Distributable earnings attributable to shareholders 160,503,343 171,401,529
Notes:
1. The forecast information for the 12 months ending 28 February 2017 has been calculated from the Effective Date.
2. Contracted revenue is based on existing lease agreements and amounts to R139 216 337 for the twelve months ending 29 February
2017 and R51 490 403 for the twelve months ending 28 February 2018.
3. Near-contracted rental revenue is based on legally binding agreements that have expired and that are reasonably expected to be
renewed, which expectation takes into consideration the location of the property, the historical occupancy by that tenant and the
tenant’s profile. Near-contracted revenue amounts to R80 697 485 for the twelve months ending 29 February 2017 and
4. R168 022 880 for the twelve months ending 28 February 2018.
5. Uncontracted revenue in respect of the Acquisition amounts to R9 114 309 for the twelve months ending 29 February 2017 and R19
213 429 for the twelve months ending 28 February 2018.
6. Rental income does not take into account any income attributable to vacant space in the Forecasts.
7. CAPEX of R600 000 000 is assumed to be deployed over 3 years.
8. Net operating profit after finance charges includes asset management fees, property management fees and transaction costs.
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.
9. Withdrawal of the Cautionary Announcement
Having regard to the information set out above, the Cautionary Announcement is hereby withdrawn and Delta shareholders
are advised that caution is no longer required when dealing in the Company’s securities.
03 December 2015
Investment bank and sponsor
Nedbank Corporate and Investment Banking
Date: 03/12/2015 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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