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TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED - Acquisition of a rental enterprise from a related party and update on previously announced acquisition

Release Date: 12/06/2018 16:15
Code(s): TPF     PDF:  
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Acquisition of a rental enterprise from a related party and update on previously announced acquisition

TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2016/277183/06
JSE share code: TPF
ISIN: ZAE000227765
(Approved as a REIT by the JSE)
("Transcend"or "the company")


ACQUISITION OF A RENTAL ENTERPRISE FROM A RELATED PARTY AND UPDATE ON PREVIOUSLY ANNOUNCED ACQUISITION

1.   INTRODUCTION
     Shareholders are advised that Transcend has concluded a legal agreement ("Sale Agreement") to acquire a
     stabilised and fully-let rental enterprise comprising 60 sectional title units, being Sections No. 148 – 207
     (inclusive) ST273/2015 (148) to (207) in the scheme known as Vanguard Residential Village 3, located at 29
     Jade Street, off Klipfontein Road, Heideveld, Cape Town ("Vanguard" or the "Property") from SAWHF SA
     Rental 4 Trust ("Seller") for an aggregate purchase consideration of R33 300 000 ("Purchase Price") ("the
     Transaction"). The acquisition of the Property will increase Transcend’s exposure to the rental market in the
     Western Cape.


2.   RATIONALE FOR THE TRANSACTION
     The acquisition of Vanguard represents an opportunity to grow the existing portfolio with a well-located,
     affordable and secure rental property. This will be the second acquisition for the company since listing on the
     Alternative Exchange of the JSE ("AltX") on 1 December 2016.

     The Transaction is therefore consistent with Transcend’s stated growth and investment strategy of acquiring
     yield-accretive residential properties, with a focus on housing opportunities which are affordable and lifestyle-
     enhancing, and located in well-situated, high growth urban areas.


3.   SALIENT TERMS OF THE LEGAL AGREEMENT

     3.1.    The Transaction is subject to the following outstanding conditions precedent:
              • the Seller obtaining all necessary consents and approvals as may be required, including but not
                limited to the approval of the trustees of the Seller;
              • the Seller obtaining the approval of the bondholder of the sale and transfer of the property;
              • Transcend obtaining all necessary consents and approvals as may be required, including but not
                limited to the approval of the Board of Directors of Transcend;
              • the conclusion of a satisfactory technical, financial and legal investigation by Transcend with
                regard to the Property; and
              • confirmation by counsel that the Transaction does not constitute a notifiable transaction in terms of
                the Competition Act, 89 of 1998, as amended.


     3.2.    The effective date of the Transaction will be the date on which the Property is transferred from the
             Seller to Transcend, from which date the ownership of the Property (and all risk and benefits in respect
             of the Property) will pass to Transcend. It is estimated that the effective date will be 1 July 2018 (the
             "transfer date").

     3.3.    The Purchase Price is payable by Transcend to the Sellers on the transfer date.
     3.4.    The Seller has provided warranties and indemnities to Transcend that are standard for a Transaction of
             this nature.

4.   DETAILS OF THE PROPERTY
     The Property consists of 60 two bedroomed, one bathroom residential units of 44m2 each located at 29 Jade
     Street, off Klipfontein Road, Heideveld, Cape Town. The effective acquisition yield is 9.84%, based on the
     Purchase Price of R33 300 000 and budgeted average gross rental income of R6 045 per unit per month.


                                                                            Weighted average
                                                                Gross
                                                                         gross rental income                 Total
                                                             Lettable
                       Geographical                                        per square metre          consideration
     Property name     location              Sector         Area (m2 )             (monthly)               payable
     Vanguard          29 Jade Street, off Residential        2 640m2       R137.38/m2 [psm]           R33 300 000
     Residential       Klipfontein Road,
     Village 3         Heideveld, Cape
                       Town


     The Property was valued at R33 300 000 as at 31 December 2017 by Real Insight Proprietary Limited, a
     registered professional valuer in terms of the Property Valuers Profession Act, No.47 of 2000.


5.   FINANCIAL INFORMATION
     Set out below is the forecast for the Transaction ("the forecast") for the 6 months ending 31 December 2018
     and year ending 31 December 2019 ("the forecast period").

     The forecast has been prepared on the assumption that transfer of the Property will be completed, and rental
     income in terms of the leases received, from 1 July 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.

                                                                     Forecast for the            Forecast for the
                                                                      6 months ending                 year ending
                                                                          31 December                 31 December
                                                                                 2018                        2019
                                                                                  ZAR                         ZAR
      Rental revenue (including straight-line adjustment)                   2 089 152                   4 282 762

      Net property income/net operating profit                              1 061 832                   3 358 631
      Less: finance costs                                                 (1 546 785)                 (3 093 570)
      Net operating profit after tax                                           55 047                     265 061
      Profit available for distribution                                        55 047                     265 061

     The forecast incorporates the following material assumptions in respect of revenue and expenses:
            1. Funding structure:
                       a. The total deal purchase price will be funded by debt with a property specific facility at a
                           rate of JIBAR plus a margin of 215bps, and an access facility at the prime rate as
                           determined from time to time. There will be no new issue of shares.
            2. Rental revenue comprises individual leases signed on a month to month basis.
            3. All contracted rental agreements are assumed to be valid and enforceable.
            4. Rental escalations have been forecast as an average of 5% per annum and have been applied for the
               period 1 January 2019.
            5. Bad debts have been provided for at a rate of 4% of total rental income.
            6  Operating costs escalations have been forecast in line with rental escalations at 5% per annum.
            7. The are no straight-line adjustments required to be made to profit.


6.    RELATED PARTY TRANSACTION
      The Transaction constitutes a related party transaction for Transcend, due to the fact that SAWHF SA Rental 4
      Trust is a subsidiary of SAWHF PVE (SA), a material shareholder of the company. However, in terms of the
      JSE Listings Requirements with regard to companies listed on AltX, the Transaction does not require the
      approval of Transcend shareholders.


7.    UPDATE ON PREVIOUSLY ANNOUNCED ACQUISITION
      Shareholders are referred to the announcement released on SENS on 3 April 2018 with regard to the conclusion
      of an agreement to acquire a rental enterprise comprising 76 sectional title units in a scheme known as
      Silverleaf, located at Erf 2151 Silverton Township, City of Tshwane (the "Silverleaf Property"). Although it
      was anticipated that the Silverleaf Property would transfer on or around 30 April 2018, due to a delay in the
      finalisation of a town-planning amendment, the transfer has not yet been effected. The company will release a
      further announcement once transfer of the Silverleaf Property has been concluded.

12 June 2018

Designated advisor
Java Capital

Date: 12/06/2018 04:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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