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Joint Announcement: SA Corporate and Calgro M3 joint initiative and acquisition of its first portfolio of properties
SA CORPORATE REAL ESTATE LIMITED CALGRO M3 HOLDINGS LIMITED
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
(Registration number 2015/015578/06) (Registration Number: 2005/027663/06)
(Approved as a REIT by the JSE Limited (“JSE”))
JSE share code: SAC ISIN: ZAE000203238 JSE Share Code: CGR ISIN: ZAE000109203
(“SA Corporate”) (“Calgro M3”)
(Collectively “the Parties”)
JOINT ANNOUNCEMENT:
SA Corporate and Calgro M3 joint initiative and acquisition of its first phase
portfolio of properties
1 INTRODUCTION
SA Corporate and Calgro M3 are pleased to announce that the Parties have agreed to enter into a
joint initiative through Afhco Holdings (Pty) Ltd (“Afhco”), a wholly owned subsidiary of SA
Corporate, and Hizoscape (Pty) Ltd, respectively (to be renamed Calgro M3 Real Estate (Pty) Ltd)
(“Calgro Real Estate”), a wholly owned subsidiary of Calgro M3.
In terms of a shareholders agreement (“the Shareholders’ Agreement”), Afhco will subscribe for
51% and Calgro Real Estate for 49% of the issued share capital in Afhco Calgro M3 Consortium
(Pty) Ltd ("the Company"), a newly incorporated private company trading under the Afhco brand
(“the Joint Initiative”). The Company has been incorporated specifically to facilitate the Joint
Initiative and is being constituted to acquire, once developed and tenanted, a defined portfolio of
residential properties from Calgro M3 (“the Properties”) but with a long term strategy to acquire
further developed and tenanted residential portfolios of properties from Calgro M3, other
developers and the broader market (the “Proposed Transaction”).
2 IMPLEMENTATION DATE
The effective date in respect of the Joint Initiative and the Proposed Transaction will be 1
September 2016, subject to the fulfilment of the condition precedent referred to in paragraph 6
below.
3 RATIONALE FOR THE JOINT INITIATIVE AND THE PROPOSED TRANSACTION AND NATURE OF
BUSINESS OF THE COMPANY
The Joint Initiative and the Proposed Transaction is consistent with each of the Parties’ investment
and growth strategies relating to the development and expansion of high quality residential
portfolios that promote sustainable distribution growth and capital appreciation in the medium
to long term. As indicated above the Company is being constituted to initially acquire a defined
portfolio of residential properties from Calgro M3 with the further goal to acquire additional
residential portfolios from Calgro M3, other developers and the broader market.
In addition, SA Corporate’s rationale for entering into the Joint Initiative is to partner with an
experienced developer who JSE investors are confident will:
- achieve portfolio scale in a sector with underweight listed exposure and defensive
characteristics due to the non-discretionary nature of rental payments;
- have access to a pipeline of stock that needs to be largely developed due to the poor
quality of most existing income generating property acquisition opportunities, which do
not meet investment criteria;
- cap SA Corporate’s development exposure to that appropriate for a REIT;
- mitigate and diversify development risk;
- ensure competitively priced funding thereby reducing the acquisition cost of developed
properties; and
- establish a partnership of common long term values in respect of (a) quality affordable
accommodation, (b) contributing to the upliftment of communities and their lifestyles, (c)
building an attractive investment product with sustainable growing annuity income for
REIT investors, (d) responsible and environmentally conscious development and (e) good
corporate governance.
Furthermore, Calgro M3’s rationale is:
- to partner with an experienced REIT with an established track record in managing
residential portfolios, allowing the Calgro M3 group to remain focused on development;
- address the housing shortage by creating substantial rental opportunities in line with the
Minister of Human Settlements' objectives;
- create annuity income for the Calgro M3 group and thereby further diversification of
income and cash flow streams;
- balance exposure between Public and Private sector development;
- create rental opportunities for people who do not qualify for property ownership in
existing projects;
- establish rental brand in partnership with experts in the field; and
- remain true to our value of creating a lifestyle change – “Building legacies, changing lives”.
At present, there are five residential development projects that Calgro M3 is in the process of
developing and which have been earmarked for purchase by the Company (“the Development
Projects”). Furthermore, the Company will source new residential development opportunities to
be developed by Calgro M3 and acquire income generating properties meeting the quality
benchmarks of the Company. This initiative will capitalise on the Parties’ complementary but
different development and investment capabilities to enable them to bring a more sustainable,
higher specification product to the market at a target yield circa 11 % on completion and
tenanting.
4 TRANSACTION OVERVIEW
4.1 Shareholders Agreement
The Parties shall enter into a Shareholder’s Agreement, which shall provide, inter alia, for pre-
emptive rights in respect of the sale of shares and effective control by Afhco, resulting in the Real
Estate Investment Trust (“REIT”) tax dispensation being applicable in respect of the Company and
allowing the Company to have REIT "controlled company" status. In addition, the provisions of the
Shareholders’ Agreement shall provide for the purchase of the below mentioned first phase of
residential Development Projects from Calgro M3 ("the Proposed Initial Acquisition").
Furthermore, the acquisition of each Property forming part of the Proposed Initial Acquisition will
be governed by a sale and development agreement.
4.2 Proposed Initial Transaction Consideration and Funding
The full Initial Transaction consideration (“the Proposed Initial Transaction Consideration”)
amounts to R1,639 billion, as follows:
4.2.1 R573.65 million or 35% of the Proposed Initial Transaction Consideration will be funded
through limited recourse debt by the Company;
4.2.2 the remaining 65% will be funded by an equity contribution in cash from the Parties with:
- SA Corporate contributing 51% of the equity to the amount of R543 million; and
- Calgro M3 contributing 49% thereof to the amount of R522 million.
4.3 Value of net assets and profits attributable to the net assets that are the subject of the
Proposed Transaction
As the Company is newly incorporated there is no profit history or net asset value at present. The
net asset value of the Company upon completion of the Initial Transaction will be R1,065 billion.
The Company will be capitalised as the completed Properties are tenanted and transferred over
the next 18 to 24 months. The annual net property income attributable to the assets that are the
subject of the Proposed Initial Transaction is forecast to be R176 million. A full valuation of the
Properties to be acquired will be performed on completion of the residential development
projects.
4.4 Anticipated yield
On completion of the Proposed Transaction the Company will target a net yield on property
acquisition cost (including a 5% rental shortfall guarantee) of circa 11% for the Development
Projects.
5 PROPERTY SPECIFIC INFORMATION
Details of the Properties that form part of the Development Projects are:
No. Location Rentable area(1) (m2)
1. Johannesburg West, Gauteng 33 720
2. Soweto, Gauteng 11 520
3. Johannesburg South, Gauteng 43 068
4. Kraaifontein, Western Cape 33 760
5. Belhar, Western Cape 40 000
Total 162 068
Note:
1. It should be noted that the above rentable areas exclude parking (to be let separately)
and all common areas, such as dry yards, walkways, staircases and private crèches. Afhco
shall, at a market related property management fee, manage each property on behalf of
the Company and will be responsible for running the day to day operations of the
Company.
2. Weighted average rental per square meter has not been disclosed as the Properties are
being developed and are currently untenanted.
6 CONDITION PRECEDENT
Currently, the implementation of the Shareholders Agreement in respect of the Company is
subject only to the obtaining of competition authority approval, if required.
7 CATEGORISATION OF PROPOSED TRANSACTION
7.1 The Proposed Initial Transaction constitutes a category 2 transaction in terms of the JSE
Listings Requirements for Calgro M3, and accordingly does not require approval by Calgro
M3 shareholders.
7.2 The Proposed Initial Transaction constitutes a category 2 transaction in terms of the JSE
Listings Requirements for SA Corporate, and accordingly does not require approval by SA
Corporate shareholders.
Sandton
29 August 2016
Corporate Advisor and Transaction Sponsor to Calgro M3
Grindrod Bank Limited
Sponsor to SA Corporate
Nedbank Corporate and Investment Banking
Corporate Advisor to SA Corporate
Phoenix Capital (Pty) Ltd
Legal Advisors to SA Corporate and Competition Law Advisors to the Parties
Cliffe Dekker Hofmeyr Inc
Date: 29/08/2016 10:39:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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