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FAIRVEST PROPERTY HOLDINGS LIMITED - Acquisition Of Nonkqubela Mall

Release Date: 15/05/2019 10:00
Code(s): FVT     PDF:  
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Acquisition Of Nonkqubela Mall

FAIRVEST PROPERTY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1998/005011/06)
Share code: FVT
ISIN: ZAE000203808
(Approved as a REIT by the JSE)
(“Fairvest” or “the Company”)

ACQUISITION OF NONKQUBELA MALL

1.     NONKQUBELA MALL

1.1.   Shareholders are advised that the Company entered into an agreement (“Sale
       Agreement”) on 14 May 2019 with Investec Property Fund Limited (“Seller”) to
       acquire, as a going concern, the shopping centre rental enterprise operated by the
       Seller (“Rental Enterprise”) in respect of the properties situated at Erf 50261 and Erf
       13435, Sulani Street, Site B, Khayelitsha, Cape Town, Western Province (collectively
       the “Property”), more commonly known as Nonkqubela Mall (“Acquisition”).

1.2.   The effective date of the Acquisition shall be the date of registration of transfer of
       ownership of the Property into the name of Fairvest at the applicable Deeds Office
       (“Effective Date”), which is expected to occur on or about 1 September 2019.

2.     RATIONALE FOR THE ACQUISITION

       The Acquisition is consistent with the Company’s growth strategy focusing on the
       acquisition of retail assets with a weighting in favour of non-metropolitan areas and lower
       living standards measure (LSM) sectors.

3.     PURCHASE CONSIDERATION

3.1.   The purchase consideration for the Rental Enterprise amounts to R162 876 181
       (including VAT at the rate of 0%) (“Purchase Consideration”), payable in cash on
       the Effective Date against registration of transfer of ownership of the Property into the
       name of Fairvest (“Transfer”). The Purchase Consideration is based on the projected
       net operating income of the Rental Enterprise of R15 880 428 for the 12-month period
       from 1 April 2019 to 31 March 2020, capitalised at a rate of 9.75%.

3.2.   If Transfer occurs after 1 September 2019 due to reasons beyond the Company’s
       reasonable control, the Purchase Consideration will escalate at a rate of 7% per
       annum for the period commencing from 1 September 2019 and terminating on the
       date on which Transfer occurs. If, due to reasons within the Company’s reasonable
       control, Transfer occurs after 1 September 2019, the Purchase Consideration will
       escalate at a rate of 7% per annum for the period commencing from 1 April 2019 and
       terminating on the date on which Transfer occurs. In both instances, the Sale
       Agreement limits the maximum escalation period, given the longstop date of 30 June
       2020 referred to in paragraph 6.2 below.

4.     THE PROPERTY

       Details of the Property are as follows:

       Property Name and             Geographical             Sector       GLA         Weighted
       Address                       Location                              (m2)        Average Base
                                                                                       Rental/m2
                                                                                       (R/m2)
       Nonkqubela Mall, Erf 50261    Sulani Street,           Retail       10 811      159.35
       and Erf 13435                 Site B, Khayelitsha,
                                     Cape Town,
                                     Western Province

5.     PROPERTY SPECIFIC INFORMATION

       Details regarding the Property, as at the expected Effective Date of 1 September 2019,
       are set out below:

       Property Name and             Weighted                Lease Duration            Vacancy % by
       Address                       Average                 (years)                   GLA
                                     Escalation


       Nonkqubela Mall, Erf          6.8%                    4.2                       0%
       50261 and Erf 13435,
       Sulani Street, Site B,
       Khayelitsha, Cape Town,
       Western Province

       Notes:

       a)      The costs associated with the Acquisition are estimated at R2 934 821. No agents’
               commission is payable in respect of the Acquisition.

       b)      The Purchase Consideration of the Property is considered to be its 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.

       c)      Vacancy percentage by gross lettable area (“GLA”) has been reflected as 0%,
               taking into account the rental guarantee in paragraph 7.3 below.

6.     SUSPENSIVE CONDITION

6.1.   The Acquisition is subject to fulfilment of the suspensive condition that, within 90 days
       from the signature date of the Sale Agreement, the Competition Authorities
       unconditionally approve the Acquisition, or subject to such conditions as are
       acceptable to the parties.

6.2.   The Seller and the Company may by agreement extend the date for fulfilment of the
       suspensive condition, provided that such extended date cannot be later than 30 June
       2020.

7.     WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE SALE AGREEMENT

7.1.   The Seller has provided warranties to Fairvest that are standard for a transaction of
       this nature.

7.2.   Save for such warranties, the Rental Enterprise is sold “voetstoots”.

7.3.   The Seller provides a rental guarantee to the Company in terms of which the Seller
       guarantees to the Company a maximum gross aggregate rental of R158 210 per
       annum in respect of the current vacant premises on the Property for as long as these
       premises remain vacant or for a period of 36 months after the Effective Date,
       whichever is the shorter.

8.     FORECAST FINANCIAL INFORMATION IN RESPECT OF THE ACQUISITION

       The forecast financial information relating to the Acquisition for the financial periods
       ending 30 June 2020 and 30 June 2021 are set out below. The forecast financial
       information has not been reviewed or reported on by a reporting accountant in terms of
       section 8 of the JSE Listings Requirements and is the responsibility of the Company’s
       directors.

                                                   Forecast for the 10-   Forecast for the
                                                   month period ending    12-month    period
                                                   30 June 2020           ending 30 June
                                                   (R)                    2021
                                                                          (R)
        
        Rental income                              21 398 137             27 362 791

        Straight-line rental accrual               1 568 663              901 409

        Gross revenue                              22 966 800             28 264 200

        Property expenses                          (7 619 477)            (9 988 219)

        Net property income                        15 347 323             18 275 981

        Asset management fee                       (690 879)              (829 055)

        Operating profit                           14 656 444             17 446 926

        Finance cost                               (12 435 825)           (14 922 990)

        Profit before taxation                     2 220 619              2 523 936

        Income tax expense                         -                      -

        Total comprehensive income                 2 220 619              2 523 936
        attributable to shareholders
       
        Adjusted for:

        Straight-line rental accrual               (1 568 663)            (901 409)

        Distributable profit                       651 956                1 622 527

        Notes:

        a)   Rental income includes gross rentals and other recoveries, but excludes any
             adjustment applicable to the straight-lining of leases.

        b)   Property expenses include all utility and council charges applicable to the
             Property.

        c)   The forecast information for the 10-month period ending 30 June 2020 has been
             calculated from the anticipated Effective Date, being on or about 1 September
             2019.

        d)   The forecast distribution excludes straight-line rental accruals.

        e)   The Seller has provided the rental guarantee to the Company in respect of the
             Rental Enterprise, as set out in paragraph 7.3 above. Contracted revenue
             constitutes 87.55% of the revenue for the 10-month period ending 30 June 2020
             and 68.97% of the revenue for the 12-month period ending 30 June 2021.

        f)   Near-contracted revenue constitutes 12.45% of the revenue for the 10-month
             period ending 30 June 2020 and 31.03% of the revenue for the 12-month period
             ending 30 June 2021.

        g)   There is no uncontracted revenue for either the 10-month period ending 30 June
             2020 or for the 12-month period ending 30 June 2021.

        h)   Leases expiring during the forecast period have been assumed to renew at the
             future value of current market related rates.

        i)   This forecast has been prepared on the assumption that the Purchase
             Consideration and acquisition fees will be funded via debt facilities, at an interest
             rate of 9.0% per annum.

9.   CATEGORISATION

        The Acquisition qualifies as a Category 2 acquisition for the Company in terms of the
        JSE Listings Requirements.

15 May 2019
Cape Town

Sponsor
PSG Capital

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