| Mon 18 May 2009, 8:15 | | GRT - Growthpoint Properties - Proposed Acquisition Of A Controlling |
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GRT
GRT
GRT - Growthpoint Properties - Proposed Acquisition Of A Controlling
Interest In Orchard Industrial Property Fund ("OIF")
Growthpoint Properties Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/004988/06)
Share code: GRT ISIN ZAE000037669
("Growthpoint")
PROPOSED ACQUISITION OF A CONTROLLING INTEREST IN ORCHARD INDUSTRIAL
PROPERTY FUND ("OIF")
1. INTRODUCTION
Investec Bank Limited ("Investec") is authorised to announce that on 18
May 2009, Growthpoint entered into an agreement ("the Implementation
Agreement") with Orchard Property Limited ("OPL"), the responsible entity
and external manager of OIF. In terms of the Implementation Agreement,
which is subject to the fulfilment of the conditions precedent set out in
4.4 below, Growthpoint will invest a maximum of $A200 million in OIF by
participating in a recapitalisation of OIF ("Proposed Acquisition").
The salient terms of the Proposed Acquisition comprise the following:
- the internalisation of management of OIF via the stapling of shares
in a new management company to existing OIF listed units ("Management
Internalisation");
- an initial $A56 million placement of new OIF stapled securities to
Growthpoint ("Upfront Subscription"); and
- a subsequent $A144 million renounceable rights offer of new stapled
securities underwritten by Growthpoint ("Rights Offer").
2. DESCRIPTION OF OIF
OIF is an Australian Securities Exchange ("ASX") listed Property Trust
that is primarily invested in logistics warehouses throughout Australia.
OIF listed on the ASX in July 2007 and currently has a market
capitalisation of $A52 million and a property portfolio to the value of
approximately A$744 million as at 31 December 2008.
OIF owns a geographically diversified property portfolio of 24 industrial
properties ("Property Portfolio"), located in Victoria, Queensland,
Western Australia, South Australia and New South Wales. The gross
lettable area of the Property Portfolio is 671 723 m2 with a weighted
average rental per square metre of A$7.31 per month.
OIF`s Property Portfolio is underpinned by long leases - its weighted
average lease length is 11 years - with highly-rated Australian
companies. Woolworths, Australia`s leading food retailer and Star Track
Express, an express freight and logistics company jointly owned by
Australia Post and Qantas Airlines, are two of the property trust`s
largest tenants. Together they account for some 71% of its annual net
property income.
3. RATIONALE FOR THE TRANSACTION
As previously stated at the time of Growthpoint`s rights offer
announcement published on the Securities Exchange News Service on 15
December 2008, Growthpoint believes it is an opportune time to benefit
from the opportunities the global property market currently offers.
The current global economic climate has led to significant demand for new
capital required to recapitalise international property companies`
balance sheets to acceptable gearing levels. These refinancing risks are
reflected in the depressed listed property equity prices which are
trading at significant discounts to historic prices and net tangible
asset values.
A number of offshore opportunities were considered and Growthpoint
believes that Australia is currently an appropriate investment
destination for the following reasons:
- The Australian real estate sector has been impacted significantly by
the global financial and economic crisis and is currently trading at a
discount of 70% from its highs in January 2008;
- Australia has an established real estate sector;
- Australia`s regulatory laws are in many ways similar to those of
South Africa; and
- The Rand:A$ exchange rate is currently considered attractive in
comparison to other currencies.
Of the opportunities considered in Australia, OIF was preferred for the
following reasons:
- OIF`s tenant base provides a stable and secure platform to enable
Growthpoint to establish a foothold in Australia;
- OIF`s Property Portfolio is 100% focused in Australia;
- OIF`s size was considered appropriate as an initial investment into
Australia; and
- Certain key members of the OIF management team will remain involved.
It is Growthpoint`s intention to leverage off the secure and stable OIF
portfolio to pursue further acquisition opportunities in Australia.
4. THE PROPOSED ACQUISITION
4.1 Management Internalisation and Change of Name
Consistent with Growthpoint`s own philosophy of being internally managed,
the Implementation Agreement provides for the management of OIF to be
internalised as an integral part of the Proposed Acquisition. In order to
give effect to the internalisation, shares in a new management company
will effectively be stapled to the existing listed OIF units in issue
creating a stapled security ("Stapled Security") which will be listed on
the ASX giving investors equal ownership of the management company and
OIF.
It is contemplated that pursuant to the completion of the Proposed
Acquisition OIF will change its name to Growthpoint Properties Australia.
4.2 Upfront Subscription
Growthpoint intends to subscribe for approximately 348 million new OIF
Stapled Securities in a placement at a price of 16 cents per unit,
("Subscription Price") for a total consideration of A$56 million.
Following the Upfront Subscription, Growthpoint will have an interest of
50.1% in OIF.
4.3 Rights Offer
Subsequent to the Upfront Subscription and subject to the conditions
precedent in 4.4 below, OIF has committed to undertake a 1.3 for every 1
Stapled Security Rights Offer to raise an additional amount of
approximately $A144 million at the Subscription Price. The Rights Offer
will be fully underwritten by Growthpoint for an underwriting fee of 3%
on the full amount of the Rights Offer.
If, pursuant to the Rights Offer Growthpoint`s interest in OIF is less
than 60%, OIF will undertake an additional placement to Growthpoint for
the shortfall. Depending on the percentage of OIF security holders who
follow their rights, Growthpoint will own between 60% and 78% of OIF
subsequent to the Rights Offer.
4.4 Conditions precedent
The Management Internalisation and Upfront Subscription are subject to
inter alia, the following conditions precedent:
- OIF unitholder approval;
- Approval from the following regulatory authorities:
- Australian Foreign Investment Review Board ;
- Australian Securities and Investment Commission ("ASIC"); and
- ASX;
- Agreement being reached with OIF`s financiers to amend the
terms of OIF`s existing debt facilities on terms acceptable to
Growthpoint.
In addition to the conditions precedent above the Rights Offer is subject
to, inter alia, the fulfilment of the following condition precedent:
- Execution of an underwriting agreement and fulfilment of the
conditions precedent thereto.
5. FINANCIAL EFFECTS
A summary of the unaudited pro forma financial effects of Growthpoint
subsequent to the Proposed Acquisition is set out below. It has been
assumed for purposes of the unaudited pro forma financial effects that
the Proposed Acquisition took place with effect from 1 July 2008. The
directors of Growthpoint are responsible for the preparation of the
unaudited pro forma financial effects. The unaudited pro forma
financial effects have been presented for illustrative purposes only
and because of its nature may not give a fair reflection of
Growthpoint`s results after the Proposed Acquisition.
The Proposed Acquisition has no significant effect on the pro forma
distribution per linked unit, pro forma net asset value per linked unit,
or pro forma tangible net asset value per linked unit of Growthpoint.
The disclosure of earnings per share and headline earnings per share set
out below while obligatory in terms of accounting standards is not
meaningful to Growthpoint linked unitholders as the shares trade as part
of a linked unit and practically all revenue earnings are distributed in
the form of debenture interest plus dividends in the ratio of 1000 to 1.
In addition headline earnings include fair value adjustments for listed
property investments and for financial liabilities as well as notional
interest on non-interest bearing long terms loans and accounting
adjustments required to account for lease income on a straight-line-
basis. These adjustments do not affect distributable earnings. The
distribution per linked unit is more meaningful to Growthpoint linked
unitholders and in accordance with Growthpoint`s reporting policy. As
indicated above the Proposed Acquisition does not have a significant
effect on the pro forma distribution per linked unit.
Before Pro forma after
Proposed Proposed
Acquisition1 Acquisition2 3 %
cents cents
Basic loss per (2.65) (5.35)
linked unit (102.00)
Headline earnings (63.00) (146.32)
per linked unit
(132.33)
Linked units in 1 280 926 195 1 280 926 195
issue at year end
Weighted average 1 280 926 195 1 280 926 195
no. of linked
units in issue
Notes:
1. The figures in the Before Proposed Acquisition column have been
extracted without adjustment from the reviewed results for
Growthpoint for the half year ended 31 December 2008.
2. The figures in the Pro forma after Proposed Acquisition column have
been adjusted for the following:
a. the Upfront Subscription and Rights Offer is assumed to be funded
out of Growthpoint`s existing debt facilities at a funding cost of 10.25%
resulting in additional Growthpoint borrowing costs of R66 million for the
half year
b. it is assumed that Growthpoint will own a 78% interest in OIF
subsequent to the completion of the Upfront Subscription and Rights Offer
c. the consolidation of the OIF reviewed results for the half year ended
31 December 2008 converted at a ZAR/AUD exchange rate of A$1/R6.46
d. the proceeds from the Upfront Subscription and Rights Offer will be
used to pay down OIF debt at a borrowing cost of 6.77% resulting in an
interest saving of A$ 6.7 million
e. transaction costs of R23 million and the underwriting fee of $4.3
million have been capitalised to the cost of the Proposed Acquisition; and
f. 0.3% on the total Upfront Subscription and Rights Offer
consideration relating to annual asset swap fees on the Proposed
Acquisition.
3. The primary reasons for the significant effect on the pro forma basic
loss per linked unit and the pro form headline earnings per linked unit
are the downward revaluation of the OIF property portfolio and the
negative mark to market of OIF the interest rate swaps as at 31 December
2008.
6. INDICATIVE TIMING FOR THE PROPOSED ACQUISITION
It is anticipated that the Proposed Acquisition will be implemented by
the end of September 2009.
An announcement has been released on 18 May 2009 in terms of the ASX
regulations by OIF and is available at the ASX website at www.asx.com.au.
For further details on OIF and the OIF Property Portfolio, Growthpoint
linked unitholders are referred to www.orchardfunds.com.
18 May 2009
Independent adviser and sponsor to Growthpoint
Investec Corporate Finance and Investec Bank Australia Limited
Legal adviser to Growthpoint in South Africa
Glyn Marais
Legal adviser to Growthpoint in Australia
Blake Dawson
Date: 18/05/2009 08:15:01 Produced by the JSE SENS Department.
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