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Acquisition of Coloplast 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 COLOPLAST 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 Roxhill (Peterborough) Limited ("Seller") have concluded
the following transactions:
- an agreement of sale of land in terms of which Equites International has acquired 7.33 acres of vacant land
("the Property") for £2 565 000 (ZAR 43 605 000) ("Purchase Consideration") ("Sale Agreement"); and
- a forward funding agreement in terms of which Equites International will fund the Seller in respect of the
development of a 12 609 square metre distribution warehouse to be let to Coloplast Limited ("Coloplast UK")
for an amount up to £10 524 000 (ZAR 178 908 000) ("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 DHL, DPD, Royal Sun, DSV, 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 Seller, one of the most successful industrial
developers in the UK;
- this 12 609 square metres modern logistics facility will provide Coloplast UK with a newly constructed, high
specification, steel portal frame distribution warehouse with 6 dock-level and 1 level loading doors, 12 meter
clear eaves height, a secure loading yard with a consistent depth of 50 meters, parking for 31 heavy goods
vehicles (including 6 loading spaces), separate parking for 150 staff and visitor bays and two storey offices
with office content at approximately 7% of total gross letting area;
- Coloplast UK, the UK subsidiary of the Danish multinational that develops, manufactures and markets
medical devices and services related to ostomy, urology, continence and wound care, Coloplast A/S
("Coloplast"), and the Seller have concluded a 10 year fully repairing and insuring "triple net" lease
("Coloplast lease"), with a parent company guarantee underwriting the obligations of the tenant. Coloplast
is listed on the Copenhagen stock exchange and its current market capitalisation of around ZAR 230 billion
ranks the company in the top 1 500 companies globally. The group operates internationally and has 11 000
employees.
- the Coloplast 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 ZAR89.25) per square foot as per the Coloplast lease, which
confirms the rental growth profile of the facility. It is important to note that rentals in the UK are expressed
on an annual basis and that the aforementioned rental equates to ZAR80.05 per meter per month.
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 £13 089 000 (ZAR
222 513 000) ("Total Consideration Payable") is based on the first year's rental income of £712 535 (ZAR
12 113 095) at £5.25 (approximately ZAR89.25) per square foot plus a further fit out rent of £40 716
(ZAR692 177) at £0.30 (approximately ZAR5.10) per square foot. This constitutes an initial yield of 5.75%,
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
Coloplast Plot100b, Logistics 12 609 £5.25 £56.51 £13 089 000
Peterborough (ZAR 89.25) (ZAR 960.67) (ZAR 222 513 000)
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 Transaction is subject to 1) the Seller obtaining the requisite planning permission in respect of the
development and the expiry of the six-week judicial review period during which interested and affected
parties may raise objections and 2) the conditions in the Coloplast lease being satisfied.
4.2. The effective date of the Transaction will be 10 business days after the fulfilment of the last condition
precedent which is expected to be during July 2018, on which date the Property (and all risk and benefits
in respect of the Property) will transfer from the Seller to Equites International.
4.3. The Funding Agreement provides that the Seller will be responsible for delivering the developed
distribution warehouse (as defined in the Coloplast lease) against the payment of the Total Development
Costs in accordance with the agreed timetable to achieve practical completion ("PC"), which is expected
to be in April 2019.
4.4. A full suite of fully assignable warranties will be provided to Equites International by the construction
and professional team.
4.5. 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.
4.6. 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.
4.7. 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 10 months ending 29 February 2020 and
year ending 28 February 2021 ("the Forecast Period").
The Forecast has been prepared on the assumption that the development will be completed, and rental income in
terms of the Coloplast lease received, from 1 May 2019.
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
10 months ending year ending
29 February 28 February
2020 2021
ZAR ZAR
Revenue 10 121 901 12 113 095
Operating profit 10 121 901 12 113 095
Less: Finance costs -5 578 066 -6 675 390
Forecast for the Forecast for the
10 months ending year ending
29 February 28 February
2020 2021
ZAR ZAR
Net profit after tax 4 543 835 5 437 705
Profit available for distribution 4 543 835 5 437 705
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 ZAR17/£.
2. Revenue comprises contracted rental income based on the terms of the Coloplast lease, which is
assumed to be valid and enforceable. No rental escalations are provided for during the Forecast
Period.
3. The Coloplast 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 has been estimated at 3%.
6. Borrowing costs incurred are directly attributable to the acquisition and development of the
Property 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 1 May 2019. The Transaction therefore has no effect on the
statement of comprehensive income prior to that date.
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 Coloplast lease.
6. CATEGORISATION
This is a voluntary announcement as the Transaction is not a categorised transaction in terms of the JSE Listings
Requirements, and accordingly does not require approval by Equites' shareholders.
9 May 2018
Corporate advisor and sponsor to Equites
Java Capital
Date: 09/05/2018 03:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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