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EQUITES PROPERTY FUND LIMITED - Acquisition of Simba Logistics facility in Gauteng

Release Date: 06/08/2018 11:00
Code(s): EQU     PDF:  
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Acquisition of Simba Logistics facility in Gauteng

(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")



      Shareholders are advised that Equites has concluded an agreement to acquire a 40 428m² distribution centre 
      let to Simba Proprietary Limited ("Simba" or "Tenant") from Investec Property Fund Limited ("Seller") for an
      estimated aggregate purchase consideration of R461 923 200 (net of transaction fees) ("Purchase Price") (as at
      the estimated effective date of 1 November 2018) ("the Transaction").

      The distribution centre is situated on a 101 769m² site in Elandsfontein, Germiston (comprising erven 117 and
      118 Henville extension 25 Township Province Gauteng) and is let to Simba on a ten-year lease, which commenced
      in November 2017 ("the Property").


      As logistics properties of this nature and quality rarely come to market, Equites is pleased to have acquired this
      well-located, high-quality, modern logistics facility, occupied by an A-grade tenant on a fully repairing and
      maintaining lease that is long-dated and consistent with the lease expiry profile that Equites targets. Contractual
      annual rental escalation is above inflation at 7.5%.

      Equites has targeted key logistics nodes in Gauteng, Cape Town and Durban as its areas of focus in South Africa.
      The acquisition of the Property adds to its high-quality property portfolio in Gauteng.

      The addition of this high-income producing property enhances the company's existing real estate portfolio and is
      expected to result in enhanced returns over the medium to long-term.

      The Transaction is therefore consistent with Equites' stated growth and investment strategy of:

      -   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; 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 as evidencing the following sound investment/property fundamentals:

      -   Situated in one of South Africa's premier logistics nodes, Germiston, the Property affords exceptional road
          networks and close proximity to OR Tambo International Airport;
      -   This 40 428m² facility meets Simba’s exacting specifications and operational requirements and is close to
          their production facility;                                                                                                       
      -   The site extends to a total area of 101 769m², which provides an internationally acceptable site cover of
          significantly less than 50%;
      -   Simba is part of the PepsiCo Inc. ("PepsiCo") international stable. PepsiCo is the second largest food and
          beverage business in the world, with a presence in over 200 countries and annual net revenues in excess of
          $63 billion. PepsiCo is listed on the Nasdaq and has a market capitalisation of $160 billion; and
      -   The existing lease expires on the 31 October 2027, with an option to renew for a further 5 years from that


     The Purchase Price constitutes an acquisition yield of 7%. This is based on the first year's contractual net rental
     income for the 12 months commencing 1 November 2018.

                                                                      Gross         Weighted average                  Total
                           Geographical                            Lettable       rental per square          consideration
     Property name         location                 Sector         Area (m²)        metre (monthly)                 payable
     Germiston             17 Greenhills, 17        Logistics        40 428                R66.65             R462 923 200
     Property              Greenhills Road,

     The Purchase Price payable is considered to be in line with fair market value, as determined by the directors of
     the company. The total consideration payable reflected above includes R1 million of transaction fees, which is
     considered in line with property transactions of this nature. 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.


     4.1     The Transaction is subject to the following outstanding conditions precedent:

             -    Equites confirming that it is satisfied with the results of its due diligence investigation;
             -    the approval of the Competition Authorities; and
             -    general conditions considered ordinary in the course of property transfers.

     4.2     The effective date of the Transaction will be the date on which the Property is transferred from the Seller
             to Equites, from which date the ownership of the Property (and all risk and benefits in respect of the
             Property) will pass to Equites. It is estimated that the effective date will be 1 November 2018 ("Estimated
             Effective Date").

     4.3     The Purchase Price has been determined in terms of a formula set out in the agreement and on the
             assumption that the Property will transfer to Equites on the Estimated Effective Date. The Purchase Price
             will be adjusted with reference to the actual date on which the Property transfers to Equites, to the extent
             that this date differs from the Estimated Effective Date, with an adjustment amount paid by either Equites
             to the Seller, or by the Seller to Equites, as the case may be.

     4.4     The Seller has provided warranties and indemnities to Equites that are standard for a transaction of this


     Set out below is the forecast for the transaction ("the Forecast") for the 4 months ending 28 February 2019 and
     year ending 29 February 2020 ("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 lease received, from 1 November 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
                                                                          4 months ending                 year ending
                                                                         28 February 2019            29 February 2020
                                                                                 ZAR '000                    ZAR '000

       Rental revenue                                                              10 778                      33 142
       Straight-line adjustment                                                     3 406                       9 410
       Net property income/net operating profit                                    14 184                      42 553
       Less: finance costs                                                         -4 066                     -12 472
       Net operating profit after tax                                              10 118                      30 081
       Add back: Straight-line adjustment                                          -3 406                      -9 410
       Profit available for distribution                                            6 712                      20 671

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

       1.   The contractual lease agreement is assumed to be valid and enforceable. The escalations provided for during the
            Forecast Period are in line with the lease agreement.
       2.   The lease is a fully repairing and insuring lease and normal property operating expenses are assumed to be
            recoverable from the tenant.
       3.   The property and asset management functions for the Property will be performed internally.
       4.   The Transaction will be financed in line with the current capital structure of Equites. This assumes a loan-to-
            value of 30% throughout the Forecast Period. The marginal cost of debt assumed in the Forecast is 9.0%, which
            is in line with Equites’ current marginal cost of funding.
       5.   No fair value adjustment is recognised.
       6.   There will be no unforeseen economic factors that will affect the tenant's ability to meet its commitments in
            terms of the lease.


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

6 August 2018

JSE sponsor
Java Capital

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