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ACCELERATE PROPERTY FUND LIMITED - Finalisation of the Acquisition by Accelerate of 50% of Fourways Mall

Release Date: 25/10/2019 08:15
Code(s): APF     PDF:  
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Finalisation of the Acquisition by Accelerate of 50% of Fourways Mall

Accelerate Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/015057/06)
Share code: APF ISIN: ZAE000185815
(Approved as a REIT by the JSE)
(“Accelerate”, “APF” or the “Company”)

Finalisation of the Acquisition by Accelerate of 50% of Fourways Mall

1.   Background

     Accelerate owns 100% of the existing letting enterprises; being the property letting enterprises
     known as: Exact Mobile, Fourways Mall, Fourways Game, Fourways View and Sasol Delta
     (together, the “Existing Letting Enterprise”).

     Azrapart Proprietary Limited (“Azrapart”) has completed the development of the extensions to
     the existing Fourways Mall and the upgrade and refurbishment of the existing Fourways Mall
     (together, the “Development Letting Enterprise”).

     In terms of the agreements entered into in December 2013 and June 2015 between Accelerate,
     Azrapart and Fourways Precinct Proprietary Limited (“Fourways Precinct”), the Existing Letting
     Enterprise and the Development Letting Enterprise were to be combined, based on the forward
     net income contribution of each, to form one property letting enterprise (together, the “Combined
     Letting Enterprise”).

     Shareholders are referred to the announcement released on the Stock Exchange News Service
     operated by the JSE Limited (“SENS”) on 29 June 2015 and to the corresponding circular
     published on 18 December 2015 in which they were advised that Accelerate had entered into an
     agreement with Fourways Precinct and Azrapart to exercise its option to acquire a further
     undivided share in the Combined Letting Enterprise (the “Option Exercise Agreement”). In
     terms of the Option Exercise Agreement, Accelerate exercised the option (conditional upon
     completion of the Development Letting Enterprise) to acquire from Azrapart such additional
     undivided share in the Combined Letting Enterprise (the “Accelerate Additional Undivided
     Share”) as would ensure that Accelerate has a 50% undivided share in the Combined Letting
     Enterprise (the “Acquisition”). Accelerate shareholders approved the relevant aspects of the
     Option Exercise Agreement (including the Acquisition) at the general meeting held on 28 January
     2016.

       Shareholders are advised that Accelerate and Azrapart have now entered into the Accelerate
       Option Undivided Share Sale Agreement to agree the terms and conditions relating to, inter alia,
       the sale and delivery of the Accelerate Additional Undivided Share to Accelerate and the
       payment of the Acquisition Consideration (as defined in paragraph 2 below) to Azrapart.

2.     The Acquisition Consideration

       In accordance with the terms of the Option Exercise Agreement, Accelerate’s undivided share of
       the Combined Letting Enterprise has been calculated, post completion of the Development
       Letting Enterprise, to be 37.9% based on the guaranteed income (as escalated) for the Existing
       Letting Enterprise of R228.6 million and an estimated 12-month forward net income of the
       Combined Letting Enterprises of R602.5 million (the “Estimated Forward Net Income”). The
       Estimated Forward Net Income is subject to certain adjustments (the “Acquisition
       Consideration Adjustments”) to be determined in the period up to and including 31 August
       2020 (the “Adjustment Period”). The Acquisition Consideration Adjustments are outlined in
       paragraph 3 below.

       As provided for in the Option Exercise Agreement, Accelerate has exercised the option to
       acquire from Azrapart 12.1% of the Combined Letting Enterprise (the “Accelerate Additional
       Undivided Share”) for R907.8 million (the “Acquisition Consideration”), subject to the
       Acquisition Consideration Adjustments. The Acquisition Consideration was calculated using a
       capitalisation rate of 8%.

       Post the finalisation of the Acquisition, Accelerate will own a 50% undivided share of the
       Combined Letting Enterprise. The Acquisition Consideration is payable on the date of registration
       of transfer in the Pretoria deeds office of the land component of the Accelerate Additional
       Undivided Share into the name of Accelerate, which is expected to occur during November 2019.

3.     Acquisition Consideration Adjustments

       The Estimated Forward Net Income is subject to the following adjustments:

3.1.    Income Adjustments

        3.1.1.    The income adjustments take place on the delivery by Azrapart to Accelerate of
                  written and signed agreements of lease or addendums in respect of:

                  3.1.1.1. Leases with tenants which require amendment in so far as their rental terms
                            are concerned;

                  3.1.1.2. Oral leases which have not been signed by the landlord and tenant as at the
                            determination of the Estimated Forward Net Income; and
                  3.1.1.3. Leases which expire during the Adjustment Period, but which as at the date
                            of completion of the development of the Development Letting Enterprise,
                            have not been renewed by the tenant concerned or replaced with a
                            replacement tenant.

        3.1.2.    The income adjustments will increase or decrease the Estimated Forward Net Income
                  and consequently the Acquisition Consideration.

3.2.    Recovery Adjustments

        3.2.1.    Adjustment will be made to the Estimated Forward Net Income for the actual
                  contractual recovery of expenses from tenants under leases compared to the
                  recovery of expenses used to calculate the Estimated Forward Net Income.

        3.2.2.    The recovery adjustments may increase or decrease the Estimated Forward Net
                  Income and consequently the Acquisition Consideration.

3.3.    Expense Adjustments

        3.3.1.    Adjustment will be made to the Estimated Forward Net Income based on the
                  difference between the actual expenses incurred by the Combined Letting Enterprises
                  and those used to calculate the Estimated Forward Net Income.

        3.3.2.    The expense adjustments may increase or decrease the Estimated Forward Net
                  Income and consequently the Acquisition Consideration.

3.4.    Timing of adjustments

        3.4.1.    The adjustments referred to in paragraphs 3.1 above will take place with immediate
                  effect on the delivery by Azrapart of the relevant signed agreements of lease or
                  addendums; and

        3.4.2.    The adjustments referred to in paragraphs 3.2 and 3.3 above will take place at the
                  end of the Adjustment Period, or during the Adjustment Period if agreed to by
                  Accelerate.

       Accelerate believe, as at the date of this announcement and in its reasonable judgement, that the
       variability in the Acquisition Consideration is estimated to be within a range of an increase of up
       to R230 million or a reduction of up to R80 million. Any Acquisition Consideration Adjustments
       will be settled utilising existing loan accounts currently due to Accelerate from Fourways Precinct
       and Michael Family Trust (the “Vendor Loan Accounts”).
4.     Head Lease

       As provided for in the Option Exercise Agreement, Fourways Precinct has entered into a lease
       agreement with Accelerate and Azrapart, as co-owners of the Combined Letting Enterprise (the
       “Head Lease”). The Head Lease covers all vacant premises in the Combined Letting Enterprise,
       as at 1 September 2019, which is estimated to be 21 992m2 in extent (the “Vacant Premises”).

       The Head Lease is on the same terms and conditions as Accelerate’s standard agreement of
       lease and includes basic rental income and attributable recoveries in relation to the Vacant
       Premises. In terms of the Head Lease, Fourways Precinct will also pay an agreed amount
       attributable to turnover rental and other incidental income payable by tenants (“Variable
       Income”). The total amount of the 12-month forward gross rental income, recoveries and
       Variable Income payable by Fourways Precinct under the Head Lease is estimated to be R156.2
       million. The Head Lease constitutes 12.7% of total gross lettable area (“GLA”) in the Combined
       Letting Enterprise.

       The Head Lease will commence on the date of transfer of the land component of the Accelerate
       Additional Undivided Share (“Date of Transfer”) and shall terminate at the end of the five year
       period commencing from the Date of Transfer.

5.     Funding of the Acquisition Consideration

5.1.     Accelerate will fund the Acquisition Consideration as follows:

         5.1.1.    Accelerate has approved debt funding (which includes a portion of bridge funding) to
                   fund a cash payment of R700 million;

         5.1.2.    The balance of the Acquisition Consideration, above R700 million, will be set off
                   against the Vendor Loan Accounts on a rand for rand basis;

         5.1.3.    After the Vendor Loan Accounts have been settled in full, the remaining balance of
                   the Acquisition Consideration will stand as a loan due by Accelerate to Azrapart and
                   will be reflected as such in the financial records of Accelerate.

       5.2. Following the Acquisition, Accelerate’s loan-to-value ratio (“LTV”) is expected to increase to
            42%.

       5.3. A portion of Accelerate’s funding requirements will be facilitated through a bridge loan facility,
            which is expected to be settled with the net proceeds from the disposal of certain non-core
            properties. Accelerate’s LTV for security SPV 1 (housing Accelerate’s 50% undivided share
            of the Combined Letting Enterprise) is expected to reduce to 39%, and the Company’s
            overall LTV is expected to reduce to 41.5%, once the bridge loan facility has been fully
            settled.

6.   Potential Azrapart claim

     As at the date of this announcement, Azrapart contends that it has a claim against Accelerate
     arising from capital expenditure spent by Azrapart on the Existing Letting Enterprise (the
     “Azrapart Claim”). The board of directors of Accelerate (the “Accelerate Board”) has been
     advised by Azrapart that it has not decided whether to pursue the Azrapart Claim nor to what
     extent. However, Azrapart has advised the Accelerate Board that should it pursue the Azrapart
     Claim, it will not exceed R300 million.

     Accelerate will evaluate the validity and quantum of the Azrapart Claim. Shareholders will be
     advised on future developments in respect of the Azrapart Claim as these materialise.

7.   Transfer and closing

     Accelerate will provide an update on the transfer process for the Acquisition together with
     updated distribution guidance in the announcement of its financial results for the six months
     ended 30 September 2019.

     Fourways
     25 October 2019

     Financial adviser and investment bank to Accelerate
     Rand Merchant Bank (A division of FirstRand Bank Limited)

     Sponsor to Accelerate
     The Standard Bank of South Africa Limited

     Legal Adviser to Accelerate
     Webber Wentzel

     Legal Advisers to the Transaction
     Glyn Marais Inc.

Date: 25/10/2019 08:15:00
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