| Tue 17 Dec 2002, 14:16 | | Hyprop - Acquisition Of The Rosebank Mall And JHI |
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HYPROP INVESTMENTS LIMITED
(Registration No.1987/005284/06)
("Hyprop")
Share Code HYP
ISIN ZAE000003430
ACQUISITION OF THE ROSEBANK MALL AND JHI HOUSE
1. Introduction
As set out in previous announcements, Hyprop has concluded a written agreement
(as subsequently revised) (the "revised acquisition agreement") in terms of
which Hyprop acquires the property letting businesses conducted in respect of
the Rosebank Mall and JHI House (the "Rosebank Mall and JHI House") from The
Rosebank Mall (Pty) Limited, a subsidiary of Centrecity Property Fund
("Cenprop") (the "acquisition"), subject to the fulfilment (or waiver) of the
conditions precedent set out paragraph 0 below.
2. Rationale for the acquisition
The following benefits are expected to result from the acquisition:
- the acquisition of the Rosebank Mall and JHI House will further enhance the
quality and diversification of Hyprop`s portfolio of prime retail and office
property investments;
- the tradability of the Hyprop combined units is expected to improve due to the
larger market capitalisation of Hyprop, the increased number of Hyprop combined
units in issue and the enlarged pool of Hyprop combined unitholders;
- an entity with greater critical mass will be created, resulting in additional
capability to raise capital for the acquisition of additional property, which
will, in turn, broaden the base of potential new investors;
- economies of scale will be exploited to the benefit of combined unitholders;
and
- the impact of earnings volatility in respect of individual properties will be
diluted as a result of the larger portfolio.
3. The terms and conditions of the acquisition
3.1 The acquisition
In terms of the revised acquisition agreement, Hyprop will acquire the Rosebank
Mall and JHI House from The Rosebank Mall (Pty) Limited with effect from 1
January 2003 ("the effective date") for an aggregate purchase consideration of
R320 million, payable by the issue of Hyprop combined units at R10,25 each (the
"consideration units") provided that Cenprop unitholders shall be entitled to
elect to receive cash in respect of their proportionate share of the
distribution payable to Cenprop unitholders in anticipation of the winding up of
The Rosebank Mall (Pty) Limited or a combination of cash and consideration
units. The final proportion of consideration units to cash will depend upon such
election.
Hyprop may in its discretion increase the purchase consideration payable by it,
at any time prior to the meeting of the Cenprop unitholders.
The purchase consideration will be discharged on the date on which the
properties comprising the Rosebank Mall and JHI House ("properties") are
transferred to Hyprop as follows:
- an amount in cash sufficient to:
- discharge The Rosebank Mall (Pty) Limited`s liability in terms of its
overdraft facility with The Standard Bank of South Africa Limited, up to a
maximum of R50 million;
- distribute cash to Cenprop unitholders to meet their election to take cash
rather than consideration units on the disposal of the remainder of the
properties in Cenprop (the "disposals") and its winding-up (the "winding-up")
(collectively the "transactions") (plus interest thereon at an effective rate of
11% per annum calculated from the effective date to the transfer date (including
the effective date)) after set-off of:
- an amount payable by The Rosebank Mall (Pty) Limited to Hyprop in respect
of the Cradock Heights litigation (details of which are set out below);
- any amount owing by The Rosebank Mall (Pty) Limited in terms of the initial
adjustment account to be prepared in terms of the revised acquisition agreement;
- an amount of R10 million to be retained by The Rosebank Mall (Pty) Limited
to enable it to fulfil its obligations in terms of the final adjustment account;
and
- the agent`s commission to JHI Real Estate Limited; and
- the balance of the purchase price shall be paid by the issue of
consideration units.
The purchase price payable by Hyprop in terms of the revised acquisition
agreement includes an amount in respect of the refurbishment of the Rosebank
Mall, which is substantially complete. To the extent that any of such
refurbishment expenditure has not, by the business day following the date on
which the last of the conditions precedent is fulfilled (or waived), been
expended by The Rosebank Mall (Pty) Limited, this amount will be paid to Hyprop
by The Rosebank Mall (Pty) Limited.
The properties will be transferred into the name of Hyprop as soon as possible
after fulfilment (or waiver) of the last of the conditions precedent to be
fulfilled (or waived).
3.2 Conditions precedent
The revised acquisition agreement is subject to the fulfilment (or waiver) of,
inter alia, the following conditions precedent by no later than 30 April 2003
(or such later date as may be agreed in writing between the parties to the
revised acquisition agreement):
- the conditions to which the disposal agreements are subject having been
fulfilled (or waived) as the case may be (save for any conditions relating to
- the unconditionality of the revised acquisition agreement);
- the granting by the High Court of an order for the winding-up;
- the securing of all the necessary approvals from:
- Cenprop unitholders to the winding-up, the revised acquisition agreement
and the disposal agreements (to the extent necessary);
- the Hyprop shareholders and debenture holders at the general meetings to
the acquisition;
- the JSE Securities Exchange South Africa to the circulars to be sent to
unitholders;
- the Registrar of Unit Trust Companies to, inter alia, the Cenprop circular
and the winding-up; and
- the Trustee of Cenprop, being ABSA Bank Limited, to the transaction.
- The unconditional approval of the Competition Commission to the revised
acquisition agreement has been obtained.
3.3 Cradock Heights Litigation
During October 2002, Cradock Heights (Pty) Limited obtained an order from the
High Court against Cenprop and The Rosebank Mall (Pty) Limited for the removal
of the new glass structure at the Cradock Road entrance of the Rosebank Mall.
Property Fund Managers Limited ("PFM") and The Rosebank Mall (Pty) Limited have
recently obtained leave to appeal the judgement.
In terms of the revised acquisition agreement, Hyprop will provide an
undertaking to Cradock Heights (Pty) Limited that it will abide by and execute
the court order, if the appeal is not upheld or is abandoned, in return for
which The Rosebank Mall (Pty) Limited has agreed to pay Hyprop on the transfer
date an amount of R4,5 million (plus VAT), to be paid by way of set-off from the
cash portion of the purchase price.
3.4 Hyprop`s borrowings
Depending upon the extent to which the purchase consideration comprises cash,
Hyprop may require additional borrowings of up to approximately R232 million. If
all Cenprop unitholders elect to receive cash, then Hyprop`s borrowings,
together with its available facilities of R300 million, will equate to 42% of
the open market valuation of Hyprop`s property portfolio after the acquisition.
4. Irrevocable undertakings
Hyprop has secured unconditional irrevocable undertakings to vote at the Hyprop
general meetings in favour of the resolutions necessary to ratify the conclusion
and implementation of the acquisition from 55% of Hyprop combined unitholders.
In addition, Hyprop has secured written support to vote at the meeting of
Cenprop unitholders in favour of the resolutions necessary to ratify the
conclusion and implementation of the transactions from 51% of Cenprop
unitholders.
5. Purchase of shares in Hyprop Management Company
An agreement (the "sale of shares agreement") has been concluded between the
current shareholders of Hyprop Management Company (Pty) Limited ("Hyprop
Management Company") for the sale of 10% of the total issued share capital of
Hyprop Management Company, in the proportions in which the shares are currently
held by them, to JH Isaacs Group Holdings (Pty) Limited for a purchase
consideration of R1 million payable in cash on the 5th business day after the
fulfilment (or waiver) of the last of the conditions precedent to the revised
acquisition agreement to be fulfilled (or waived).
6. Compensation for relinquishment of management rights
The transactions will result in the termination of the management arrangement
between PFM and Cenprop and the consequent loss of a substantial income-
generating asset for PFM.
Hyprop Management Company has accordingly agreed to compensate PFM for the loss
of its management arrangement, by paying an amount of R2,8 million to PFM in
cash on the 5th business day following the implementation of the revised
acquisition agreement.
7. Management agreement
Hyprop, Hyprop Management Company and JHI Real Estate Limited ("JHI") have
entered into a management agreement in terms of which JHI is appointed to manage
the Rosebank Mall and JHI House with effect from 1 January 2003 for a period of
5 years.
The management agreement is subject to the fulfilment of the following
conditions precedent, namely:
- the revised acquisition agreement becoming unconditional; and
- the lease agreement in terms of which JHI occupies a portion of the
Rosebank Mall and JHI House being amended to provide, inter alia, for the
extension of the lease period until 31 December 2007.
8. Financial effects of the acquisition on Hyprop
The pro forma financial effects of the acquisition on the historical earnings,
headline earnings, the net asset value and tangible net asset value per Hyprop
combined unit ("combined unit"), should Cenprop unitholders elect to receive the
entire purchase price in consideration units, are illustrated below:
Pro forma Pro forma
before after
acquisition acquisition Change
Per Per combined %
combined unit
unit (Cents)
(Cents)
Historical earnings 84,62 (1) 69,48 (2) (17.89)
Historical headline 63,77 (1) 59,53 (3) (6.65)
earnings
Historical net asset 1101,70 (1) 1071,86 (4) (2.71)
value
Historical net 1101,70 (1) 1071,86 (4) (2.71)
tangible asset value
The historical headline earnings per combined unit reflects a large decrease
post the acquisition due to the "fair value" adjustment to earnings for the
costs of the acquisition as described below. The headline earnings per combined
unit (which is more directly comparable to distributions than earnings) has been
calculated on the historical earnings of the Rosebank Mall and JHI House. Hyprop
anticipate the future performance of the properties to improve under its
management with its retail expertise.
The "fair value" adjustment for the costs of the acquisition has also had a
negative impact on the historical net asset value and historical tangible net
asset value per combined unit.
(1) The historical earnings and headline earnings per Hyprop combined unit as
set out in the "Before acquisitions" column of the table, are based on Hyprop`s
unaudited interim results for the six months ended 30 June 2002. The historical
net asset value and tangible net asset value per Hyprop combined unit as set out
in the "Before acquisition" column of the table is based on Hyprop`s unaudited
balance sheet at 30 June 2002, in which the existing property portfolio is
stated at fair value.
(2) The historical earnings per combined unit as set out in the "After
acquisition" column of the table, is based on the assumption that the properties
were acquired on 1 January 2002 and the acquisition was settled by the issue of
30,780,488 combined units on that date (net of the litigation liability). In
addition, adjustments decreasing the income relating to a difference in the
accounting policies between The Rosebank Mall (Pty) Limited and Hyprop for lease
commissions and tenant installations amounting to R933,000, the interest on the
costs of the acquisition at a 14,3% interest rate and a R3,995,000 "fair value"
adjustment (net of deferred taxation) in respect of the costs of the acquisition
capitalised to the properties required to be written off have been made.
(3) The historical headline earnings per combined unit as set out in the "After
acquisition" column of the table, has been calculated in the manner described
for the historical earnings per Hyprop combined unit but excludes the "fair
value" adjustment of R3,995,000 (net of deferred taxation).
(4) The historical net asset value and tangible net asset value per combined
unit as set out in the "After acquisition" column of the table, is based on the
assumption that the properties were acquired on 1 January 2002 and the
acquisition was settled by the issue of 30,780,488 combined units on that date
(net of the litigation liability). It was further assumed that the costs of the
acquisition, certain of which were written-off debenture premium and the
remainder capitalised to the cost of the properties, were incurred on that date.
The costs capitalised to the properties were written-off to Ordinary
Shareholders Interests in the "fair value" adjustment as described above.
The pro forma financial effects of the acquisition on the historical earnings,
headline earnings, net asset value and tangible net asset value per combined
unit, should Cenprop unitholders elect to receive the entire purchase price in
cash, are illustrated below:
Pro forma Pro forma
before after
acquisition acquisition Change
Per Per combined %
combined unit
unit (Cents)
(Cents)
Historical earnings 84,62 (1) 64,98 (2) (23.21)
Historical headline 63,77 (1) 50,30 (3) (21.12)
earnings
Historical net asset 1101,70 (1) 1092,90 (4) (0.80)
value
Historical net 1101,70 (1) 1092,90 (4) (0.80)
tangible asset value
The historical headline earnings per combined unit reflects a large decrease
post the acquisition due to the "fair value" adjustment to earnings for the
costs of the acquisition as described below. The headline earnings per combined
unit (which is more directly comparable to distributions than earnings) has been
calculated on the historical earnings of the Rosebank Mall and JHI House. Hyprop
anticipate the future performance of the properties to improve under its
management with its retail expertise.
(1) The historical earnings and headline earnings per combined unit as set out
in the "Before acquisitions" column of the table, are based on Hyprop`s
unaudited interim results for the six months ended 30 June 2002. The historical
net asset value and tangible net asset value per combined unit as set out in the
"Before acquisition" column of the table is based on Hyprop`s unaudited balance
sheet at 30 June 2002, in which the existing property portfolio is stated at
fair value.
(2) The historical earnings per combined unit as set out in the "After
acquisition" column of the table, is based on the assumption that the properties
were acquired on 1 January 2002 and the acquisition was settled by the requisite
payment of cash on that date (net of the litigation liability). In addition,
adjustments decreasing net income relating to a difference in accounting
policies between The Rosebank Mall (Pty) Limited and Hyprop for lease
commissions and tenant installations amounting to R933,000, interest on the
purchase consideration and costs of the acquisitions at a 14,3% interest rate,
bond raising fees expensed to interest and a R3,995,000 "fair value" adjustment
(net of deferred taxation) in respect of the costs of the acquisition
capitalised to the properties required to be written-off have been made.
(3) The historical headline earnings per combined unit as set out in the "After
acquisition" column of the table, has been calculated in the manner described
for the historical earnings per combined unit but excludes the "fair value"
adjustment of R3,995,000 (net of deferred taxation).
(4) The historical net asset value and tangible net asset value per combined
unit as set out in the "After acquisition" column of the table, is based on the
assumption that the properties were acquired on 1 January 2002 and the
acquisition was settled by the requisite payment of cash on that date (net of
the litigation liability). It was further assumed that the costs of the
acquisition, certain of which were written-off to debenture premium and the
remainder capitalised to the cost of the properties, were incurred on that date.
The costs capitalised to the properties were written-off to Ordinary
Shareholders Interests in the "fair value" adjustment as described above.
9. Opinions and recommendations
The directors of Hyprop are of the opinion that the implementation of the
acquisition will be to the long- term benefit of Hyprop and the Hyprop
unitholders. Therefore, the directors recommend that shareholders and debenture
holders vote in favour of the resolutions.
The directors of Hyprop who have a combined 1,99% direct and indirect interest
in the issued share capital and the debentures of Hyprop, intend to vote in
favour of the acquisition at the general meetings.
10. Salient Dates and Times
The salient dates and times of the acquisition for Hyprop combined unitholders
are set out in the table below:
2003
Last day to lodge forms of proxy for Friday, 14
shareholders by 9:00 February
Last day to lodge forms of proxy for Friday, 14
debenture holders by 9:30 February
General meeting of shareholders to be Tuesday, 18
held at 9:00 February
General meeting of debenture holders to Tuesday, 18
be held at 9:30 February
Results of the general meeting published Tuesday, 18
on Johannesburg Securities Exchange News February
Service ("SENS")
Results of general meetings published in Wednesday, 19
the press February
1. The date of listing of the consideration units will be announced on the
Stock Exchange News Service ("SENS") and in the press.
2. These dates and times may be changed at the instance of the company. Any
changes will be published on SENS and in the press.
11. Issue of circular and withdrawal of cautionary announcement
A circular incorporating notices of general meetings will be sent to Hyprop
combined unitholders in due course. Accordingly, Hyprop combined unitholders are
no longer advised to exercise caution when dealing in their combined units.
Johannesburg
17 December 2002
Corporate advisor and sponsor Independent reporting
accountants on the pro forma
balance sheet and financial
effects
Corpcapital Corporate Finance Grant Thornton Kessel
Feinstein
Legal Advisor Independent reporting
accountants on the
historical information of
the Rosebank Mall and JHI
House
Corpcapital Transaction Support KPMG Inc.
Date: 17/12/2002 01:49:02 PM Produced by the JSE SENS Department
