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REBOSIS PROPERTY FUND LIMITED - Update and Amendments to the Proposed Related Party Transaction

Release Date: 13/07/2016 15:53
Code(s): REB     PDF:  
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Update and Amendments to the Proposed Related Party Transaction

REBOSIS PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2010/003468/06)
JSE share code: REB ISIN: ZAE000201687
(Approved as a REIT by the JSE)
(“Rebosis” or “the company)


UPDATE AND AMENDMENTS TO THE PROPOSED RELATED PARTY TRANSACTION


1.   INTRODUCTION

     Rebosis is pleased to announce the revised terms of the proposed acquisitions first outlined in its SENS announcement of
     23 May 2016 (“first announcement”) which should not result in dilution in earnings growth. Terms defined in the first
     announcement bear the same meaning in this announcement.

2.   SALIENT TERMS OF AMENDMENTS TO THE TRANSACTION

     2.1.     The acquisition of BT Ngebs City shopping centre has been excluded from the proposed transaction. This is due
              to its lower acquisition yield relative to the other centres and hence higher impact on earnings growth to Rebosis.
              It however remains available and subject to the right of first refusal Rebosis enjoys regarding the Billion pipeline.

     2.2.     The net property income for both Baywest Mall and Forest Hill City have been updated from the last
              announcement made. These updated numbers have been derived from the process of working with Grant
              Thornton as reporting accountants for the transaction and are therefore considered to be the latest and final values
              for each shopping centre. Grant Thornton are in process of completing their review of total financial effects of the
              transaction which will be reported on in the circular issued to Rebosis shareholders. The acquisition yields, based
              on the review process by Grant Thornton, for these assets have increased, particularly in regard to Baywest Mall
              for which the acquisition yield has increased from 7.6% as per the first announcement to 7.8%, before the
              reductions in acquisition pricing set out in this announcement.

     2.3.     The consideration payable in respect of Forest Hill City has been reduced by R120 million from R2.213 billion to
              R2.093 billion, thus taking its acquisition yield from 7.1% to 7.5% (including bulk).

     2.4.     The consideration payable in respect of Baywest Mall has been reduced by R60 million from R2.332 billion to
              R2.272 billion, thus taking its acquisition yield from 7.8% to 8.0% (including bulk).

     2.5.     The consideration payable for BPS has been reduced by R20 million from R229 million to R209 million resulting
              in an effective forward yield of 13.3%.

     2.6.     The consideration payable for BAM remains unchanged.

     2.7.     The initial claw-back offer will be launched at an issue price equal to the 30 day vwap of Rebosis shares
              preceding 1 September 2016, the effective date of the transaction. The initial claw-back offer will be underwritten
              by Billion.

     2.8.     The consideration payable for BPS and BAM will be further reduced on a relative basis in the event that Rebosis
              disposes of any properties (net of any acquisitions) managed by BAM and BPS in a period of 6 months from the
              completion of the transaction.

     2.9.     R700 million of the aggregate price will still be deferred and settled in cash in two tranches of R350 million each.
              The additional consideration of R115 million has been reduced by R50 million to R65 million. This additional
              consideration is in recognition of the fact that a significant portion of the consideration has been deferred . The
              company will fund the payment of each tranche by way of a claw-back offer, at a price equal to the 30 day vwap
              of Rebosis shares immediately before the relevant subsequent claw-back offer is launched, but not less than
              R11.30 per share. The subsequent claw-back offers will be underwritten by Billion and/or Abacus Holdings
              (Proprietary) Limited (“Abacus”).

     2.10.    Rebosis is currently negotiating the disposal of commercial properties that are smaller and non-core of up to
              R1.5 billion in value. This will serve to bring down the total debt and loan to value ratio of Rebosis and dispense
              the need to raise any equity prior to the transaction. Post the implementation of the transaction and the anticipated
              disposal of commercial properties, it is expected that the retail assets as a percentage of total value of Rebosis
              under management will represent 72%, positioning Rebosis as a high quality retail fund of 6 large dominant
              shopping centres.

     2.11.    The aggregate consideration of R4.934 billion is payable in cash by Rebosis of which up to c.R3.7 billion will be
              funded through debt raised by Rebosis. The debt raised will be reduced to the extent that the commercial
              properties are disposed of as referred to in paragraph 2.10 above. The balance of the consideration, net of the
              deferred consideration, in the amount of R534 million will be funded by way of a claw-back offer.

     2.12.    The remaining terms of the transaction as outlined in the first announcement are unchanged.

     2.13.    With regard to the conditions of the transaction, the parties are in the course of formalising written transaction
              agreements and the date for obtaining all required third party consents and waivers has been extended to
              30 September 2016.

     2.14.    As a result of the amendments noted in this announcement to the transaction, it is expected that the dilution in the
              distribution per Rebosis share for the period 1 September 2016 to 31 August 2017 will reduce from 9.1% (as per
              the first announcement) to neutral.

     2.15.    Given that the price of the subsequent claw-back offer will not be less than R11.30 per share and the net effect of
              the revised terms, the impact of the deferral of portion of the purchase price, (measured with reference to an
              independent forecast of the Rebosis distribution per share for the year ending 31 August 2017), is expected to
              result in distribution growth of c.8.0% for the year ended 31 August 2017.

3.   PROPERTY SPECIFIC DETAILS

     3.1.    Property specific details of the shopping centres, including property name, physical address, rentable area and
             valuation are set out below. Refer to 4.1 for weighted average rental information.

                                                                            Forest Hill City                     Baywest Mall
             Name                                                            Shopping Centre                  Shopping Centre
             Physical address                                     6922 Forrest Beech Street,           100 Baywest Boulevard,
                                                                                   Monavoni,                    Baywest City,
                                                                                   Pretoria,                  Port Elizabeth,
                                                                                     Gauteng                     Eastern Cape

             GLA (m2)                                                                 72 811                           89 989

             Independent valuation (R)                                        R2 192 063 000                   R2 334 000 000


     3.2.    Rebosis has now obtained valuations of the shopping centres from Mike Gibbons of Mills Fitchet Magnus Penny
             Wolffs, who is registered as an external professional valuer in terms of the Property Valuers Profession Act, No
             47 of 2000. The shopping centres have been valued as at 31 August 2016.

4.   ADDITIONAL PROPERTY AND ILLUSTRATIVE FINANCIAL INFORMATION

     4.1.    The additional property and financial information set out below provides further illustrative financial metrics on
             the shopping centres that are to be acquired as part of the transaction for the twelve month period to 31 August
             2017. The information is not pro forma financial information and is provided for illustrative purposes only. This
             illustrative financial information is the responsibility of the directors of Rebosis and has not been reviewed or
             reported on by Rebosis’ auditors.

                                                                        Forest Hill City     Baywest Mall             Total
             Weighted average gross rental income per m²
             Base rental income                                                   R176.7           R157.8            R166.2
             Marketing recovery                                                     R2.9             R2.2              R2.5
             Operating cost recovery                                                R0.2             R9.2              R5.2
             Other tenant recoveries                                                R1.0             R0.8              R0.9
             Utility recoveries (excl. electricity and water)                       R5.9             R7.0              R6.5
             Gross rental income per m²                                           R186.8           R177.0            R181.4
             Advertising income                                                     R1.1             R1.4              R1.2
             Parking income                                                        R10.7             R8.4              R9.4
             Other municipal recoveries                                            R39.0            R69.6             R55.9
             Sundry income                                                          R0.7             R1.4              R1.1
             Property expenses                                                    (R58.8)          (R88.8)           (R75.4)
             Net property income per m²                                           R179.4           R169.0            R173.7

     4.2.    The additional financial information set out below provides further illustrative financial metrics on the BAM and
             BPS entities that are to be acquired as part of the transaction for the twelve month period to 31 August 2017. The
             information is not pro forma financial information and is provided for illustrative purposes only. This illustrative
             financial information is the responsibility of the directors of Rebosis and has not been reviewed or reported on by
             Rebosis’ auditors.

             R'000                                                                   BAM                BPS           Total
             Net income for the 12 months to 31 August 2017*^ (R’m)                R38.7              R27.7           R66.4
             Consideration (R’m)                                                  R360.0             R209.0          R569.0
             Yield (before consolidation adjustments)*                             10.7%              13.3%           11.7%

             * Net income and yield shown before elimination on consolidation of asset management fees of R14.3 million
             charged by BAM on Forest Hill City and Baywest Mall
             ^ Net income from BAM and BPS include revenue to be earned from BT Ngebs shopping centre. BAM is in the
             process of finalising a contractual agreement with Billion and other owners of this centre to provide both asset
             management and property management services for this shopping centre. There will be a defined contractual
             terms with adequate notice incorporated into the contract

5.   FORECAST STATEMENT OF COMPREHENSIVE INCOME ON THE ACQUIRED ASSETS

     Set out below are the forecast revenue, net property income, net operating profit and distributable earnings for the
     transaction, being Forest Hill City, Baywest Mall, BAM and BPS (“the forecasts”) for the year ending 31 August 2017
     and the year ending 31 August 2018 (“the forecast periods”). The forecasts have been prepared on the assumption that the
     transaction will be implemented on 1 September 2016 and on the basis that the forecasts include forecast results for the
     duration of the forecast periods.

     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 of Rebosis. The forecasts have not been reviewed or reported on by
     independent reporting accountants.

     The forecasts presented in the table below have been prepared in accordance with Rebosis’ accounting policies and in
     compliance with IFRS.

                                                                                                           Forecast for the       Forecast for the
                                                                                                                year ending            year ending
                                                                                                             31 August 2017         31 August 2018
     Basic contractual rental income and tenant recoveries                                                          486 498                522 405
     Straight-line rental accrual                                                                                    34 243                 16 502
     Forecast property revenue                                                                                      520 741                538 907

     Net property income*                                                                                           339 253                363 648
         Forest Hill City                                                                                           156 776                167 504
         Baywest Mall                                                                                               182 477                196 144

     Net operating profit                                                                                           425 617                443 845

     Total comprehensive profit for the year*^                                                                       71 952                 92 695
     Distributable earnings                                                                                          37 709                 76 193
    
     *Net property income is excluding straight-line rental accrual and before consolidation adjustments
     ^Includes finance costs

     The forecasts incorporate the following material assumptions in respect of revenue and expenses that can be influenced by the directors:

        1. Management forecasts for the year ending 31 August 2017 and the year ending 31 August 2018 are based on analysis of
           historical information, contracts, information provided by the property manager and the independent valuers.
        2. The properties underlying the forecasts comprise only the shopping centres.
        3. Contracted revenue is based on existing lease agreements including stipulated increases, all of which are valid and enforceable.
        4. Rebosis has entered into a rental guarantee agreement with Billion whereby Billion has undertaken to pay a guaranteed monthly
           amount to the extent that existing premises remain vacant or are forecast to become vacant from the effective date of the
           acquisition until 31 August 2018, being the end of the forecast period. By virtue of this rental guarantee, all rental revenue
           associated with existing vacant space is regarded as contracted revenue linked to a rental guarantee;
        5. Leases expiring during the periods have been forecast on a lease-by-lease basis, and in circumstances where discussion with the
           lessee has proven positive, are forecast to be let at prevailing market rates;
        6. Property operating expenditure has been forecast on a line-by-line basis for each property based on management’s review of
           historical expenditure and discussion with the property manager.
        7. The forecast includes revenue received for asset management and property management services rendered to Ascension
           Properties Limited, Billion and Rebosis; and
        8. No fair value adjustment to investment properties has been provided for.

     The forecasts incorporate the following material assumptions in respect of revenue and expenses that cannot be influenced by the
     directors:

        9. Existing interest-bearing borrowings advanced by various South African banks and financial institutions will be refinanced post
           the transaction and will incur interest based on prevailing interest rates and with reference to revised funding terms that are
           currently under negotiation;
       10. There will be no unforeseen economic factors that will affect the lessees’ abilities to meet their commitments in terms of existing
           lease agreements.

     Material items of expenditure within the property operating expenses line item include:
         -   R64.55 million in electricity and R33.12 million in rates in respect of the year ending 31 August 2017; and
         -   R71.01 million in electricity and R35.36 million in rates in respect of the year ending 31 August 2018.

     Property expenses are not comparable with historic expenditure given that the one of the operating assets is a recently completed large-
     scale development that only became operational during the 2016 financial year.

6.   CATEGORISATION, RELATED PARTY CONSIDERATIONS AND SHAREHOLDER EXPRESSIONS OF
     SUPPORT

     6.1.    The transaction remains classified as a category 1 transaction in terms of the JSE Listings Requirements and
             requires shareholder approval by ordinary resolution.

     6.2.    In terms of paragraph 10.1(b)(vii) of the Listings Requirements, Sisa Ngebulana is a related party to the
             transaction as he is both a director of Rebosis and a trustee and beneficiary of the Amatolo Family Trust, which
             owns 100% of the share capital of Billion, BAM and BPS.

     6.3.    In terms of paragraph 10.1(b)(vii) of the Listings Requirements, Jaco Odendaal is a related party to the transaction
             as he is both a director of Rebosis and a trustee and major beneficiary of the Abacus Trust, which owns 100% of
             the share capital of Abacus, which owns 50% of the share capital of Baywest Mall.

     6.4.    Accordingly, the transaction is subject to approval of Rebosis shareholders by ordinary resolution, excluding the
             votes cast by Sisa Ngebulana, Jaco Odendaal and their associates.

     6.5.    Shareholders including the three largest shareholders of Rebosis have provided Rebosis with written
             confirmations of their support for the transaction as now proposed. Rebosis has received over whelming support
             from its shareholders for the transaction which is well in excess of the required majority to pass this transaction.
             The reinvestment by Billion of any cash proceeds received from the initial claw-back offer or any subsequent
             claw-back offer, by way of the subscription for additional Rebosis shares, which will be separately proposed on a
             stand-alone basis and subject to approval of Rebosis shareholders by the higher threshold for a special resolution.

     6.6.    A circular, detailing the terms of the transaction and incorporating a form of proxy and a notice convening a
             general meeting in order to pass the necessary resolutions to implement the transaction, will be posted to Rebosis
             shareholders by no later than 17 August 2016.

13 July 2016


Corporate advisor and sponsor                        Legal advisor                             Corporate advisor and investment bank
Java Capital                                         Cliffe Dekker Hofmeyr                     Nedbank

Date: 13/07/2016 03:53:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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