To view the PDF file, sign up for a MySharenet subscription.

TOWER PROPERTY FUND LIMITED - Acquisition of Zagreb Industrial Property

Release Date: 17/09/2018 09:00
Code(s): TWR     PDF:  
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.

Share This Story