To view the PDF file, sign up for a MySharenet subscription.

EQUITES PROPERTY FUND LIMITED - Acquisition of DSV Distribution Centre in Peterborough, England

Release Date: 05/03/2018 17:07
Code(s): EQU     PDF:  
Wrap Text
Acquisition of DSV Distribution Centre in Peterborough, 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 DSV DISTRIBUTION CENTRE IN PETERBOROUGH, ENGLAND



1.    INTRODUCTION

      Shareholders are advised that Equites, through its Isle of Man based wholly-owned subsidiary, Equites
      International Limited (“Equites International”), and DSV Peterborough Real Estate Limited (“seller”) have
      concluded the following transactions:

      -   an agreement of sale of land in terms of which Equites International has acquired 13.26 acres of vacant land
          (“the property”) for £4 641 000 (ZAR 75 184 200) (“purchase consideration”) (“sale agreement”); and
      -   a forward funding agreement in terms of which Equites International will fund the development of a 27 871
          square metre distribution warehouse to be let to DSV Solutions Limited (“DSV Solutions”) for an amount up
          to £25 331 000 (ZAR 410 362 200) (“total development costs”) (“funding agreement”),

      (“the transaction”).

2.    RATIONALE

      The transaction is consistent with Equites’ stated growth and investment strategy of:

      -   diversification into the United Kingdom (“UK”) to mitigate the risks of its emerging market focus and access
          the advanced know-how and technology in respect of logistics facilities in the UK;
      -   focusing on premium “big-box” distribution centres, let to investment grade tenants on long-dated “triple net
          leases”, in proven logistics nodes and built to institutional specifications;
      -   forging strategic partnerships with reputable UK developers with the view to funding selected development
          opportunities which meet its investment criteria; and
      -   building a high-quality logistics portfolio in both South Africa and the UK, consisting of properties with
          predictable rental growth profiles, that promotes capital growth and increasing income returns over the
          medium to long-term.

      Equites views the property and development as evidencing the following sound investment fundamentals:

      -   the property is in Peterborough, a proven logistics area in the northern part of the County of Cambridgeshire,
          80 miles north of London. Peterborough is one of the UK government’s demonstrator cities for innovation
          and technology and has been identified as one of the country’s ‘hotspots’ for new business. Occupiers such
          as Royal Sun, Alliance, the Stobart Group and Amazon have all recently located to the area;
      -   the Peterborough Gateway industrial park, where the property is located, is a new 240-acre warehousing and
          distribution park with state of the art infrastructure owned by the Roxhill Group, one of the most successful
          industrial developers in the UK;
      -   this 27 871 square metres modern logistics facility will provide DSV Solutions with a newly constructed,
          high specification, steel portal frame distribution warehouse with 20 dock-level and 3 level loading doors, 15
          meter clear eaves height, a secure loading yard with a consistent depth of 50 meters, parking for 97 heavy
            goods vehicles (including 20 loading spaces), separate parking for 223 staff and visitor bays and two storey
            offices with office content at approximately 5% of total gross letting area;
     -      DSV Solutions, the UK subsidiary of the Danish global supplier of transport and logistic solutions, DSV A/S
            (“DSV”), and the seller have concluded a 10 year fully repairing and insuring “triple net” lease (“DSV lease”),
            with a parent company guarantee underwriting the obligations of DSV Solutions. DSV is listed on the
            Copenhagen stock exchange and its current market capitalisation of ZAR 180 billion ranks the company just
            outside the top 1 500 companies globally. The group has facilities in more than 80 countries all over the world
            and an international network of partners and agents, enabling them to offer services on a global platform.
     -      the DSV lease will be subject to an upward only rental review in year 5 linked to the open market value.
            Independent expert advice has been that the current estimated rental value for the distribution warehouse is
            higher than the rent of £5.25 (approximately R85.05) per square foot as per the DSV lease, which confirms
            the rental growth profile of the facility.

     The newly developed logistics facility will therefore add to the quality, defensiveness and income predictability
     of Equites.

3.   DETAILS OF THE PROPERTY

     The total consideration payable (the purchase consideration plus total development costs) of £29 972 000 (ZAR
     485 546 400) (“total consideration payable”) is based on the first year’s rental income of £1 575 000 (ZAR
     25 515 000) and constitutes an initial yield of 5,25%, reflecting significant value in this competitive market given
     the impeccable property fundamentals of the asset.

                                                                                       Weighted
                                            Gross                   Weighted      average rental
                                          Lettable            average rental          per square            Total
         Property Geographical               Area             per square foot         metre (per    consideration
         name     location      Sector       (m2 )              (per annum)              annum)           payable
         DSV      Plot     111, Logistics  27 871                      £5.25              £56.51      £29 972 000
                  Peterborough                                   (ZAR 85.05)       (ZAR 915.46) (ZAR 485 546 400)
                  Gateway,
                  Peterborough,
                  PE26QY
                  England

     The total consideration payable is considered to be in line with 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.

4.   TERMS OF THE TRANSACTION

     4.1.       The effective date of the transaction was 28 February 2018, from which date the ownership of the property
                (and all risk and benefits in respect of the property) was transferred from the seller to Equites
                International.

     4.2.       The funding agreement provides that the seller will be responsible for delivering the developed
                distribution warehouse (as defined in the DSV lease) against the payment of the total development costs
                in accordance with the agreed timetable in order to achieve practical completion (“PC”), which is
                expected to be on 1 September 2018.
     4.3.    A full suite of fully assignable warranties will be provided to Equites International by the construction
             and professional team.

     4.4.    Equites International has appointed its own development monitoring surveyor to oversee and represent
             Equites International during the development of the facility, the cost of which will form part of the total
             development costs.

     4.5.    Monthly development cost invoices, with the building contract payments to be certified by the principal
             agent, will be submitted to Equites International for payment. Any such invoices will not include the
             agreed retention amounts and any profit due in respect of the development, which amounts will only be
             payable after PC, save for a further retention amount which will be withheld at PC until the satisfactory
             sign off of any snagging items at the end of the defects period.

     4.6.    The funding agreement contains provisions which enable Equites International, in the event of a default
             under the development agreement, to take over and complete the development without the obligation to
             make any further payments to the seller.


5.   FINANCIAL INFORMATION

     Set out below is the forecast for the transaction (“the forecast”) for the 6 months ending 28 February 2019 and
     year ending 29 February 2020 (“the forecast period”).

     The forecast has been prepared on the assumption that the development will be completed, and rental income in
     terms of the DSV lease received, from 1 September 2018.

     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             Forecast for the
                                                                       6 months ending                   year ending
                                                                           28 February                  29 February
                                                                                   2019                         2020
                                                                                   ZAR                          ZAR

       Revenue (excluding straight lining)                                    12 652 644                 25 515 000
       Net property income/net operating profit                               12 652 644                 25 515 000
       Less: finance costs                                                    -7 223 334                -14 566 392
       Net operating profit after tax                                          5 429 310                 10 948 608

       Profit available for distribution                                       5 429 310                 10 948 608

     The forecast incorporates the following material assumptions in respect of revenue and expenses:
            1. The forecast has been prepared in £ and translated at an exchange rate of ZAR16.20/£.
            2. Revenue comprises contracted rental income based on the terms of the DSV lease, which is
                 assumed to be valid and enforceable. No rental escalations are provided for during the forecast
                    period. The effects of straight lining rental income are not material and no adjustment has been
                    made.
               3.   The DSV lease is a fully repairing and insuring ‘triple net’ lease and no property operating
                    expenses are accounted for.
               4.   The property and asset management functions will be performed internally.
               5.   Initially, the transaction will be financed from available cash resources in South Africa which will
                    be hedged through a currency derivative. The intention is to subsequently refinance up to 50% with
                    UK debt. The all-in fixed cost of funding for both sources of funding has been estimated at 3%.
               6.   Borrowing costs incurred are directly attributable to the acquisition of the property and
                    development and are capitalised to the cost of the asset until such time as it is substantially ready
                    for its intended use, which is assumed to be 30 August 2018. The transaction therefore has no
                    effect on the statement of comprehensive income prior to 1 September 2018.
               7.   No fair value adjustment is recognised.
               8.   There will be no unforeseen economic factors that will affect the tenant's ability to meet its
                    commitment in terms of the DSV lease.

6.    CATEGORISATION

      The transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements and accordingly
      does not require approval by Equites’ shareholders.

5 March 2018


Corporate advisor and sponsor to Equites
Java Capital

Date: 05/03/2018 05:07:00 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.

Share This Story