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TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED - Acquisition of 2,159 residential units and update on previously announced acquisitions

Release Date: 08/10/2018 13:20
Code(s): TPF     PDF:  
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Acquisition of 2,159 residential units and update on previously announced acquisitions

TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2016/277183/06
JSE share code: TPF ISIN: ZAE000227765
(Approved as a REIT by the JSE)
(“Transcend” or “the Company”)


ACQUISITION OF 2,159 RESIDENTIAL UNITS AND UPDATE ON PREVIOUSLY ANNOUNCED
ACQUISITIONS


TRANSACTION HIGHLIGHTS

•   Acquisition of 2,159 residential units (“the Units”) for R1.27 billion at a weighted average yield of 9.87%;
•   The Units are spread across eight properties (“the Properties”), with 85.6% of the Units located in Gauteng
    and 14.4% in the Western Cape;
•   The Properties are well located, affordable and life-style enhancing;
•   The Transactions (as defined below) are expected to further enhance the quality, defensive nature and scale
    of the Company’s existing portfolio;
•   The Transactions will be funded 40% with equity (fully committed and underwritten) and 60% with debt;
•   Transcend’s portfolio is set to increase to approximately R2.5 billion, comprising 4,691 units spread across 22
    properties after the Transactions;
•   Transcend intends to apply for a migration to the Main Board of the Johannesburg Stock Exchange (“JSE”).

1. INTRODUCTION

    The directors of Transcend (“the Board”) are pleased to advise shareholders that Transcend has concluded
    purchase agreements (“Sale Agreements”) to acquire 2,159 Units spread across a portfolio of eight properties
    from two related parties - International Housing Solutions Residential Partners 1 (RF) Proprietary Limited (“IHS
    Res 1”) and Sunnyshore Trade and Invest 105 Proprietary Limited (“Sunnyshore”) (which is effectively 100%
    owned by SAWHF PVE (SA) (“SAWHF”)).

    The transactions with IHS Res 1 involve the acquisition of 1,983 of the Units, spread across seven properties
    (“Res 1 Properties”) for a purchase consideration of R1.21 billion, subject to adjustment as detailed in
    paragraph 4(d) below (“Res 1 Transactions”).

    The transaction with Sunnyshore relates to the acquisition of 176 residential sectional title Units in two sectional
    schemes known as Protea Glen (“Protea Glen”) for R60 million (“Protea Glen Transaction”). Protea Glen is
    a stabilised rental enterprise, located in Kganwe Street, Protea Glen, Soweto.

    The implementation of the Res 1 Transactions and Protea Glen Transaction (collectively, “the Transactions”)
    will increase the size of Transcend’s portfolio to approximately R2.5 billion (comprising 4,691 quality Units with
    a total GLA of 265,087m²), following which Transcend intends applying to the JSE for a migration to the Main
    Board of the JSE (subject to meeting the relevant JSE Listings Requirements).

2. RATIONALE FOR THE TRANSACTIONS

    The Transactions are consistent with Transcend’s stated growth and investment strategy of acquiring yield-
    accretive residential properties, with a focus on housing opportunities which are affordable and lifestyle-
    enhancing, and located in well-situated, high growth urban areas.

    The Properties offer stable and secure income streams and further diversify Transcend’s residential portfolio,
    with 85.6% of the Units being located in Gauteng and 14.4% in the Western Cape.
    
    The implementation of the Transactions will more than double the size of Transcend’s property portfolio in
    value, and significantly increase its market capitalisation, providing it with a solid platform to grow the Company
    further and increase its shareholder base and liquidity.

3. OVERVIEW OF THE PROPERTIES

  3.1 RES 1 PROPERTIES

       The Res 1 Properties comprise 7 residential complexes with 1,983 Units spread across Cape Town and
       Johannesburg. The salient features of each complex are set out below:

       1.   Midrand Village

            •   Situated on Erven 4472 to 4809 Clayville Extension 46, Porcelain Road, Clayville, Gauteng.
            •   Transcend is acquiring 225 Units which vary from two-bedroomed units with one bathroom,
                measuring 55m² to three-bedroomed Units with two bathrooms, measuring 80m².
            •   New lettings currently range from monthly gross rentals of R6,500 for the two-bedroomed Units
                up to R7,900 for the three-bedroomed Units.


       2.   De Velde

            •   Known as Sectional Schemes De-Velde 1, 2, 4 and 5, located on Portions 128, 131, 132 and 134
                of the Farm 794 Stellenbosch RD, De Velde, Western Cape.
            •   The complex comprises 310 Units which vary from one-bedroomed Units with one bathroom,
                measuring 38m² to three-bedroomed Units with two bathrooms, measuring 104m².
            •   New lettings currently range from monthly gross rentals of R6,600 for the one-bedroomed Units
                up to R12,000 for the three-bedroomed Units.


       3.   Birchwood Village

            •   Situated on Erf 92 Chartwell Extension 14 & Erf 93 Chartwell Extension 15, located at the corner
                of Cedar Road & 3rd Street, Chartwell, Johannesburg.
            •   The complex comprises 360 Units (consisting of 108 one-bedroomed Units, 224 two-bedroomed
                Units and 28 three-bedroomed Units), with an average size of 73m² and monthly gross rentals
                ranging from R6,200 – R11,000 per Unit.

       4.   Southgate Ridge

            •   Situated on Erven 3030 and 3031 Naturena Extension 16, 5 Duin Place, Naturena, Gauteng.
            •   The complex comprises 412 Units, all of them being two-bedroomed Units with one bathroom,
                measuring approximately 53m². The Units are accommodated in 62 two-storey blocks, all of them
                of which are north facing.
            •   New lettings currently range from monthly gross rentals of R5,400 for first floor Units to R5,600
                for ground floor Units.


       5.   Urban Ridge (West)

            •   Situated on Erf 1399 Halfway Gardens Extension 35, 81 Fifth Road, Midrand, Gauteng.
            •   The complex comprises 260 Units, all of them being two-bedroomed units with one bathroom,
                measuring approximately 57m². The Units are accommodated in 4 four-storey blocks, all of them
                north facing.
            •   New lettings currently range from monthly gross rentals of 6,100 for first floor Units to R6,300 for
                ground floor Units.

        6.   Urban Ridge (East)

             •     Situated on Erven Erf 1397 Halfway Gardens Extension 79, 77 Fifth Road, Midrand, Gauteng.
             •     The complex comprises 184 Units, consisting of 170 two-bedroomed units with one bathroom
                   and measuring approximately 53m² and 14 three bed-bedroomed units with two bathrooms
                   measuring approximately 77m².
             •     The Units are accommodated in 13 four-storey blocks, all of them north facing.
             •     New lettings currently range from monthly gross rentals of R6,300 for the one-bedroomed Units
                   to R6,700 for the two-bedroomed Units.

        7.   Urban Ridge (South)

             •     Situated on Erf 1386 Halfway Gardens Extension 54, at the corner of Smuts and 3rd Road,
                   Midrand, Gauteng.
             •     The complex comprises 232 Units, all of them being two-bedroomed units with one bathroom,
                   measuring approximately 54m². The Units are accommodated in 8 four-storey blocks, all of them
                   north facing.
             •     New lettings currently range from monthly gross rentals of R6,300 for the upper floor Units to
                   R6,500 for the ground floor Units.

  3.2 PROTEA GLEN

       Protea Glen is a residential complex comprising of two sectional schemes namely Protea Park and Protea
       Park 2 situated on Erven 8487 and 8488 Protea Glen Ext 11, along Kganwe Street in Protea Glen,
       Gauteng (South West of Soweto). There are 176 sections with Units varying in size from 44m² to 58m².
       The complex consists of several double storey walk-up buildings with ground and first floor flats. There
       are 156 two-bedroomed flats and 20 three-bedroomed flats in the complex with monthly gross rentals
       ranging between R4,000 and R5,100 per Unit.

 A summary of the Properties is set out below:


                                                                                                          Avg gross
                                                                                               Weighted
                                                                    Gross                                    rental
                                                                                  Number        average
     Property name                Location                        lettable                                   income
                                                                                of Units     rental per
                                                                 area (m²)                                 per Unit
                                                                                                m² (R)1
                                                                                                               (R)1
     Res 1 Properties
     Midrand Village              Clayville, Ekurhuleni             14 280           225            111       7 034
     De Velde                     De Velde, Somerset West           29 330           310            106      10 031
     Birchwood Village            Chartwell, JHB                    26 232           360            106       7 720
     Southgate Ridge              Southgate, JHB                    21 972           412            107       5 680
     Urban Ridge (West)           Midrand, JHB                      14 907           260            112       6 393
     Urban Ridge (East)           Midrand, JHB                      10 140           184            117       6 465
     Urban Ridge (South)          Midrand, JHB                      12 472           232            122       6 544
     Total Res 1 Properties                                        129 333         1 983            109       7 115
                                  Kganwe Street, Protea
     Protea Glen                                                     8 480           176             95       4 600
                                  Glen, Soweto
     Total incl. Protea Glen                                       137 813         2 159            109       6 944

1.     Based on the actual gross rental income as at 31 August 2018, excluding vacancies and recoveries.

4. THE TRANSACTIONS

  a.   EFFECTIVE DATE

       •      The effective date of the Res 1 Transactions will be the first day of the month following the month in
              which the conditions precedent (as set out in paragraph 4(g) below) are fulfilled or waived or such
              other date as the parties may agree in writing, which date is anticipated to be 1 December 2018 (“the
              Res 1 Effective Date”).
       •      The effective date of the Protea Glen Transaction will be the date on which the Units are transferred
              from Sunnyshore to Transcend, from which date the ownership of the Units (and all risk and benefits
              in respect of the Units) will pass to Transcend. It is estimated that the effective date will be on or
              about 1 December 2018 (“the Protea Glen Effective Date”).

  b.   PURCHASE CONSIDERATION AND FUNDING

       The total purchase consideration for the Transactions is R1.27 billion (“Purchase Consideration”),
       subject to the purchase price adjustment as set out in 4(d) below.


                                                                                                   Valuation per
                                                                 Purchase       Avg price per
           Property name                  Cap rate                                                Property as at
                                                            Consideration                Unit
                                                                                                      1 Oct 2018
           Res 1 Properties
           Midrand Village                  9,25%             139 295 212             619 090        153 300 000
           De Velde                         8,53%             289 144 251             932 723        337 700 000
           Birchwood Village                9,66%             266 463 076             740 175        288 300 000
           Southgate Ridge                 11,54%             170 420 202             413 641        216 600 000
           Urban Ridge (West)              10,69%             127 516 812             490 449        153 100 000
           Urban Ridge East                10,50%              98 783 206             536 865        109 600 000
           Urban Ridge South               10,32%             118 277 360             509 816        138 800 000
           Total Res 1 Properties           9,85%           1 209 900 119             610 137      1 397 400 000
           Protea Glen                     10,33%              60 000 000             340 909         61 290 000
           Total including Protea
           Glen                             9,87%           1 269 900 119             588 189      1 458 690 000
           
       1.    Transaction costs for the Transactions are estimated at 1.30% of the Purchase Consideration (the
             “Transaction Costs”).

  c.   VALUATIONS

       The Properties have been independently valued by Real Insight Valuers, independent professional valuers
       registered in terms of the Property Valuers Profession Act, No 47 of 2000. Details of the valuations will be
       included in the circular (referred to in paragraph 4(i) below) that will be distributed to shareholders in due
       course.

  d.   PURCHASE PRICE ADJUSTMENT AND RENTAL GUARANTEES

       •     The Res 1 Purchase Considerations are subject to an escalation of 6% per annum (pro-rated
             accordingly) from 1 December 2018 (“the Price Determination Date”) until the date of transfer of
             each of the respective Units comprising the Res 1 Properties.

       •     In terms of the Protea Glen Transaction, Sunnyshore will be providing a 12-month rental guarantee
             to Transcend over all the Protea Glen Units, from the Protea Glen Effective Date (being transfer date).

e.   FUNDING OF THE TRANSACTIONS

     The total Purchase Consideration of R1.27 billion, together with any adjustment thereto and the
     Transaction Costs will be settled in cash, to be funded through a combination of debt and equity as follows:


     •    Debt

          Transcend will raise gearing on the Res 1 Properties and Protea Glen of approximately 60% of the
          Purchase Consideration, which equates to gearing of c. R771 million. Following the implementation
          of the Transactions, Transcend will have a Loan to Value (“LTV”) ratio of c. 53%, with the intention
          of reducing the LTV to a market average of 30% - 40% post implementation of Transcend’s pipeline
          acquisitions.

     •    Equity

          Transcend intends to raise approximately R468 million of new equity by way of a vendor placement
          of Transcend ordinary shares (“Shares”) (“Private Placement”) and has secured commitments and
          an underwrite from the following parties:
          •      Emira Property Fund Limited (“Emira”), which, holds approximately 9% of the Shares in the
                 Company, has irrevocably committed to acquire such additional Shares so that it will hold a
                 minimum of 25.1% and up to a maximum of 34.9% of the Shares in issue post implementation
                 of the Transactions, at a price of R6.29 per Share (ex-dividend) equating to a total subscription
                 consideration of up to R279 million.
          •      Furthermore, Emira has provided an irrevocable commitment to Transcend (with a right of first
                 refusal to), that for a period of 18 months from the day of the Private Placement it shall
                 subscribe (in one or more transactions, should the Company in its discretion determine to issue
                 more Shares, either in terms of vendor placements or issues for cash, subject to the necessary
                 approvals) for such number of Shares as would result in Emira’s shareholding in the Company,
                 after each such subscription, being not less than 25.1% but not more than 34.9%, at a
                 subscription price per Share equal to the 30-day volume weighted average price up to the
                 relevant subscription date;
          •      c. R189 million of equity funding for the Transactions has been underwritten in equal
                 proportions by:
                 i)   Emira (through a shareholder loan facility (“Funding Facility”)), the salient details of
                      which include inter alia the following:
                       •    Transcend has the option to draw down on the Funding Facility post the Private
                            Placement (“Advance Date”) and will pay interest at JIBAR plus 3.5% nacq until the
                            Funding Facility has been repaid;
                       •    The Funding Facility will be repayable within 18 months from the Advance Date;
                 ii) MMA Financial International, LLC (“MMA”) (the controlling shareholder of IHS Asset
                     Management Proprietary Limited, the asset manager of the Company) through a
                     commitment to subscribe for Shares at R6.29 per Share (ex-dividend) should there be a
                     shortfall in the Remaining Equity. An underwriting fee of 1.5% (excluding VAT) is payable
                     to MMA. Given that MMA is a related party to the Company, the independent non-
                     executive directors of the Company have passed a resolution confirming that the MMA
                     underwriting fee is not greater than current market related fees payable in this regard.
          Any additional funding requirements will be settled through Transcend’s internal cash reserves and
          existing debt facilities.

f.   Conditions Precedent

     The Res 1 Transactions are subject to fulfilment of the following suspensive conditions:
     •    Transcend complying with the applicable JSE Listings Requirements and, to the extent required, the
          JSE granting the requisite approvals of and in relation to the Transactions, unconditionally;
     •    Approval from Transcend’s shareholders of all resolutions necessary to implement the Res 1
          Transactions;
     •    Approval from the shareholders of IHS Res 1 of all resolutions necessary to implement the Res 1
          Transactions;
     •    Finalisation and acceptance by Transcend of the bank debt funding agreements for a nominal
          amount of not less than R771 million on terms acceptable to Transcend in its sole discretion, and
          such debt funding agreements becoming unconditional in accordance with their terms; and
     •    Approval from the Competition Authorities.


     The Protea Glen Transaction is subject to fulfilment of inter alia the following suspensive conditions:
     •    Transcend complying with the applicable JSE Listings Requirements;
     •    Approval from the shareholders of Sunnyshore;
     •    Transcend conducting a technical investigation into and assessment of Protea Glen, the outcome of
          which shall be to Transcend’s sole and absolute satisfaction; and
     •    Transcend raising the required funding to settle the purchase consideration.

g.   FORECAST INFORMATION IN RESPECT OF THE TRANSACTIONS

     Shareholders are advised that the forecast financial information in respect of the Transactions will be
     announced in due course.

h.   RELATED PARTY TRANSACTIONS, CATEGORISATION AND CIRCULAR

     Both Transactions constitute related party transactions for Transcend in terms of the JSE Listings
     Requirements due to the fact that:
     •   Res 1 is 95% held by the Public Sector Pension Investment Board (“PSP”), 4.25% effectively held by
         IHS s.a.r.l and 0.75% effectively by three Transcend directors - Rob Wesselo, Cathal Conaty and
         Robert Emslie. PSP is a Canadian Pension Fund and is currently a 45% investor in SAWHF, a
         material shareholder, with an 89% shareholding in Transcend; and
     •   SAWHF is a material shareholder of the Company as noted above.

     The Protea Glen Transaction is, however, classified as a small related party transaction in terms of section
     10.7 of the JSE Listings Requirements and accordingly, no Transcend shareholder approval is required.
     In accordance with section 10.7(c) of the JSE Listings Requirements, a copy of the valuation report relating
     to the Protea Glen Transaction will be available for inspection for 28 days from the date of this
     announcement at the offices of Transcend during normal business hours.

     The Res 1 Transactions are classified as a reverse take-over in terms of the JSE Listings Requirements,
     and therefore are subject to the approval by a simple majority of Transcend shareholders voting on the
     Res 1 Transactions, excluding the related parties and their associates. A circular incorporating written
     resolutions in terms of Section 60 of the Companies Act 71 of 2008 and providing further details of the
     Res 1 Transactions will be distributed to shareholders in due course.


     Given that the Res 1 Transactions are categorised as a reverse take-over, shareholders are advised that
     the Company will require confirmation from the JSE that it is satisfied that the Company will qualify for a
     continued listing on the JSE pursuant to the Res 1 Transactions.

     Given that the Properties have been valued by an independent registered external valuer - Real Insight
     Valuers and the Purchase Consideration is being settled in cash, no additional fairness opinion is required
     in terms of the JSE Listings Requirements.

8. UPDATE ON PREVIOUSLY ANNOUNCED ACQUISITIONS

   Shareholders are referred to the announcements released on SENS on 3 April 2018 and 12 June 2018 relating
   to the conclusion of agreements to acquire:

    •   a rental enterprise comprising 76 sectional title Units in a scheme known as Silverleaf, located at Erf 2151
        Silverton Township, City of Tshwane (the “Silverleaf Property”) for R44.5 million; and
    •   a rental enterprise comprising 60 sectional title Units in a scheme known as Vanguard Residential Village
        3, located at 29 Jade Street, off Klipfontein Road, Heideveld, Cape Town (“Vanguard”) for R33.3 million.

    The Vanguard transaction has been successfully concluded, with Vanguard having transferred to Transcend
    on 22 August 2018.


    It was initially anticipated that the Silverleaf Property would transfer on or around 30 April 2018, but due to
    delays in the finalisation of town-planning amendments, the transfer has not yet been effected. The Company
    will release a further announcement once transfer of the Silverleaf Property has been concluded.

9. RENEWAL OF CAUTIONARY ANNOUNCEMENT

   Shareholders are referred to the cautionary announcement dated 7 September 2018 and the renewal thereof
   on 17 September 2018 and 4 October 2018 and are hereby advised that as the forecast financial information
   in respect of the Transactions remains outstanding, shareholders are advised to continue to exercise caution
   when dealing in the Company’s shares until a further announcement is made in this respect.


  Johannesburg
  8 October 2018

  Corporate Advisor and Bookrunner
  Tenurey BSM Proprietary Limited

  Transaction Designated Advisor
  Questco Proprietary Limited

  Designated Advisor
  Questco Corporate Advisory Proprietary Limited

  Legal Advisor
  Cliffe Dekker Hofmeyr Inc.

  Independent Reporting Accountants and Auditors
  KPMG

Date: 08/10/2018 01:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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