| Wed 27 Oct 2004, 10:20 | | ACQUISITION OF PROPERTY LETTING ENTERPRISES |
|
A-Prop - Acquisition Of Property Letting Enterprises, Specific Issue Of Linked
Units For Cash, Change Of Name And Consolidation Of Linked Units And
Withdrawal Of Cautionary Announcement
Arnold Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration No. 2001/011887/06)
Share code: ARP ISIN code: ZAE000031720
(`A-Prop` or `the company`)
ACQUISITION OF PROPERTY LETTING ENTERPRISES, SPECIFIC ISSUE OF LINKED UNITS FOR
CASH, CHANGE OF NAME AND CONSOLIDATION OF LINKED UNITS AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Further to the announcement published on SENS on 22 September 2004, Java Capital
is authorised to announce that the directors of A-Prop:
- have consented to the amendment of the agreements (the `revised
agreements`) between Arnold Properties (Proprietary) Limited (`Arnold
Properties`), a wholly owned subsidiary of A-Prop, and Momentum Property
Investments (Proprietary) Limited (`Momentum Properties`) and Momentum
Group Limited (`Momentum Group`) as further specified below (collectively
`the acquisition`);
- propose to change the company`s name to Freestone Property Holdings
Limited; and
- propose to restructure A-Prop`s linked unit capital as further detailed
below(the `consolidation`),
(collectively, the `transactions`).
RATIONALE FOR THE TRANSACTIONS
The successful implementation of the acquisition will significantly improve the
gearing ratio of the group and increase its market capitalisation as well as
enhance the size of the portfolio and the quality of the group`s earnings. This
should result in a sustained improvement in the performance of the group and a
positive re-rating of A-Prop`s linked units. Importantly, these benefits will be
achieved with limited dilution for existing A-Prop linked unitholders.
To complement the repositioning of A-Prop, the board proposes renaming the group
to Freestone Property Holdings Limited and to consolidate its linked units.
The future sustainability of the company will be enhanced not only as a
consequence of the acquisition but through anticipated future acquisitions, a
lower cost of funding through the substitution of debt between the various
lenders, a new manager benefiting from the combined experience of Corovest
Property Group Limited (`Corovest`) and RMB Properties (Proprietary) Limited
(`RMBP`) and a simplified property management structure.
THE ACQUISITION
The terms of the acquisition
In terms of the revised agreements, one industrial property has been excluded,
and consequently the aggregate purchase price payable for the acquisition of the
property letting enterprises conducted by Momentum Properties (the `Momentum
Properties portfolio`) and the property letting enterprises conducted by the
Momentum Group (the `Momentum Group portfolio`), will be R287 397 000, split as
follows:
- the Momentum Properties portfolio (which enterprises include R4 000 000
cash) in respect of 15 immovable properties for a purchase consideration of
R248 697 000; and
- the Momentum Group in respect of 2 immovable properties as well as
leasehold rights in respect of 1 property, for a purchase consideration of
R38 700 000.
The aggregate purchase price payable is to be discharged by way of the allotment
and issue by A-Prop of 373 242 857 linked units at an issue price of 77 cents
per linked unit (the `consideration units`) prior to the consolidation.
The acquisition results in A-Prop acquiring 1 retail, 11 commercial and 6
industrial properties with a combined rentable area of 147 956 m2 situated in
the major metropolitan area of Gauteng and in Bloemfontein.
The condition precedent relating to the entering into of a new management
agreement has been fulfilled. All other terms and conditions of the agreements
regulating the acquisition, including inter alia the approval of the Competition
Commission, are as previously announced.
The specific issue of linked units for cash
A promoter`s fee in an amount of 1% of the aggregate purchase consideration
payable in respect of the acquisition (amounting to R2 873 970) is payable to
Corovest and RMBP in equal shares. The promoter`s fee is payable on the transfer
date of the last of the property letting enterprises forming part of the
acquisition. Corovest and RMBP have agreed that the fee liability may be settled
by the issue of 3 732 429 A-Prop linked units at an issue price of 77 cents per
linked unit (prior to the consolidation).
The issue of the linked units constitutes a specific issue of linked units for
cash in terms of section 5.50(a) of the JSE Securities Exchange South Africa`s
Listings Requirements. Accordingly, the approval of 75% of linked unitholders
present and voting at the general meeting is required. The linked units to be
issued pursuant to the specific issue of linked units for cash will not rank for
the distribution for the period 1 July 2004 to 31 December 2004 but will rank
pari passu with all other linked units in issue thereafter.
The forecast
The profit forecasts set out below have been reviewed by Deloitte & Touche whose
report is available for inspection at the company`s registered office.
The following major bases and assumptions have been included in the profit
forecasts:
- the effective transfer date of the Momentum Properties portfolio and the
Momentum Group portfolio is 1 November 2004;
- the forecasts for the financial year ending 30 June 2005 and the 12 months
ending 31 October 2005 are based on property managers` budgets for the
respective properties for those periods;
- A-Prop will not acquire or dispose of any properties during the period of
the forecasts other than those being acquired in terms of the revised
agreements;
- 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 he is
satisfied with the premises, they have continued to be let at the current
rates with 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;
- forecast property operating expenditure has been determined based on
forecasts prepared by the property managers;
- interest payable on the debt funding will be 10% on current floating
facilities and 10,4% on fixes expiring in November 2004;
- transaction costs include all relevant costs expected to be incurred to
effect the transactions;
- excess cash has been offset against borrowings;
operating profit after interest will be distributed to unitholders in full;
and
- a mechanism is incorporated in the acquisition agreements to procure that
Momentum Properties and Momentum Group shall effectively not be entitled to
income earned prior to 1 November 2004 (the effective date), whereby they
waive their right to and will refund A-Prop, with such amount. This is
disclosed as a refund on linked units issued cum dividend in the table
below.
Forecast for Forecast for
12 months 12 months
ending ending
30 June 2005 31 October
R`000 2005
R`000
Net rental income 124 516 138 983
Operating profit before net finance 116 019 129 307
costs
Net finance costs (63 044) (62 739)
Operating profit after net finance costs 52 975 66 568
Refund on linked units issued cum 11 048 -
dividend
Debenture interest payable to (64 023) (66 568)
unitholders
Retained income for the period - -
Weighted linked units in issue 482 569 343 610 252 604
Distribution per linked unit (cents) 10,50 10,90
Earnings per linked unit (cents) - -
Headline earnings per linked unit 13,27 10,92
(cents)
Yield on investment property (based on 13.75%
net rental income)
As stated in the June 2004 financial results announcement, which was published
on SENS on 26 August 2004, the directors anticipated that the group would
deliver similar returns to linked unitholders in the 2005 financial year.
The forecast distribution of 10.5 cents per linked unit noted above when compared with the distribution of 11.5 cents per linked unit paid in the 2004
financial year, represents an 8.7% dilution, which in the opinion of the
directors is more than offset by the prospects of the group after the
acquisition.
The financial effects
The table below sets out the pro forma financial effects of the acquisition on A
Prop, which are presented for illustrative purposes only. These include abnormal
items pursuant to the A-Prop restructuring and fair value adjustments which
because of their nature may not give a fair reflection of A-Prop`s financial
position after the acquisition.
Before After %
acquisition acquisition
(cents) (cents)
Net asset value
Historical net asset value 48,71 1 65,99 2 35.48
per linked unit
Historical tangible net 48,71 1 65,99 2 35.48
asset value per linked unit
Borrowings
Gearing ratio 81.38% 3 58,43% 3 28.20
Earnings
Historical headline 13,20 4 11,18 4 (15.30)
earnings excluding abnormal
items and fair value
adjustments per linked unit
Historical earnings per 34,83 1 12,21 5 (64.94)
linked unit
Historical headline 26,97 1 15,66 6 (41.94)
earnings per linked unit
Assumptions:
1. The figures in the `Before` column of the table, with the exception of the
earnings per linked unit excluding abnormal items and fair value
adjustments and the gearing ratio, have been extracted from the published
audited results for the year ended 30 June 2004.
2. The historical net asset value and tangible net asset value per linked unit
in the `After` column of the table assumes the acquisition occurred on 30
June 2004 and the requisite linked units in respect of the acquisition and
the specific issue for cash issued on that date. The costs of the
acquisition have either been capitalised to the investment properties or
written off share capital and premium as appropriate.
3. The gearing ratio in the `Before` and `After` columns of the table is
calculated utilising interest bearing borrowings as a percentage of
investment properties.
4. The historical headline earnings per linked unit excluding abnormal items
and fair value adjustments in the `Before` and `After` columns of the table
is equal to debenture interest paid divided by the weighted average number
of linked units in issue. The historical headline earnings per linked unit
excluding abnormal items and fair value adjustments in the `After` column
of the table assumes the acquisition occurred on 1 July 2003 and the
requisite income was earned from that date and the linked units in respect
of the acquisition and the specific issue of linked units for cash issued
on that date.
5. The historical earnings per linked unit in the `After` column of the table
assumes the acquisition occurred on 1 July 2003 and the requisite income
was earned from that date and the linked units in respect of the
acquisition and the specific issue of linked units for cash issued on that
date.
6. The historical headline earnings per linked unit in the `After` column of
the table is based on the historical earnings calculation above and adds
back the debenture interest, profit on sale of the investment properties
and the unrealised surplus on the fair valuation of the investment
properties.
CHANGE OF NAME
Subject to the passing and registration by the Registrar of Companies of the
necessary special resolution, the directors of A-Prop propose changing the
company`s name to Freestone Property Holdings Limited. In compliance with the
Listings Requirements of the JSE, the new abbreviated name of the company will
be Freestone. The name change is expected to become effective on Monday, 6
December 2004.
THE CONSOLIDATION
Subject to the passing at the general meetings and the registration of the
requisite special resolution by the Registrar of Companies, A-Prop will
consolidate every 5 linked units in its authorised and issued unit capital into
one consolidated linked unit (comprising one share of 5 cents and five unsecured
variable rate debentures of 180 cents each). The consolidation is being effected
in order to create a more meaningful linked unit price denomination.
SALIENT DATES AND TIMES
The salient dates and times in respect of the transactions are indicated in the
table below:
2004
Last day to lodge relevant forms of proxy by 10:00 and Monday, 22 November
10:30 on
General meetings at 10:00 and 10:30 on Wednesday, 24 November
Results of general meetings published on SENS on Wednesday, 24 November
Results of general meetings published in the press on Thursday, 25 November
Last day to trade A-Prop linked units Friday, 3 December
Listing and trade of Freestone Property Holdings Monday, 6 December
Limited consolidated linked units commences
Anticipated date of transfer, on or about Thursday, 9 December
Record date Friday, 10 December
Freestone Property Holdings Limited documents of title Monday, 13 December
posted and CSDP and brokers` safe custody accounts
updated
Notes:
1. The dates and times set out above may be changed at the instance of A-Prop.
Any changes will be published on SENS and in the press.
2. A-Prop`s documents of title may not be dematerialised or re-materialised
between Monday, 6 December and Friday, 10 December 2004.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Linked unitholders are advised that caution is no longer required when dealing
in their A-Prop linked units.
Sandton
27 October 2004
Corporate advisor, legal advisor and sponsor to A-Prop
Java Capital (Proprietary) Limited
Reporting accountants
Deloitte & Touche
Merchant bank to Momentum Properties and Momentum Group RMB Corporate Finance
Legal advisor to Momentum Properties and Momentum Group
Werksmans Attorneys
Date: 27/10/2004 09:37:57 AM
Produced by the JSE SENS Department
