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DIPULA INCOME FUND LIMITED - Update on R1.25 billion property portfolio acquisition and withdrawal of cautionary announcement

Release Date: 23/03/2018 07:05
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Update on R1.25 billion property portfolio acquisition and withdrawal of 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”)


UPDATE ON R1.25 BILLION PROPERTY PORTFOLIO ACQUISITION AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT


1.     INTRODUCTION AND RATIONALE

       Shareholders are referred to the SENS announcement released on 10 November 2017 which disclosed components of a
       composite transaction (the “Transaction”) to acquire a portfolio of properties. The pre-emptive rights in respect of the
       industrial property portfolio which is subject to a head lease, have now been waived and as such shareholders are hereby
       advised of the full suite of information in respect of the Transaction.

       The portfolio of properties acquired pursuant to the Transaction (the “portfolio”) has an aggregate purchase consideration
       of R1.25 billion (the “acquisition”) at a forward yield of 11.8% (based on Dipula’s share of the net operating profit for
       the 12 month period 1 May 2018 to 30 April 2019). The purchase price of R1.27 billion originally indicated in the SENS
       announcement released on 10 November 2017 has been adjusted to account for certain properties on which pre-emptive
       rights were exercised as well as a result of price adjustments to account for contracted purchase price escalations.

       The Transaction is in line with Dipula’s strategy of acquiring quality earnings enhancing assets and properties where
       additional value can be created through redevelopment and refurbishment. The portfolio has minimal vacancies (at 0.8%
       of gross lettable area) (“GLA”), a weighted average lease expiry of 4.5 years by gross rental income and will be income
       enhancing.

2.     TERMS OF THE TRANSACTION

      2.1.    The Transaction

              Dipula has entered into inter-conditional agreements with Setso Holdco Proprietary Limited (“Setso”) and Rec
              Group Property Trust (“Rec Trust”) to acquire a 100% shareholding in the Setso wholly-owned subsidiary
              Luxanio Trading 181 Proprietary Limited (“Luxanio”) and to subscribe for a 50% + 1 stake in Bajascape
              Proprietary Limited (“Bajascape”), a company that will hold the property portfolio of Rec Trust. The Transaction
              will be effective from the date on which the last of the conditions precedent has been fulfilled or waived (as the
              case may be), or such other date as may be agreed in writing (the “closing date”).

      2.2.    Purchase price

              The aggregate consideration payable in respect of the Transaction is R1.25 billion payable in cash on the third
              business day following the closing date,unless certain portions thereof are deferred so that payment coincides with
              the transfer of certain of properties.

      2.3.    Conditions precedent

              The Transaction is subject to the fulfilment or waiver, as the case may be, of, inter alia, the following material
              conditions precedent:
              - Dipula securing equity funding with which to settle the component of the purchase price not funded by third
                party debt; and
              - the agreements with Setso and Rec Trust having become unconditional.

      2.4.    Material terms

              The agreements in respect of the Transaction contain undertakings, warranties and indemnities which are normal
              for a transaction of this nature, including the following material term:
              - A cash sum of R29,6 million will be unconditionally paid by Setso to Dipula. This amount will be utilised by
                Dipula towards current and future repairs and maintenance as well as in respect of a rental guarantee for
                unforeseen potential vacancies or lower than budgeted renewals over a three year period commencing from
                the closing date.


3.    PROPERTY PORTFOLIO DETAILS
                                                                             Weighted
                                                                              average
                                                                            gross rental
                                                   GLA       Attributable      per m2      Attributable
 Property name         Geographic Location         (m2)       GLA (m2)       (ZAR/m2)      value (ZAR)


 RETAIL

 Chilli Lane           Sunninghill, Gauteng         13 653       13 653     169.89          286 308 423

 Chilli on Top         Sunninghill, Gauteng          5 082         5 082    156.31           88 426 153

                                                    18 735       18 735     166.21          374 734 576
 OFFICE

 55 Hyde Park          Hydepark, Gauteng             2 167         2 167    143.91           39 648 555

 Carnation Place       Constantia Kloof, Gauteng     4 440         4 440    186.86          103 234 380

 Detnet (66.67%)       Modderfontein, Gauteng        2 074         1 383    169.26           23 453 699

 Valley View Office
 Park                  Constantia Kloof, Gauteng     6 793         6 793    106.10          111 315 922

 Avanti                Bellville, Western Cape       8 382         8 382    160.60          175 765 860

 263 Oxford (50.01%)   Illovo, Gauteng               1 755           878    247.55           21 696 137

                                                    25 611        24 042    155.94          475 114 552

 INDUSTRIAL
 (50.01%)

                       Prospecton, Kwa-Zulu
 Prospecton            Natal                        25 062       12 531     20.21            25 294 607

 Wilsonia              East London, Eastern Cape    25 900       12 950     12.87            16 648 112
                       Wentworth, Kwa-Zulu
 Wentworth             Natal                        17 271         8 636    19.20            16 567 425
                       Port Elizabeth, Eastern
 PE Grahamstown Road   Cape                         22 179       11 090     13.66            15 129 309
                       Port Elizabeth, Eastern
 PE Burman Road        Cape                         17 843         8 922    14.97            13 334 421

 Wadeville 4           Wadeville, Gauteng           14 784         7 392    14.33            10 578 778

 Middelburg            Middelburg, Mpumalanga       13 888         6 944    13.22             9 169 018

 Wadeville 1           Wadeville, Gauteng           15 937         7 969    11.05             8 790 904

 Middelburg 2          Middelburg, Mpumalanga       12 858         6 429    13.38             8 591 854
                       Richards Bay, Kwa-Zulu
 Richards Bay          Natal                        11 532         5 766    14.21             8 180 656
                       Pietermaritzburg, Kwa-
 Pietermaritzburg      Zulu Natal                    7 500         3 750    19.49             7 300 137

 Watloo 3              Watloo, Gauteng               8 009         4 005    18.24             7 292 666
                       Newcastle, Kwa-Zulu
 Newcastle             Natal                        14 571         7 286     8.65              6 289 095

 Rustenburg            Rustenburg, North West       10 813         5 407    11.46              6 186 980
 Clayville             Clayville, Gauteng            9 798         4 899    12.42              6 077 177

 Vanderbijlpark        Vanderbijlpark, Gauteng      23 612        11 806     4.97              5 856 815

 Congella              Congella, Kwa-Zulu Natal      5 084         2 542    18.84              4 786 153

 Alrode                Alrode, Gauteng              10 583         5 292     7.44              3 934 377

 Phoenix               Phoenix, Kwa-Zulu Natal       3 566         1 783    20.53              3 656 341

 Wadeville 3           Wadeville, Gauteng            4 587         2 294    12.61              2 888 186

 Alrode South          Alrode South, Gauteng         4 843         2 422     8.93              2 159 372

 Hercules              Hercules, Gauteng             2 620         1 310    14.35              1 876 911

                                                   282 840       141 420    13.49            190 589 294


 REDEVELOPMENTS
 Kerk Street JHB 4    Johannesburg, Gauteng          9 147         9 147                     193 915 280                                              3
 GM Hatfield 5         Hatfield, Gauteng             3 888           972                      15 814 047
                                                    13 035        10 119                     209 729 327

                                                   340 221       194 316                   1 250 167 749



      1.     The value attributed to each property for purposes of the Transaction 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.     Dipula’s attributable share of the value of the portfolio is R1.25 billion.
      3.     Attributable GLA is weighted by the effective ownership interest being purchased.
      4.     The Kerk Street JHB property has additional bulk of 17 000 m2.
      5.     The GM Hatfield redevelopment has attributable bulk of 4 533 m2.


4.    FINANCIAL INFORMATION

      Set out below is the forecast revenue, net operating profit, net profit after tax and earnings available for distribution of
      the portfolio (the “forecast”) for the 4 months ending 31 August 2018 and year ending 31 August 2019 (the “forecast
      period”).

      The forecast includes forecast figures for the duration of the forecast period.

      The forecast has been prepared on the assumption that the closing date is 1 May 2018.

      The forecast, the assumptions on which it is based and the 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 compliant with International Financial Reporting Standards.

                                                 Forecast for the       Forecast for the

                                                4 months ending        12 months ending
                                                   31-Aug-18               31-Aug-19



 Revenue                                              71 014 435              222 105 535

 Net operating profit                                 56 235 224              174 740 847
 Finance costs                                       (18 027 479)             (54 082 437)
 Total comprehensive income for the period            38 207 745              120 658 409

 Total profit and comprehensive income for
 the period attributable to :
     - Shareholders of the company                    32 529 230               102 633 361
     - Non-controlling interest                        5 678 515                18 025 048

 Profit available for distribution                    32 529 230               102 633 361

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

        1. Of the gross rental income (rental, operating cost recoveries and rates recoveries) assumed in the forecast, 98%
           relates to contracted rental and 2% relates to uncontracted rental
        2. Contracted rental income is based on existing lease agreements including stipulated increases which are valid and
            enforceable.
        3. Contracted rental income was verified to lease agreements which 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.
        4. Uncontracted rental income relates to assumptions on leases that expire and are assumed to be relet during the
          forecast period.
        5. No straight-line rental income is recognised.
        6. Rental guarantees and contributions towards repairs and maintenance of R 18.3 million were included in revenue
           and net operating income for the forecast period.
        7. Property operating expenditure has been forecast on a line-by-line basis based on management’s review of historical
           expenditure and internal benchmarks.
        8. No fair value adjustment is recognised.
        9. The Transaction has been assumed to be funded 40% by debt and 60% through a vendor consideration placement
           of Dipula ordinary shares. The assumed interest rate is 9.25%.
        10.It has been assumed that there will be no unforeseen economic factors that will affect the lessees' ability to meet
           their commitments in terms of existing lease agreements.

5.     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 of Dipula shareholders.

6.     WITHDRAWAL OF CAUTIONARY

       Shareholders are referred to the cautionary announcements in respect of the Transaction released on 13 October 2017, 10
       November 2017, 22 December 2017 and 7 February 2018 and are advised that following the release of this announcement,
       caution is no longer required to be exercised by shareholders when dealing in their shares.


22 March 2018


Sponsor
Java Capital


Legal Advisor to Dipula
Cliffe Dekker Hofmeyr


Legal Advisor to Setso
Adams & Adams


Legal Advisor to Rec Trust
Chris Boulle Inc
Date: 23/03/2018 07:05:00 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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