| Thu 10 Oct 2002, 17:32 | | Rand Leases Properties Limited - Disposal Of The I |
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Rand Leases Properties Limited - Disposal Of The Investment Property Portfolio
And Withdrawal Of Cautionary Announcement
Rand Leases Properties Limited
(Registration number 1978/000870/06)
(Incorporated in the Republic of South Africa)
Share Code: RPR ISIN Code: ZAE000028254
("Rand Leases" or "the Company")
DISPOSAL OF THE INVESTMENT PROPERTY PORTFOLIO AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
1. INTRODUCTION
Further to the joint further cautionary announcement published on SENS and in
the press on 2 September 2002 and the renewal of cautionary announcement
published on 30 September 2002, BoE Merchant Bank, a division of BoE Bank
Limited, is authorised to announce that a written agreement has been concluded
between Rand Leases and Outward Investments (Proprietary) Limited ("Outward
Investments"), a wholly-owned subsidiary of Redefine Income Fund Limited
("Redefine"), whereby Rand Leases will, subject to the conditions precedent
detailed in paragraph 3.5 below, dispose of 27 of its property letting
enterprises, other than the four sections of one sectional-title property which
will be disposed of separately, ("the disposal") to Outward Investments for a
total consideration of R349 500 000.
In addition, Rand Leases wishes to undertake a specific repurchase of 14 million
linked units from Redefine ("the specific repurchase") and a repurchase of 9 043
191 participation units from the participants of the Rand Leases Employee
Participation Plan ("the participation repurchase").
2. NATURE OF BUSINESS
Rand Leases currently earns revenue from developing existing land holdings,
along with the accruing of rentals from the letting of its investment grade
office and retail properties.
The properties to be disposed of are commercial and retail in nature and are
currently substantially let and income producing by way of rentals.
3. THE DISPOSAL
3.1 Rationale for the disposal
The Board of Directors of Rand Leases is motivated to complete the disposal for
the following reasons:
* the transaction will be headline earnings and net asset value enhancing with
potential for reducing overhead costs as the Company will no longer actively
manage direct property holdings;
* the disposal consideration is considered fair value;
* the Real Estate sector, and in particular the office rental sector to which
the Company has significant exposure, is currently under pressure because of an
over supply resulting in high vacancies and consequential lower rentals;
* gearing levels will be reduced in an environment of a high cost of capital;
* the cash and Redefine linked units provide the Board of Directors with
flexibility to source value enhancing property opportunities;
* the current income stream of Rand Leases will be replaced by a more
diversified and stable distribution from Redefine; and
* Rand Leases wishes to focus its property activities in areas where it can add
value by the application of its property development expertise.
Consideration received for the disposal
In terms of the agreement dated 7 October 2002, Rand Leases and its property
holding companies, will dispose of all of its investment properties in its
investment portfolio, other than four sections of one sectional-title property
which has been excluded from this transaction, to Outward Investments, subject
to certain suspensive conditions as described in paragraph 3.5 below, with
effect from 1 November 2002 ("the effective date"), for an aggregate disposal
consideration of R349 500 000, to be settled as follows:
* a cash consideration (up to a maximum of R267 million) required to effect the
cancellation of the mortgage bonds;
* an amount of R6 million in cash on the effective date; and
* the balance of the disposal consideration shall be discharged in Redefine
linked units at a unit price of 247 cents per Redefine unit.
Financial effects of the disposal
The table below sets out the pro forma effects of the disposal on the earnings
per linked unit ("EPLU"), headline earnings per linked unit ("HEPLU"), the net
asset value per linked unit ("NAVPLU") and the net tangible asset value per
linked unit ("NTAVPLU"), based on the reviewed financial results for the year
ended 30 June 2002. The assumptions made in the calculations are based on the
following:
* the EPLU and HEPLU figures noted in the "after" column have been calculated
for the year ended 30 June 2002 assuming the transaction had been effected on 1
July 2001, after settlement of the outstanding mortgage bonds;
* the NAVPLU and NTAVPLU figures in the "after" column have been calculated
assuming the disposal had been effected on 1 July 2001 and where the number of
linked units in issue as at 30 June 2002 was 82 913 341;
* the cash consideration of R6 million earned interest at an after-tax rate of 7
percent per annum over the period;
* the mortgage bonds on the investment property portfolio amounted to R252 327
000;
* the issue of 36 912 146 Redefine linked units, which units received a total
distribution of 36.5 cents per unit; and
* a loss on the disposal of R3 596 000 based on the net book value of the
portfolio.
Before After % increase
(cents) (cents) /
(decrease)
EPLU 2.20 8.24 273.83
HEPLU 10.93 22.63 107.02
NAVPLU and 189.51 190.57 0.56
NTAVPLU
Valuation report on the disposal
An external, professional property valuator has prepared a valuation report on
the properties to be disposed of to Redefine. The details shall be included in
the circular to linked unitholders referred to in paragraph 8 below.
Conditions precedent
The disposal is subject to the following remaining suspensive conditions:
* the securing by Redefine and/or Outward Investments of a written bank
guarantee to enable Outward Investments to discharge the cash consideration
required to effect the cancellation of the mortgage bonds;
* the unconditional approval of the Competition Commission in respect of the
disposal;
* the approval of the JSE Securities Exchange, South Africa ("JSE") in terms of
the Listings Requirements;
* the approval of the Securities Regulations Panel; and
* approval in general meeting of linked unitholders of Rand Leases on the
disposal and Redefine on the acquisition of the portfolio.
Save as set out above, all other suspensive conditions have been fulfilled.
THE SPECIFIC REPURCHASE
Rationale for the specific repurchase
The specific repurchase is net asset value enhancing on a historical and a
forward basis.
Salient features of the specific repurchase
Subject to the conditions precedent detailed under paragraph 4.4 below, Rand
Leases undertakes by no later than the date on which the first of the immovable
properties comprising a sold property is transferred to Outward Investments, to
repurchase from Redefine and/or Outward Investments 14 million Rand Leases`
linked units.
The purchase price payable by Rand Leases to Redefine and/or Outward Investments
in respect of the repurchase of the above-mentioned linked units shall be
discharged by way of a set-off against an equivalent number of Redefine linked
units which form part of the disposal consideration. The repurchase shall be
effected by applying an effective exchange ratio of 1.6 Rand Leases` linked
units for every Redefine linked unit exchanged.
Financial Effects
The table below sets out the pro forma effects of the specific repurchase on the
EPLU, HEPLU, NAVPLU and the NTAVPLU based on the following assumptions:
* the EPLU, HEPLU, NAVPLU and NTAVPLU figures noted in the "before" column
represent the figures presented in the "after" column of paragraph 3.3 above,
given that the specific repurchase is subject to approval in general meeting of
the disposal and cannot occur in isolation of the disposal;
* the EPLU and HEPLU figures noted in the "after" column have been calculated
assuming the specific repurchase had taken place on 1 July 2001, which reduced
the weighted average number of linked units in issue to 49 494 000;
* the NAVPLU and NTAVPLU figures in the "after" column have been calculated as
if the specific repurchase had taken place on 1 July 2001, which resulted in the
number of linked units in issue on 30 June 2002 of 68 913 341; and
8 750 000 Redefine linked units, part of the disposal consideration, were set-
off against the cost of the repurchase of 14 000 000 linked units of Rand
Leases.
Before After % increase
(cents) (cents) /
(decrease)
EPLU 8.24 4.11 (50.05)
HEPLU 22.63 22.57 (0.23)
NAVPLU and NTAVPLU 190.57 196.54 3.13
Conditions precedent
The specific repurchase is subject to the following suspensive conditions:
* the approval of Rand Leases` linked unitholders in general meeting of the
disposal;
* the fulfilment of the conditions precedent under paragraph 3.5 above and the
disposal becoming unconditional;
* the approval of the JSE; and
* the approval in general meeting of the requisite special resolution dealing
with the specific repurchase.
THE PARTICIPATION REPURCHASE
The Board of Rand Leases has resolved to unwind the Rand Leases Employee
Participation Plan ("the scheme"), due to the change in the nature of its
business activities, which may result in a potential change to the distribution
policy in future. Currently, bi-annual debenture interest and dividends received
by the participants are used to repay the loans received from the scheme trust.
The board will investigate an appropriate incentive scheme commensurate with the
changing nature of the business of the Company.
The participants, who are executive directors of the Company, currently hold 9
043 191 linked units in Rand Leases. These linked units will be repurchased at
the closing price of 155 cents per linked unit, being the price on the date that
the requisite board resolution was passed.
As with the specific repurchase, the participation repurchase is subject to the
same conditions precedent as referred to in paragraph 4.4 above.
Financial Effects
The table below sets out the pro forma effects of the participation repurchase
on the EPLU, HEPLU, NAVPLU and the NTAVPLU based on the following assumptions:
* the EPLU, HEPLU, NAVPLU and NTAVPLU figures noted in the "before" column
represent the figures presented in the "after" column of paragraph 3.3 above,
given that the participation repurchase is subject to approval in general
meeting of the disposal and cannot occur in isolation of the disposal;
* the EPLU and HEPLU figures noted in the "after" column have been calculated
assuming the participation repurchase had taken place on 1 July 2001, which
reduced the weighted average number of linked units in issue to 54 450 809;
* the NAVPLU and NTAVPLU figures in the "after" column have been calculated as
if the specific repurchase had taken place on 1 July 2001, which resulted in the
number of linked units in issue on 30 June 2002 of 73 870 149;
* interest paid at an after-tax rate of 10 percent per annum on R3 994 000 used
to unwind the scheme; and
* a cash cost of the participation repurchase of R3 994 000.
Before After % increase
(cents) (cents) /
(decrease)
EPLU 8.24 8.87 7.70
HEPLU 22.63 25.65 13.37
NAVPLU and NTAVPLU 190.57 209.30 9.83
COMBINED FINANCIAL EFFECTS
The combined financial effects of the disposal, the specific repurchase and
participation repurchase are set-out in the table below, based upon the
following assumptions:
* the EPLU and HEPLU figures in the "after" column have been calculated assuming
the disposal, the specific repurchase and the participation repurchase had all
taken place on 1 July 2001 using a weighted average linked units in issue of 40
450 809; and
* the NAVPLU and NTAVPLU figures in the "after" column have been calculated
assuming the disposal, the specific repurchase and the participation repurchase
had taken place on 1 July 2001 and as a result the issued number of linked units
as at 30 June 2002 was 59 870 149.
Before After % increase
(cents) (cents) /
(decrease)
EPLU 2.20 4.05 83.64
HEPLU 10.93 26.63 143.68
NAVPLU and 189.51 220.55 16.38
NTAVPLU
INDEPENDENT ADVICE AND RELATED PARTY ASPECTS
The disposal is a disposal as contemplated in section 228 of the Act and as such
is an affected transaction subject to the Securities Regulation Code on Take-
overs and Mergers ("the Code"). The Board of Rand Leases is therefore required
to obtain appropriate external advice on the disposal. In addition, the disposal
is considered to be a related party transaction in terms of the Listings
Requirements of the JSE given that Redefine is a material linked unitholder due
to its unitholding being greater than 10 percent of the number of linked units
in issue. This requires the issuing of a fair and reasonable opinion by an
independent professional expert.
The specific repurchase is also regarded as a related party transaction, in
terms of the Listings Requirement of the JSE, and will accordingly require a
fair and reasonable opinion from an independent professional expert.
BoE Merchant Bank has been appointed to furnish both fair and reasonable
opinions as to whether the disposal and the specific repurchase are considered
to be fair and reasonable to all unitholders.
Redefine and its associates will be excluded from voting in respect of the
resolutions to approve the disposal and the specific repurchase. The executive
directors will be excluded from voting on the special resolution to approve the
participation repurchase.
DOCUMENTATION
A circular containing full details of the disposal, the specific repurchase and
the participation repurchase, and a notice convening a general meeting of the
Company to approve all three transactions, shall be posted to linked unit
holders in due course.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Unitholders are advised that as a result of the announcement of the disposal,
the specific repurchase and the participation repurchase, caution is no longer
required when dealing in Rand Leases linked units.
JOHANNESBURG
10 October 2002
Corporate Advisor Reporting
Accountants
BoE Merchant Bank KPMG Inc.
Sponsor Property Valuator Legal Advisors
BoE Securities George, Rennies and Cliffe Dekker
Malakou
AChallis/Rand Leases/Terms Announcement 8 October 2002
Date: 10/10/2002 05:15:02 PM Produced by the JSE SENS Department
