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Acquisition of Tesco Distribution Centre in Hinckley, England
EQUITES PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
JSE share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
(“Equites” or “the company”)
ACQUISITION OF TESCO DISTRIBUTION CENTRE IN HINCKLEY, ENGLAND
1. INTRODUCTION
Shareholders are advised that Equites, through its Isle of Man based wholly-owned subsidiary, Equites
International Limited (“Equites International”), has concluded an agreement with British Oversees Bank
Nominees Limited and WGTC Nominees Limited (the “seller”) in terms of which Equites International
will acquire a Tesco Distribution Centre in Hinckley, England (the “property”) for a purchase
consideration of £28 000 000 in cash (the “transaction”).
2. RATIONALE
In its 2015 Integrated Annual Report, Equites articulated the attractions of diversifying its business into the
United Kingdom (“UK”) and Europe. As a South African-based specialist REIT focussed on high quality
assets serving the logistics and distribution sector, Equites has considered various opportunities to scale up
its portfolio while mitigating the risks of its emerging market focus by investing in assets it understands in
a familiar jurisdiction that offers a mature and stable economic and political outlook, and a thriving
logistics sector. In considering these opportunities, Equites has been mindful of the scarcity of suitable
high quality assets within its area of specialisation available for acquisition in the South African market.
The board of Equites prefers the UK market over other developed markets for the following reasons:
- its language, culture, business practices and banking and legal systems are similar to South Africa;
- the UK property market is one of the most sought after and strongest in the world;
- the UK is one of the leading countries when it comes to distribution penetration and technology
advancement in the distribution warehousing sector of the property market;
- following the 2008 financial crises, there is high demand and low supply of quality A-grade
distribution centres; and
- the UK is a sophisticated and transparent market with a constant flow of quality information on supply
and demand assisting informed decision making.
As a South African enterprise, Equites has mitigated the risks of operating in the UK as follows:
- the management of Equites has deep experience and a successful investment track record in the UK
logistics property market, having been involved, prior to the listing of Equites, in building a successful
logistics portfolio (comprising some R2 billion of distribution centres) from 2008 until 2014; and
- Equites has accessed hands on local expertise through a strategic partnership with Birmingham based
logistics experts Collingwood Rigby LLP (“C&R”). C&R will provide support services to Equites in
respect of its UK based portfolio until such time as the size of Equites’ UK investments warrants its
own human resources infrastructure.
The transaction is consistent with Equites’ growth and investment strategy of building a high quality
industrial portfolio that promotes capital growth and increasing income returns in the medium to long term.
The portfolio will therefore add to the quality, defensiveness and income predictability of Equites.
3. DETAILS OF THE PROPERTY
Equites, through Equites International, is acquiring the property, which has a gross lettable area of
27 725.33 square meters, at an acquisition yield of c.7.2% based on the first year’s rental income of
£2 016 792 and the acquisition price excluding acquisition costs. The property has been independently
valued at £28 250 000 and has a weighted average rental per square metre of £6.06. The property is fully
refrigerated and forms part of the tenant’s fresh distribution network.
Equites’ acquisition of the property is informed by its consideration of the following as sound
fundamentals:
- the property, which meets modern logistics requirements, is located in a strategic position just off the
A5 in Hinckley in the Golden Triangle, which is the logistics hub in the United Kingdom. The location
provides access to a population of 37 million people within a 3 hour heavy goods vehicle drive;
- the building is 27 725.33 square metres in extent on a 8.21 hectare site which translates into a coverage
of 31% providing the tenant with a cross docking facility that meets modern specifications; and
- there is 7.5 years remaining on the lease with Tesco Distribution Limited, with Tesco PLC being the
guarantor in respect of the obligations of the tenant.
4. TERMS OF THE TRANSACTION
4.1. The effective date of the transaction is 9 June 2016, being the day the property will transfer into the
name of Equites and on which date all risk and benefit in terms of the property will pass from the
seller to Equites.
4.2. On 26 May 2016, Equites paid a deposit on account of the purchase consideration in the amount of
£1 400 000, with the balance of the purchase consideration being due and payable on 9 June 2016.
4.3. There are no conditions precedent to the transaction.
5. VALUATION
The independent valuation of the property was undertaken by Colliers International Valuation UK LLP, an
external valuer, in accordance with the “RICS Valuation – Professional Standards, the 2012 Edition (the
“Red Book”)”. This is an internationally accepted basis of valuation.
6. FUNDING AND FINANCIAL EFFECTS
Funding for the full purchase consideration in pound sterling has been secured at a fixed interest rate of
less than 3%. Accordingly, the transaction will contribute positively to Equites’ distributable earnings in
the current year, without detracting from attractive growth prospects over the longer term given the overall
mix of assets and development within the Equites portfolio. The company remains confident that it will
achieve 10%-12% distribution growth during the current period, on the assumption of no dramatic hikes in
interest rates or other unforeseen external events. This forward looking commentary does not comprise
forecast financial information that has been reviewed or reported on by a reporting accountant in terms of
Section 8 of the JSE Listings Requirements.
7. CATEGORISATION
The transaction is a category 2 transaction in terms of the JSE Listings Requirements and accordingly does
not require approval by shareholders.
27 May 2016
Corporate advisor and sponsor to Equites
Java Capital
Solicitors to Equites in the UK
Maclay Murray & Spens LLP
Property advisors to Equites in the UK
Colliers International Valuation UK LLP
JLL
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