| Fri 10 Oct 2008, 16:26 | | SAC - SA Corporate Real Estate Fund - Announcement |
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SAC
SAC
SAC - SA Corporate Real Estate Fund - Announcement
SA Corporate Real Estate Fund
(Incorporated in the Republic of South Africa)
Share Code: SAC ISIN Code: ZAE000083614
A Collective Investment Scheme in property registered in terms of the Collective
Investment Schemes Control Act, No. 45 of 2002 and managed by SA Corporate Real
Estate Fund Managers Limited ("SA Corporate Fund Managers")
(Registration number 1994/009895/06)
("SA Corporate" or "the Fund")
1 Background
In 2006 SA Corporate Real Estate Fund embarked on a strategy to expand and
position the Fund as a diversified portfolio. In pursuance of this strategy the
Fund acquired SA Retail Properties Limited, which incorporated the acquisition
of the opportunistic Sharemax portfolio, in 2007. In addition, the Fund acquired
the R1 billion Buffcol portfolio and concluded a number of further individual
acquisitions and developments. This transactional activity resulted in the
portfolio investment value increasing from R3,1bn to R9bn, with 57% of the
portfolio currently invested in the retail sector, of which some two thirds is
in centres of less than 25 000m2.
SA Corporate is currently trading at a comparatively high yield to the sector
average and at a deep discount to its underlying net tangible asset value, based
on the independent valuations of the properties as at 30 June 2008.
In order to address these investment concerns, various specific actions have
been considered by management to improve the quality of the Fund`s earnings and
to generate sustainable long term distribution growth. A summary of these
initiatives is set out below.
2 Individual building strategies
An in-depth analysis and performance grading of each building within the
portfolio has been completed and specific strategies have been agreed and are
being implemented in respect of those properties which present the greatest
challenges to sustained rental growth. These actions range from specific leasing
strategies, to redevelopments and property disposals where management is of the
view that future income growth is limited. There has been a good level of
leasing success in recent weeks, which will enhance net rental flows in the
short to medium term.
3 Portfolio investment objectives
Following the review of the portfolio and in order to maximise management focus,
the portfolio will over time be reduced to a targeted maximum of 150 properties.
The lower value properties in the portfolio will be sold in terms of a managed
disposal progamme to ensure that the best exit value is achieved. Some 41
properties have been identified, constituting less than 3% of portfolio value
but more than 20% in number. Seven properties, which have been identified
as non-core due to their specialised nature and hence potential tenancy risk,
will be realised from the portfolio in due course. As referred to earlier,
the Fund has an overweight position to smaller retail properties and management
has identified five properties in this category which will be marketed for
sale. Each of these buildings requires further investment capital to expand
their retail offering and entrench future sustainability. In addition there
are a further eleven, predominantly retail, properties which offer limited
future growth potential and these will be disposed of in due course.
The intention to increase the Fund`s investment in larger, dominant
retail centres has previously been stated. An opportunity has now arisen to
consider the acquisition of a minority interest in six properties in the Old
Mutual Group`s portfolio of high end, dominant regional and super-regional
shopping centres ("the retail acquisition opportunity"). This opportunity has
arisen due to a certain fund within the Old Mutual Group being overweight in
retail property and its consequent need to rebalance the portfolio weightings.
These centres, with a total value in the order of R10,0 billion, are Gateway
Theatre of Shopping, Menlyn Park, Cavendish Square, Riverside Mall and Vincent
Park, as well as one further regional centre currently being acquired. The
potential opportunity amounts to an undivided 12,5% share in the title of
each of these properties, with an initial investment of 10% and an option to
increase this by a further 2,5% six months thereafter The value of the 12,5%
stake would be approximately R1,25 billion and the indicative net income yield
on the portfolio is expected to be in the order of 7,5%. The merits of this
opportunity for the Fund are being investigated and the financial projections
have not yet been reviewed by management. Should a binding agreement be
concluded, the investment would be subject to due diligence, independent
valuations and unitholder and regulatory approvals.
4 Unit repurchase programme
SA Corporate has in place the required Board, unitholder and
regulatory approvals to effect a 10% general buyback of units. A favourable
SARS tax directive has recently been secured by the Association of Property
Unit Trusts regarding the deductibility of interest and with this in hand a
unit repurchase programme can be implemented.
In light of SA Corporate`s intention to investigate the retail
acquisition opportunity referred to above which may lead to the Fund
entering into a prohibited period as defined in the JSE Limited
Listings Requirements ("Listings Requirements"), an agreement has been
entered into in relation to the purchase of SA Corporate`s units by the
Fund during such prohibited period ("the repurchase agreement). The
repurchase agreement will commence on Monday, 13 October 2008 and will
end either when full details of the retail acquisition opportunity as
required by the Listings Requirements have been provided to the market
or when SA Corporate resolves not to pursue the retail acquisition
opportunity. The maximum number of units to be repurchased during the
prohibited period unit repurchase programme will be 55 million.
The mandate in the agreement is for an irrevocable, non-discretionary
programme to purchase the Fund`s units. Any purchases will be effected
within certain pre-set parameters within the limits of Listings Requirements
Johannesburg
10 October 2008
Sponsor
Nedbank Capital
Date: 10/10/2008 16:26:01 Produced by the JSE SENS Department.
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