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DIPULA INCOME FUND LIMITED - Acquisition of a R1.27 billion property portfolio and further cautionary announcement

Release Date: 10/11/2017 12:35
Code(s): DIA DIB     PDF:  
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Acquisition of a R1.27 billion property portfolio and further cautionary announcement

DIPULA INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/013963/06)
JSE share code: DIA   ISIN: ZAE000203378
JSE share code: DIB   ISIN: ZAE000203394
(Approved as a REIT by the JSE)
(“Dipula” or “the company”)


ACQUISITION OF A R1.27 BILLION PROPERTY PORTFOLIO AND FURTHER CAUTIONARY ANNOUNCEMENT


1.     INTRODUCTION AND RATIONALE

       Shareholders are advised that the company has reached agreement to acquire newly established companies which will
       own a portfolio of properties (the “specified portfolio”) for an aggregate value of R1.27 billion (the “acquisition”) 
       at a forward yield of 11.7%.

       The specified portfolio comprises 33 properties and has an aggregate gross lettable area of approximately 335,000m2.

       The transaction is in line with Dipula’s strategy of acquiring quality enhancing assets where additional value can be
       extracted through redevelopment and refurbishment. The portfolio has minimal vacancies (at 0.8% of gross lettable area)
       and is yield enhancing.

2.     TERMS OF THE ACQUISITION

       Dipula has entered into inter conditional agreements with Setso Holdco Proprietary Limited (“Setso”) and a second
       vendor (the “second vendor”) to acquire all the shares in the Setso wholly owned subsidiary Luxanio Trading 181
       Proprietary Limited (“Propco”) (the “first acquisition”) and for the acquisition of 50.01% of the shares in a newly
       constituted company that will hold the property portfolio of the second vendor's property portfolio (the “second
       acquisition”) (collectively the “transaction”). The first acquisition will be effective from the date on which the last of
       the suspensive conditions has been fulfilled or waived (as the case may be), or such other date as may be agreed in writing
       (the “closing date”). The second acquisition is expected to be effective at around the same time.

      2.1.    First acquisition

              The first acquisition portfolio held by Propco comprises 2 retail, 5 office and 3 development properties with an
              aggregate attributable gross lettable area (“GLA”) of 51 087m2 with an additional 33 093m2 of developable bulk,
              which together have an aggregate attributable value of R1,060 million.

              Agreements, relating to acquisition of 100% of the shares in Propco, have been entered into subject to the
              satisfaction of certain conditions precedent, including formal agreements being concluded and the fulfilment of
              conditions precedent in respect of second acquisition.

      2.2.    Second acquisition

              The second acquisition portfolio held by the second vendor is single tenanted under a head lease and comprises
              1 office and 22 industrial properties with an aggregate attributable GLA of 143 175m2 and an aggregate attributable
              value of R209 million.

              A head of agreement, relating to a 50.01% interest in the company which will own the second acquisition portfolio,
              has been entered into and such heads of agreement provides that the second acquisition will be subject to the
              satisfaction of certain conditions precedent, including the waiver of certain pre-emptive rights on the sale of the
              second vendor’s economic interest in the portfolio by the tenant.


3.       PROPERTY PORTFOLIO DETAILS OF FIRST ACQUISITION

                                                                                                         Weighted
                                                                                                          Average
                                                                                    Attributable       gross rental      Attributable
                                                                          GLA             GLA 3             per m2              value
Property name                    Geographic Location                      (m2)              (m2)         (ZAR/m2)              (ZAR)


RETAIL
Chilli Lane                      Sunninghill, Gauteng                    13 391            13 391            164.41      280 769 947
Chilli on Top                    Sunninghill, Gauteng                     5 042             5 042            146.08       86 715 599
  
                                                                         18 433            18 433            159.40      367 485 546
OFFICE
55 Hyde Park                     Hyde Park, Gauteng                       2 167             2 167            117.59       38 881 576
Carnation Place                  Constantia Kloof, Gauteng                4 440             4 440            183.77      101 237 368
Detnet                           Modderfontein, Gauteng                   1 369               913            171.43       23 000 000
Valley View Office Park          Constantia Kloof, Gauteng                6 793             6 793             87.35      109 162 578
Avanti                           Bellville, Western Cape                  8 369             8 369            156.22      172 365 768
                                                                         23 138            22 682            138.57      444 647 290


NEW DEVELOPMENT & REDEVELOPMENTS
Kerk Street JHB 4                Johannesburg, Gauteng                    9 000             9 000                        190 164 098
GM Hatfield 5                    Hatfield, Gauteng                          972               972                         15 508 133
Hatfield 2  6                    Hatfield, Gauteng                            -                 -                         42 000 000
                                                                          9 972             9 972                        247 672 231


                                                                         51 543            51 087                      1 059 805 067

         1.       The value attributed to each property for purposes of the first acquisition is considered to be its fair market value,
                  as determined by the directors of the company. The directors of the company are not independent and are not
                  registered as professional valuers or as professional associate valuers in terms of the Property Valuers Profession
                  Act, No.47 of 2000.
         2.       The value of the net assets of the subject of the acquisitions is R1.27 billion.
         3.       GLA weighted by effective ownership interest being purchased.
         4.       The Kerk Street JHB redevelopment has additional bulk of 17 000m2
         5.       The GM Hatfield redevelopment has attributable 4 533m2 of bulk
         6.       The Hatfield 2 development has attributable 11 560m2 of bulk.


4.       FINANCIAL INFORMATION

         Set out below are the forecast revenue, operational net income, net profit after tax and earnings available for distribution
         of the assets acquired in terms of the transaction (the “forecast”) for the 12 months ending 31 December 2018 (the
         “forecast period”).

         The forecast has been prepared on the assumption that the transaction will be implemented on 1 January 2018 and on the
         basis that the forecast includes forecast results for the duration of the forecast period.

         The forecast, including the assumptions on which it is based and the financial information from which it has been
         prepared, is the responsibility of the directors of the company. The forecast has not been reviewed or reported on by
         independent reporting accountants.

         The forecast presented in the table below has been prepared in accordance with the company’s accounting policies, which
         are in compliance with International Financial Reporting Standards.

                                                                                                                  Forecast for
                                                                                                                           the
                                                                                                                     12 months
                                                                                                                        ending
                                                                                                                     31-Dec-18
                                                                                                                         R’000
       Revenue                                                                                                     168 947 665

       Property operating expenses                                                                                 (20 488 054)
       Net income before finance costs                                                                             148 459 611
       Finance costs                                                                                               (48 125 926)
       Total comprehensive profit for the period                                                                   100 333 685

       Profit available for distribution                                                                           100 333 685


       The forecast incorporates the following material assumptions in respect of revenue and expenses:

        1.     Contracted rental income is based on existing lease agreements including stipulated increases which are valid and
               enforceable.
        2.     Rental income was verified to lease agreements and have been forecast on a lease-by-lease basis, and have been
               assumed to renew at current market rates unless the lessee has indicated its intention to terminate the lease.
        3.     No straight-line rental income is recognised.
        4.     Of the gross rental income assumed in the forecast 98% relates to contracted rental and 2% relates to uncontracted
               rental.
        5.     Property operating expenditure has been forecast on a line-by-line basis based on management’s review of historical
               expenditure and internal benchmarks.
        6.     No fair value adjustment is recognised.
        7.     The acquisitions have been assumed to be funded 40% by debt and 60% through a vendor placement of shares.
        8.     There will be no unforeseen economic factors that will affect the lessees' ability to meet their commitments in terms
               of existing lease agreements.

4.     CATEGORISATION OF THE TRANSACTION

       The transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements. Accordingly, it is not
       subject to the approval by shareholders.

5.     FURTHER CAUTIONARY ANNOUNCEMENT

       Shareholders are referred to the cautionary announcement published on 13 October 2017, which related to the transaction,
       and are advised to continue to exercise caution pending publication of additional details of the transaction.


10 November 2017


Sponsor
Java Capital


Legal Advisor
Cliffe Dekker Hofmeyr

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