| Wed 21 Jul 2004, 17:36 | | RECONFIGURATION OF CAPITAL"S PROPERTY PORTFOLIO |
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CAPITAL PROPERTY FUND / RESILIENT PROPERTY INCOME FUND LIMITED RESILIENT
PROPERTY INCOME FUND LIMITED/ MCI PROPERTIES (PROPRIETARY) LIMITED
RECONFIGURATION OF CAPITAL`S PROPERTY PORTFOLIO VIA ACQUISITIONS,
DISPOSALS AND ISSUES OF UNITS FOR CASH AND WITHDRAWAL OF CAUTIONARY
CAPITAL PROPERTY FUND
(`Capital` or the `Fund`)
Share Code: CPL
ISIN: ZAE000001731
(A Portfolio in Capital Property Trust Scheme, a Collective
Investment Scheme in Property established in terms of the
Collective Investment Schemes Control Act, No 45 of 2002 managed
by Property Fund Managers Limited (`PFM`))
(Incorporated in the Republic of South Africa)
(Registration No. 1980/009531/06)
RESILIENT PROPERTY INCOME FUND LIMITED RESILIENT PROPERTY INCOME FUND LIMITED
(`Resilient`)
(Incorporated in the Republic of South Africa)
(Registration number 2002/016851/06)
Share code: RES
ISIN: ZAE000043642
MCI PROPERTIES (PROPRIETARY) LIMITED
(`MCI Properties`)
(Registration number 2002/017888/07)
(a wholly-owned subsidiary of Millennium Consolidated Investments
(Proprietary) Limited)
RECONFIGURATION OF CAPITAL`S PROPERTY PORTFOLIO VIA ACQUISITIONS, DISPOSALS AND
ISSUES OF UNITS FOR CASH AND WITHDRAWAL OF CAUTIONARY
1. INTRODUCTION
Further to the announcement published by PFM on SENS on 11 June 2004 in terms
of which Capital unitholders were advised that PFM had been restructured and
the PFM board reconstituted, Java Capital is authorised to announce that
agreements have been concluded for:
- the acquisition by Capital of portfolios of property letting businesses as
going concerns (the `acquisition properties`) from Resilient Properties
(Proprietary) Limited (`Resilient Properties`), a wholly-owned subsidiary of
Resilient, Old Mutual Life Assurance Company (South Africa) Limited (`Old
Mutual`), Acucap Investments (Proprietary) Limited, a wholly- owned subsidiary
of Acucap Properties Limited (`Acucap`) and subsidiaries of The Standard Bank
of South Africa Limited (`Standard Bank`) (collectively, the `acquisitions`)
for an aggregate purchase consideration of R760 531 182, with effect from 1
August 2004 (the `effective date`);
- the subscription by MCI Properties for units in Capital to the value of
R50 million;
- the subscription by PFM for units in Capital to the value of R39 million,
(collectively, the `issues for cash`); and
- the disposal by Capital of property letting businesses (the `disposal
properties`) to various purchasers for an aggregate cash consideration of
R71 635 000 (the `Capital disposals`).
The acquisitions, the issues for cash and the Capital disposals are
collectively referred to in this announcement as the `transactions`.
2. RATIONALE FOR THE CAPITAL TRANSACTIONS
2.1. Capital currently has a property portfolio valued at approximately R425
million. The transactions will facilitate the growth of the Fund to a portfolio
with underlying assets valued at in excess of R1 billion.
2.2. The rationale for the transactions is, amongst other things, the
following:
2.2.1. by achieving critical mass, the attractiveness of the Fund to investors
is improved;
2.2.2. due to the increased number of units in issue following the
transactions, the liquidity of Capital units will be enhanced over
the medium- term;
2.2.3. the acquisitions will result in Capital owning 65 additional rental
generating businesses, thereby diversifying the income stream of the Fund and
spreading risk across the portfolio;
2.2.4. the quality of the rental income streams will be improved;
2.2.5. the disposals will result in an improvement in the quality of the
property portfolio;
2.2.6. the issue of units for cash to MCI Properties will ensure an alignment
of the interests of MCI Properties in PFM with the interests of the Fund and
its investors; and
2.2.7. the issue of units for cash to PFM will enable PFM to implement a PFM
executive incentive scheme, thereby ensuring that the interests of the PFM
executives are aligned with the interests of the Fund and its investors.
2.3. The enlarged portfolio (after implementation of the transactions) will
comprise 96 properties with a wider geographic spread, forecast to have a yield
of 13,13% for the financial year ending on 31 December 2004 and 13,70% for the
twelve months ending 31 July 2005. Profit forecasts in respect of the financial
year ending on 31 December 2004 and the twelve month period ending on 31 July
2005 have been prepared by the PFM board and reviewed by KPMG Inc. and are set
out in paragraph 9 below.
2.4. The investment strategy of PFM will initially be to replace the older
non-performing properties with high value, good quality properties that are
well-tenanted and are located in growth areas of the major metropolitan areas
of South Africa. PFM will also give consideration to acquiring properties in
high-growth small towns and in dominant positions in rural areas.
3. RESILIENT`S RATIONALE FOR ITS DISPOSAL OF A PORTFOLIO OF PROPERTIES TO
CAPITAL (THE `RESILIENT DISPOSAL`)
Resilient is focused on two segments of the property market, namely dominant
non-metropolitan retail centres and industrial parks in transport nodes. The
sale of fourteen properties by Resilient to Capital enhances this focus.
There is considerable additional value in the existing Capital portfolio and in
certain of the acquisitions.
Resilient is confident that the expertise and skills of new management will
unlock this value.
It is Resilient`s intention to hold its investment in Capital in the medium to
long term.
The Resilient disposal constitutes a Category 3 transaction for Resilient in
terms of the JSE Listings Requirements.
4. TERMS OF THE ACQUISITIONS
PFM and ABSA Bank Limited, in its capacity as Trustee of Capital (the
`Trustee`), have agreed that Capital will acquire, with effect from the
effective date, the acquisition properties for an aggregate purchase
consideration of R760 531 182, to be settled by the payment of R392 215 591 in
cash on the transfer date (plus interest for the period from the effective date
to the transfer date) and the balance, in an amount of R368 315 591, by the
issue of 160 137 214 Capital units to be issued at R2,30 per unit (the
`consideration units`).
The cash portion of the aggregate purchase consideration is to be financed by
loan financing, the issues for cash and the cash raised pursuant to the Capital
disposals.
The acquisitions are subject to the approval of the Competition Authorities.
Details of the acquisitions are set out below.
4.1. The Resilient acquisition
Capital will acquire from Resilient Properties, with effect from the effective
date, a portfolio comprising fourteen properties for an aggregate purchase
consideration of R149 000 000, to be settled by the issue of 64 782 609
consideration units at an issue price of R2.30 per unit(the `issue price`).
Resilient is a material unitholder in Capital and Resilient Capital
(Proprietary) Limited, a wholly-owned subsidiary of Resilient, is the holder of
30% of the shares in and claims against PFM. Resilient is accordingly a related
party of Capital.
The Resilient acquisition also constitutes a Category 1 transaction in terms of
the JSE Securities Exchange South Africa (`JSE`) Listings Requirements (the
`JSE Listings Requirements`) for Capital. Such acquisition is therefore subject
to Capital unitholder approval being obtained at the general meeting referred
to in paragraph 12 below (the `general meeting`)(at which meeting, the votes
of Resilient and its associates, if any, will not be taken into account for
purposes of determining the appropriate majority).
4.2. The Old Mutual acquisition
Capital will acquire from Old Mutual, with effect from the effective date, a
portfolio of 45 properties for an aggregate purchase consideration of R343 281
182. This is to be settled 50% (in an amount of R171 640 591) in cash on the
transfer date and the balance by the issue of 74 626 344 consideration units at
the issue price.
Old Mutual is a material unitholder in Capital and is accordingly a related
party. The Old Mutual acquisition also constitutes a Category 1 transaction in
terms of the JSE Listings Requirements for Capital. Such acquisition is
therefore subject to Capital unitholder approval being obtained at the general
meeting (at which meeting, the votes of Old Mutual and its associates will not
be taken into account).
4.3. The Standard Bank acquisition
Capital will acquire, with effect from the effective date, the properties known
as Standard Bank Crossing and Grand Central Shopping Centre, from FHP Managers
(Proprietary) Limited and Grand Central Shopping Centre (Proprietary) Limited,
respectively, both wholly-owned subsidiaries of Standard Bank for an aggregate
purchase consideration of R172 900 000, to be settled in cash on the transfer
date.
Given that the Standard Bank acquisition constitutes a Category 1 transaction
in terms of JSE Listings Requirements for Capital, such acquisition is subject
to Capital unitholder approval being obtained at the general meeting.
4.4. The Acucap acquisition
Capital will acquire four properties from Acucap, with effect from the
effective date, for an aggregate purchase consideration of R95 350 000, to be
settled 50% (in an amount of R47 675 000) in cash and 50% by the issue of 20
728 261 consideration units at the issue price. The Acucap acquisition
constitutes a Category 2 transaction for Capital in terms of the JSE Listings
Requirements and as suchis not subject to unitholder approval being obtained.
5. ISSUE OF UNITS FOR CASH TO MCI PROPERTIES
5.1. MCI Properties has entered into an agreement with PFM and the Trustee in
terms of which MCI Properties will subscribe for 21 739 130 Capital units at
an issue price of R2,30 per unit. The aggregate subscription price of
R50 000 000 is payable in cash on the third business day immediately following
the date on which the last outstanding condition precedent to such agreement
is fulfilled or waived, as the case may be (the `MCI subscription agreement`).
5.2. MCI Properties holds a 72% interest in MCI Property Fund Managers
(Proprietary) Limited, which in turn holds a 70% interest in PFM. The JSE has
exercised its discretion and ruled that MCI Properties is an associate of a
related party in terms of the JSE Listings Requirements. The issue of units for
cash to MCI accordingly constitutes a specific issue of units for cash to a
related party in terms of section 5.51(f) of the JSE Listings Requirements.
Accordingly, the approval of 75% of Capital unitholders (represented in person
or by proxy) and voting at the general meeting is required for approval of the
MCI issue for cash. Neither MCI Properties nor any of its associates currently
holds any units in Capital.
6. ISSUE OF UNITS FOR CASH TO PFM
6.1. PFM has entered into an agreement with the Trustee for the subscription of
16 956 522 Capital units at an issue price of R2,30 per unit, amounting to an
aggregate subscription price of R39 000 000, payable in cash on the third
business day immediately following the fulfilment or waiver of the last
outstanding condition precedent to such agreement.
6.2. Given that PFM is the manager of Capital, the JSE has exercised its
discretion and ruled that PFM is a related party in terms of the JSE Listings
Requirements. The issue of units to PFM accordingly constitutes a specific
issue of units for cash to a related party in terms of section 5.51(f) of the
JSE Listings Requirements.
Accordingly, the approval of 75% of Capital unitholders (represented in person
or by proxy) and voting at the general meeting (excluding the units held or
controlled by PFM or its associates) is required to approve the issue of units
for cash to PFM.
7. APPOINTMENT OF INDEPENDENT EXPERT
Marriott Merchant Bank has been appointed by PFM as independent expert to
advise Capital unitholders as to whether the terms of the related party
transactions, namely the Resilient and the Old Mutual acquisitions and the MCI
and PFM issues for cash, are fair and reasonable to Capital unitholders. Copies
of their opinions will be included in the circular to be sent to unitholders in
due course (the `circular`).
8. THE CAPITAL DISPOSALS
PFM and the Trustee concluded agreements during the course of May and June 2004,
subject to the fulfilment of certain conditions precedent, for the disposal of
23 properties out of Capital`s current portfolio comprising 54 properties, to
various purchasers for an aggregate purchase consideration, payable in cash on
the transfer date, in an amount of R71 635 000. The Capital disposals are all
effective on the date on which the property in question is transferred to the
relevant purchaser.
The cash raised pursuant to the disposals will be utilised to partially fund
the cash portion of the aggregate purchase consideration payable in respect of
the acquisitions.
9. PROFIT FORECASTS FOR CAPITAL
Given that the financial effects set out in paragraph 10 below do not give a
fair reflection of Capital`s financial position after the transactions, profit
forecasts for the financial year ending 31 December 2004 and for the 12 months
ending 31 July 2005 (the `profit forecasts`) are set out in this paragraph 9.
The forecasts have been reviewed by KPMG Inc. whose report is available for
inspection at the registered offices of PFM, Capital Place, 2 Lone Close,
Lonehill.
The following major bases and assumptions have been included in the preparation
of the profit forecasts:
- the effective transfer date of the acquisition properties and the disposal
properties is 1 August 2004;
- the profit forecasts are based on property managers` budgets for the
respective properties for the periods in respect of which the forecasts
were prepared;
- Capital will not acquire or dispose of any properties during the periods in
respect of which the forecasts were prepared, other than the acquisition
properties or the disposal properties;
- the issue price of R2,30 includes a notional portion of the distribution
for the distribution period commencing 1 July 2004 and ending on 31
December 2004, which has been assumed to be 2.5 cents per unit (ie 1
month`s income based on a yield of 13% per annum);
- contracted revenue is based on existing lease agreements;
- current vacant space has been forecast on a property-by- property basis and
has been assumed to remain vacant unless it is deemed probable that such
space will be let;
- there will be no unforeseen economic factors that will affect the lessees`
abilities to meet their commitments in terms of existing lease agreements;
- leases expiring during the periods have been forecast on a lease by lease
basis and, in circumstances where the tenant has indicated that it is
satisfied with the premises, they have continued to be let at the current
rates and escalations for the majority of tenants. Where considered
necessary, the forecast rental has not been escalated or has been reduced
in line with market rentals;
- operating expenditure has been determined based on forecasts prepared by
the property managers;
- interest payable on the debt funding will be at an average rate of 10,4%;
- transaction costs include all relevant costs expected to be incurred to
effect the transactions; and
- operating profit after interest will be distributed to unitholders in full.
Forecast for Forecast for
year ending 12 months
31 December ending
2004 31 July 2005
R`000 R`000
Net rental income 87 182 143 014
Less: expenses
Management fee (3 597) (5 654)
Audit fee (1 000) (1 000)
Operating profit before
finance costs 82 585 136 360
Finance costs (6 800) (20 493)
Operating profit after
finance costs 75 785 115 867
Interest on units issued
cum dividend 4 971 4971
Net profit for the year 80 756 120 838
Distributions (80 756) (108 820)
Retained income for the
period 0 12 018
Weighted units in issue 267 463 371 383 449 209
Distribution per unit
(cents) 30.19 28.38
Earnings per unit (cents) 30.19 31.51
Headline earnings per
unit (cents) 28.34 30.22
Yield (based on operating
profit after finance
costs) 13.13% 13.70%
10. PRO FORMA FINANCIAL EFFECTS OF THE TRANSACTIONS ON CAPITAL
The table below sets out the pro forma financial effects of the transactions on
Capital, which are presented for illustrative purposes only and because of
their nature do not give a fair reflection of Capital`s financial position
after the transactions. The directors of PFM are responsible for the
preparation of the pro forma financial effects.
Before After After
transactions Old Standard
Mutual Bank
acquisition acquisition
Historical
earnings
per unit
(cents) 44.13 38.10 45.40
Historical
headline
earnings
per unit
(cents) 27.44 26.21 28.71
Historical
net asset
value per
unit (cents) 234.98 230.56 233.38
Historical
tangible
net asset
value per
unit (cents) 234.98 230.56 233.38
After After After
Acucap Resilient disposals
acquisition acquisition
Historical
earnings
per unit
(cents) 42.99 42.04 43.59
Historical
headline
earnings
per unit
(cents) 27.99 29.69 26.31
Historical
net asset
value per
unit (cent 233.43 232.01 235.58
Historical
tangible
net asset
value per
unit (cent 233.43 232.01 235.58
After After %
issues all Change
for transactions
cash
Historical
earnings
per unit
(cents) 40.91 32.12 (27.21)
Historical
headline
earnings
per unit
(cents) 27.11 23.80 (13.26)
Historical
net asset
value per
unit (cent 233.44 227.84 (3.04)
Historical
tangible
net asset
value per
unit (cent 233.44 227.84 (3.04)
Assumptions:
1. For purposes of the historical earnings and headline earnings per unit it
has been assumed that the transactions took place on 1 January 2003.
2. For purposes of the historical net asset value and net asset value per unit
it has been assumed that the transactions took place on 31 December 2003.
3. The pro forma financial effects have been prepared on a `stand alone basis`
for each of the transactions, with the exception of the calculation of
interest paid on the borrowings raised to fund the cash portion of the
aggregate purchase consideration. For purposes of calculating the interest
paid, the long term liabilities raised have been reduced by the excess cash
available from the issue of units for cash and disposals. The `After all
transactions` column has been adjusted to show the effect of all of the
transactions occurring simultaneously.
4. The notional portion of the distribution for the second distribution period
commencing 1 July 2004 and ending 31 December 2004 included in the issue
price has been assumed to be 2.5 cents per unit.
Notes:
1. The historical earnings and headline earnings per Capital unit as set out in
the `Before transactions` column of the table are based on Capital`s
published audited results for the year ended 31 December 2003. The
historical net asset value per Capital unit as set out in the `Before
transactions` column of the table, is based on Capital`s published audited
balance sheet at 31 December 2003, in which the current property portfolio
is stated at fair value.
2. The `After Resilient acquisition`, `After Old Mutual acquisition`, `After
Standard Bank acquisition`, `After Acucap acquisition` historical earnings
and headline earnings per unit have been adjusted to include the income and
expenditure relating to the acquisitions, the additional service costs due
to the higher market capitalisation of Capital at 0.5% and higher borrowings,
interest paid in respect of the portion of the purchase consideration
that will be funded through debt. Interest received on units issued cum
dividend for the second distribution period commencing 1 July 2004 and
ending 31 December 2004 has been included for purposes of calculating
earnings, but not headline earnings.
3. The historical earnings and headline earnings per unit in the `After
disposals` column have been adjusted to exclude the income and expenditure
relating to the disposals and the service costs due to the lower market
capitalisation of Capital at 0.5% and to include the interest earned on the
proceeds received from the disposals at an average bankers acceptance
interest rate of 10.71% and the profit on the disposals.
4. The historical earnings and headline earnings per unit in the `After issues
for cash` column have been adjusted to include the interest earned on the
cash raised at an average bankers acceptance interest rate of 10.71% and the
additional service costs due to the higher market capitalisation of Capital
at 0.5%.
5. The `After all transactions` figures have been adjusted as for notes 1 to 3
above, except that the interest and service costs adjustments relating to
the issues for cash and disposals have been reversed as the cash has been
utilised to reduce borrowings.
6. The `After Resilient acquisition`, `After Old Mutual acquisition`, `After
Standard Bank acquisition`, `After Acucap acquisition` historical net asset
value and net tangible asset value figures have been adjusted to take into
account the acquisitions at cost, the issue of the consideration units at
the issue price less interest received on the units issued cum dividend for
the second distribution period commencing 1 July 2004 and ending 31 December
2004, the payment of that portion of the transaction costs that relate to
the acquisitions, the long term liability raised to fund the cash portion of
the purchase consideration and the notional distribution due to unitholders
of 2.5 cents per unit issued.
7. The `After disposals` historical net asset value and net tangible asset
value figures have been adjusted to exclude the disposals and include the
proceeds and the profit on the disposals.
8. The `After issues for cash` historical net asset value and net tangible
asset value figures have been adjusted to include the cash raised and the
new units issued in terms of the issues for cash and the portion of the
transaction costs that relate to the issues for cash.
9. The `After all transactions` historical net asset value and net tangible
asset value figures have been adjusted as per notes 5 to 7 above except that
the cash received in terms of the disposals and the issues for cash has been
reversed out of cash and cash equivalents and has been used to reduce long
term liabilities.
11.PRO FORMA FINANCIAL EFFECTS OF THE RESILIENT DISPOSAL ON RESILIENT
The pro forma financial effects of the Resilient disposal on Resilient`s
earnings per linked unit are set out below. The increase in earnings per linked
unit is mainly attributable to the pro forma calculation of capital profits
realised on the Resilient disposal and is not indicative of Resilient`s future
operational earnings potential or of the actual capital profit that will be
realised from the Resilient disposal.
The pro forma financial information has been prepared in terms of JSE Listings
Requirements and is included for illustrative purposes only.
Before After
the Resilient the Resilient
disposal1 disposal2 Change
Earnings per
linked unit
(cents) 46.9 58.5 24.7%
(1) The historical earnings per Resilient linked unit as set out in the
`Before` column of the table are based on the published consolidated
audited results of Resilient for the 13 months ended 31 December 2003.
(2) The `After` column of the table is based on the assumption that the
disposal took place on 1 December 2002 which is when the 13-month
period to 31 December 2003 commenced.
(3) The effects of the disposal on Resilient`s headline earnings per linked
unit and net asset value per linked unit have not been disclosed, as
these are not material.
(4) The effects on net tangible assets per linked unit have not been
calculated, as there were no intangible assets on Resilient`s balance
sheet at 31 December 2003.
12. CIRCULAR TO CAPITAL UNITHOLDERS AND NOTICE OF GENERAL MEETING
A circular incorporating revised listing particulars and a notice of general
meeting of Capital unitholders will be posted to Capital unitholders in due
course.
13. WITHDRAWAL BY CAPITAL OF CAUTIONARY ANNOUNCEMENT
Capital unitholders are advised that further to the cautionary announcement
dated 11 June 2004, caution is no longer required to be exercised by them in
their dealing in Capital units.
Johannesburg
21 July 2004
Corporate advisor and sponsor to Capital
Java Capital (Proprietary) Limited
Investment bank and sponsor to Resilient
Nedbank Capital
Reporting accountants and auditors to Capital
KPMG Inc.
Independent expert
Marriott Merchant Bank Limited
Corporate law advisors to Capital on the acquisitions
Edward, Nathan & Friedland (Proprietary) Limited
Legal advisors to Capital on the issues for cash
Java Capital (Proprietary) Limited
Legal advisor to MCI Properties
Prinsloo, Tindle and Andropoulos Inc.
Capital Trustee
ABSA Bank Limited
Date: 21/07/2004 05:25:14 PM Produced by the JSE SENS Department
