Wrap Text
Acquisition of Zagreb Industrial Property
TOWER PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2012/066457/06)
JSE share code: TWR ISIN: ZAE000179040
(Approved as a REIT by the JSE)
("Tower" or the "company")
ACQUISITION OF ZAGREB INDUSTRIAL PROPERTY
1. INTRODUCTION AND RATIONALE
Shareholders are advised that Tower Industrial d.o.o ("Tower Industrial") has concluded an agreement to acquire a prime
industrial property, situated in Zagreb, Croatia (the "property") for an aggregate purchase consideration of €8 592 000
(the "purchase consideration") from VMD Grupa d.o.o (the "seller" or "VMD") (the "acquisition").
Tower Industrial is a wholly-owned Croatian subsidiary of TPF International Limited ("TPF"), Tower's newly incorporated
Mauritian 74% owned subsidiary which houses Tower's Croatian assets. VMD is Tower’s partner in its Croatian office
property, VMD Kvart building B, Tower's first Croatian acquisition.
The property is let to a leading manufacturer of wiring harnesses in the automotive industry, with part of its engineering
division based in Zagreb (the "lessee"). The lessee occupies a gross lettable area of 5 755m2, with an additional 1 020m2 of
vacant gross lettable area set aside for the lessee's expansion. Should the lessee expand into the vacant area, this will result
in upside for Tower Industrial. The property, which comprises two A-grade buildings of two floors each, is located in Žitnjak,
the largest industrial node in Zagreb. It has easy access to motorways, which provide access to Slovenia, Hungary, Austria
and the rest of Croatia. The lessee uses the ground floor of each building for manufacturing and the first floor for offices.
A lease agreement, which expires on 31 August 2027, has been concluded with the lessee. The lessee's UK-based parent
company has provided a corporate guarantee in respect of the lessee's obligations under the lease agreement. In addition,
VMD has provided Tower Industrial with a rental guarantee in respect of the property for a 24-month period from the date
of registration of transfer of the property into Tower Industrial's name (the "transfer date"), which will cover any shortfall
between actual rental income and the agreed projected rental income of €53 700 per month (equating to €644 400 per annum)
under the current lease agreement. The monthly rental is fixed for the first three years of the lease period, after which it shall
be adjusted based on the movement in the consumer price index ("CPI") of Germany, but subject to the movement in the
CPI being more than 5% for the preceding three-year period.
TPF intends growing its exposure to the region through its strong local relationships including those opportunities provided
by VMD, a well-respected developer in Croatia with whom Tower has a long-standing relationship. TPF will particularly
target industrial and convenience retail properties.
2. TERMS OF THE ACQUISITION
The property will be acquired with effect from the transfer date.
The purchase consideration is payable in cash on the transfer date. TPF will fund the purchase consideration using 60% cash
and 40% debt. The cash portion will be funded from the recent R100 million subscription for shares in TPF by Oryx Property
Fund Limited, which was announced on SENS on 31 July 2018.
The acquisition is conditional upon TPF obtaining debt financing in respect of 40% of the purchase consideration.
Negotiations with an international bank are underway and pre-approval has been received. The new debt facilities will be
non-amortising.
The agreement in respect of the acquisition contains warranties, undertakings and indemnities which are normal for an
acquisition of this nature.
3. PROPERTY SPECIFIC INFORMATION
Property name: Žitnjak Property
Location: Zagreb, Croatia
Sector: Industrial
Total GLA (m2): 5 755
Weighted average rental per m2 per month (€) 9.33
Purchase consideration (€'000) 8 592
Transaction costs (€'000) 86
Value attributed to the property (€'000) 8 592
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. FINANCIAL INFORMATION
Set out below is a forecast statement of comprehensive income (the "forecast") for the 5 months ending 31 May 2019 and
the year ending 31 May 2020 (the "forecast period").
The forecast has been prepared on the assumption that the acquisition will be implemented on 1 January 2019 and on the
basis that the forecast includes forecast results for the duration of the forecast period.
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 5 months Forecast for the
ending year ending
€'000 31 May 2019 31 May 2020
Revenue 269 644
Operating costs (10) (23)
Corporate costs (9) (22)
Operating profit 250 599
Finance costs (42) (100)
Net profit before tax 208 499
Tax (5) (11)
Net profit after tax 203 488
Profit attributable to:
Equity holders of Tower 150 361
Non-controlling interests 53 127
Earnings available for distribution by Tower 150 361
The forecast incorporates the following material assumptions:
1. There are no straight-line lease adjustments.
2. All revenue is contracted, and based on an existing lease agreement, which is valid and enforceable, and does not expire
during the forecast period. Forecast revenue is also covered under a rental guarantee provided by VMD.
3. Finance costs reflects the interest expense on new debt facilities of €3.4 million at an effective interest rate of 2.90%.
4. Tax reflects the Mauritian corporate tax payable at an effective rate of 3%.
5. Transaction costs of €85 920 were incurred in respect of the transaction. These will be capitalised to the cost of the
property in terms of IAS40.
5. CATEGORISATION OF THE ACQUISITION
The acquisition is classified as a category 2 transaction in terms of the JSE Listings Requirements. Accordingly, it is not
subject to approval by shareholders.
17 September 2018
Sponsor
Java Capital
Legal advisors
Cliffe Dekker Hofmeyr
Date: 17/09/2018 09:00:00 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.