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Acquisition of land and development of logistics warehouse facility for Pepkor in Hammarsdale, Kwazulu Natal
EQUITES PROPERTY FUND LIMITED
(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")
ACQUISITION OF LAND AND DEVELOPMENT OF LOGISTICS WAREHOUSE FACILITY FOR PEPKOR IN HAMMARSDALE, KWAZULU-NATAL
1. INTRODUCTION
Equites has concluded binding heads of agreement ("Heads of Agreement") with Pepkor Trading Proprietary Limited,
a wholly-owned subsidiary of Pepkor Holdings Limited ("Pepkor" or the "Tenant"). Pepkor is a JSE listed company
with a market capitalisation of c. R61 billion. In terms of the Heads of Agreement, inter alia -
1.1 Equites has been appointed by the Tenant to develop a 122 734 square metre logistics warehouse facility (the
"Development") on land situated in Hammarsdale, KwaZulu-Natal ("KZN") (comprising erven 238, 239, 240,
262, 263 and 264, Cliffdale, Registration Division FT, KZN) (the "Property") at an indicative total cost of
development of R1.3 billion (exclusive of VAT) ("Purchase Consideration"), which includes an amount of
R281 million payable for the land; and
1.2 Equites will enter into a development and "triple net" lease agreement in respect of the Property with the
Tenant (the "Development Lease Agreement"),
(the "Transaction").
2. RATIONALE
Equites is the only specialist logistics REIT on the JSE and maintains its focus on acquiring and developing a
high-quality logistics portfolio.
Equites has established clear, well-defined investment criteria and a transaction of this nature contributes to its key
strategic objectives of:
- continuing to cement itself as a developer of choice to the largest logistics, retail and e-commerce participants
in the South African market;
- creating value through tenant-driven developments which meet their exacting requirements;
- focusing on an asset class which has proven to outperform over time;
- increasing its footprint in the key logistics node of KZN which it continues to explore as an avenue for future
growth; and
- creating further scale in its high-quality logistics portfolio, comprising properties with predictable rental
growth profiles, which promotes capital growth and increasing income returns over the medium to long-term.
Equites views the Property and the Development as evidencing the following sound investment fundamentals:
- it is situated in Hammarsdale which is a prime logistics node as a result of its location along the N3, its
proximity to the rail network linking Gauteng to the Durban port and the inland container terminal at Cato
Ridge which is expected to change the logistics landscape in KZN;
- other prominent South African retailers, such as Mr Price and Ackermans, have logistics warehouse facilities
close to the Property, evidencing the suitability of the node;
- the Development will be a modern, state-of-the-art logistics facility that meets the Tenant’s specifications and
operational requirements;
- the Property is to be let to the Tenant on a 15-year lease, with a right to renew for three additional five-year
periods, which substantially increases the weighted average lease expiry period of the portfolio; and
- the Tenant is one of Africa’s leading retailers of significant size and scale, focused on the discount, value and
specialist value retail market.
3. DETAILS OF THE PROPERTY
The developed Property will exhibit the characteristics which are expected of a prime logistics facility suitable for a
multinational occupier, including:
Average net
Geographical Gross lettable rental per square Indicative cost of
Property name location Sector area (m2) * metre* development*
Pepkor Hammarsdale, Logistics 122 734 R67.10 R1 251 million
Hammarsdale KwaZulu-Natal
*These values are indicative and are subject to change and will be finalised upon practical completion of the
Development.
The total site area of the Property is 292 043 m2 which implies a very low site coverage of 36.8%. Furthermore, the
Development boasts a clear height to eaves of 15.8 metres, yard depth in excess of 45 metres and has been designed
with increased steel tolerances to accommodate the installation of photovoltaic panels.
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. TERMS OF THE TRANSACTION
Equites has agreed to purchase the Property, to undertake the Development and to conclude a comprehensive lease
agreement between Equites as landlord and Pepkor as tenant in respect of the warehouse facility.
The Transaction has been concluded at a net initial yield of 7.90% which is reflective of the impeccable investment
fundamentals of the asset including, inter alia: its prime location, the longevity of the lease, the superior base build
specifications of the Development and the strong quality covenant.
The lease will be a triple net, fully repairing and insuring lease enduring for an initial period of fifteen years, with the
right to renew for three additional five-year periods. The rental will be determined based on the contracted initial yield
in accordance with the eventual actual development costs and will escalate at a rate of six percent annually.
The effective date of the Transaction will be the date on which the last of the conditions contained in the Heads of
Agreement has been fulfilled, which is expected to be during April 2020. On practical completion of the Development,
expected to be 1 November 2021, the lease will commence.
The Transaction is subject to certain conditions precedent, including –
- board approval of the Transaction by the boards of directors of both Equites and Pepkor;
- conclusion of a comprehensive Development Lease Agreement containing the salient terms and conditions set
out in the Heads of Agreement;
- the successful completion of a due diligence investigation by Equites; and
- approval by the Competition Commission in accordance with the Competition Act.
5. FINANCIAL INFORMATION
The forecast for the transaction (the "forecast") for the four months ending 28 February 2022 and year ending
28 February 2023 (the "forecast period") is outlined below.
The forecast has been prepared on the assumption that the Development will reach practical completion on
1 November 2021.
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.
Forecast for the Forecast for the
period ending year ending
28 February 2022 28 February 2023
ZAR '000 ZAR '000
Contractual rental income 32 443 99 275
Straight-lining lease adjustment 20 080 58 293
Rental revenue 52 523 157 568
Less: finance costs -8 867 -26 602
Net operating profit 43 656 130 966
The forecast incorporates the following material assumptions:
1. The lease is assumed to be valid and enforceable.
2. The lease is a "triple net" lease and normal property operating expenses are therefore assumed to be recoverable
from the tenant.
3. The property and asset management functions will be performed internally.
4. The forecast assumes a loan-to-value of 25% throughout the forecast period which is in line with the lower end of
the group’s loan-to-value target range.
5. The marginal cost of debt assumed in the forecast is 8.5%, which is in line with Equites’ current marginal cost of
debt.
6. No fair value adjustment is recognised.
7. There will be no unforeseen economic factors that will affect the tenant's ability to meet its commitments in terms
of the lease.
6. CATEGORISATION
The transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements and accordingly
does not require approval by Equites’ shareholders.
20 January 2020
Corporate advisor and sponsor to Equites
Java Capital
Date: 20-01-2020 05:12:00
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