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Entering Into of Joint Venture for the Development of Properties and Renewal of Cautionary
PUTPROP LIMITED
Incorporated in the Republic of South Africa
(Registration number 1988/001085/06)
Share code: PPR ISIN: ZAE000072310
(“Putprop” or “the Company”)
ENTERING INTO OF JOINT VENTURE FOR THE DEVELOPMENT OF PROPERTIES AND RENEWAL OF CAUTIONARY
1. INTRODUCTION
Further to the cautionary announcement dated 17 October 2018 and the subsequent renewal of
cautionary announcements, the last of which was dated 26 February 2019, the board of directors of
Putprop (“the Board”) is pleased to advise shareholders that on 5 April 2019 (“Agreement Date”),
Putprop entered into the following agreements with McCormick Property Development Proprietary
Limited (“McCormick”):
- a “Sale Agreement”, in terms of which, subject to the fulfilment or waiver of the conditions precedent
set out in paragraph 2.6 below, McCormick will purchase from Putprop a 50% undivided share in and
to the “Properties”, being:
o Portion 111 of the Farm Mamelodi 608, Registration Division JR, Gauteng Province (“Mamelodi
Property”);
o Portion 21 of the Farm Vogelstruisfonten 233, Registration Division IQ, Gauteng Province
(“Dobsonville Property”); and
- a “Co-owners Agreement”, in terms of which, subject to the fulfilment or waiver of the conditions
precedent set out in paragraph 2.5 below, Putprop and McCormick (collectively, the “Co-owners”)
regulate and make provision for, inter alia, the funding, development and on-going management of
the facilities to be erected on the Properties and resulting business enterprise, as more fully set out
below,
(“the Joint Venture”).
2. THE JOINT VENTURE
2.1 Details of the Properties
The Mamelodi Property measures 4.2178 hectares in extent and is held by virtue of Deed of Title:
T7583/2001. The property currently consists of land held for redevelopment. There are no
structures on the Mamelodi Property.
The Dobsonville Property measures 5.0064 hectares in extent and is held by virtue of Deed of Title:
T1161/1994. The property has a current gross lettable area (“GLA”) of 3 500 m2 which is fully let.
This lease expires in December 2020. A redevelopment clause in the lease has however, been
activated with effect from 1 November 2019, with a monthly tenancy from such date. The current
use of the Dobsonville Property is that of a bus depot (Industrial sector) with an average rental of
R88 per m2.
2.2 Details of the Joint Venture
The Co-owners intend to develop a retail shopping centre on each of the Properties
(“Development”) and conduct the resulting business enterprise in respect thereof (“Business
Enterprise”). The shopping centre to be developed on the Mamelodi Property (“Mamelodi
Shopping Centre”) and the shopping centre to be developed on the Dobsonville Property
(“Dobsonville Shopping Centre”) are expected to constitute approximately 15 000 m2 and
10 000 m2 of GLA respectively (collectively, the “Shopping Centres”), with the total GLA of the
Shopping Centres being subject to final determination. A feasibility study, indicating the anticipated
costs and yields in relation to the Development (“Feasibility Study”) is in the process of being
finalised.
The Dobsonville Property is currently under investigation for possible Dolomite risk implications, the
outcome of which may affect the final buildable GLA of the Dobsonville Shopping Centre and the
costs associated with the development thereof. A Dolomite geotechnical study and report has been
completed thereon and submitted to the Council for Geoscience for formal findings and signoff
(“Dolomite Geotechnical Study”).
In terms of the Co-owners Agreement, each Co-owner shall be entitled to share in all revenue
earned by the Business Enterprise in proportion to its shareholding and shall be responsible for all
costs and expenses arising from or in connection with the ownership of the Properties and/or
Development of the Properties and/or the running, administration and/or control of the Business
Enterprise, in proportion to its shareholding. Accordingly, the Co-owners will be jointly liable and
entitled in accordance with their shareholding and all profits and losses of the Business Enterprise
shall be shared and borne by the Co-owners according to their respective shareholding.
The Development shall be project managed by McCormick in accordance with a separate
agreement (“Project Management Agreement”). In terms of the Project Management Agreement,
McCormick shall be remunerated as follows (“Initial fees”):
- a rate equal to 3% of gross development costs with respect to the Development (“GDC”) and
in addition thereto, be reimbursed for all direct expenses at market related rates, for project
management and tenant coordination during the construction phase;
- a development fee of 2.5% of GDC; and
- a leasing fee equal to 2.2 months’ basic rentals for the sourcing of tenants for the Business
Enterprise.
Per the Project Management Agreement, the Initial Fees detailed above are to be reduced by an
amount equivalent to what McCormick would have paid for its 50% share in the Properties had it
paid an amount of R1 100 per square meter of GLA instead of R800 per square meter of GLA of
the Shopping Centres as contemplated in paragraph 2.4.1 below. The Initial Fees will be reduced,
as aforementioned, and McCormick shall be able to draw down the fees over the span of the
Development, from commencement of construction, whilst the final amount payable to McCormick
will be determined on the date on which the last of the Shopping Centres opens for trading
(“Opening Date”) and any balance would be payable on such date and/or refunded.
Construction of the Mamelodi Shopping Centre is expected to commence in October or
November 2019 with an expected completion date of June 2020. The Dobsonville Shopping
Centre, subject to the outcome of the Dolomite Geotechnical Study, is expected to commence in
April 2020 with a February 2021 completion date (“Development Period”).
2.3 Details of McCormick
McCormick, founded by Chairman John McCormick, have been pioneering the development of
retail centres in the rural areas of South Africa since its establishment in 1983. Since inception,
McCormick has worked closely with local communities and continues to cement its position as a
market leader of retail development in high growth emerging markets.
The ultimate beneficial shareholder of McCormick is The John McCormick Family Trust.
2.4 Consideration
2.4.1 Sale of Properties
The sale consideration payable by McCormick to Putprop in terms of the Sale Agreement will
be calculated at 50% of an amount of R800 per square meter of GLA of the Shopping
Centres, with the total GLA of the Shopping Centres, and as a result, the total sale
consideration, being subject to final determination.
A provisional sale consideration, based on the anticipated GLA of the Shopping Centres, is
an amount of R10 million, which amount is to be settled in cash on the date of transfer of the
Properties. Any balance following final determination of the GLA of the Shopping Centres will
be payable to Putprop or refunded to McCormick, as the case may be on the Opening Date
or as soon as the GLA of the Shopping Centre’s are accurately identified and determined,
whichever occurs first, with a copy of the certificate of the architect and a written notice
advising the final sale consideration.
2.4.2 Development
Subject to the outcome of the Dolomite Geotechnical Study and finalisation of the Feasibility
Study, the anticipated 50% equity contribution payable by Putprop:
2.4.2.1 in respect of the development of the Mamelodi Shopping Centre is an amount of
R5 992 per square meter of GLA and, based on current estimations, equates to an
amount of R89 880 000; and
2.4.2.2 in respect of the development of the Dobsonville Shopping Centre is an amount of
R6 480 per square meter of GLA and, based on current estimations, equates to an
amount of R64 800 000.
2.5 Rationale for the Joint Venture
The Joint Venture is pursuant to Putprop’s primary objective of building a quality portfolio with
strong contractual cash flows, resulting in long-term sustainability and capital appreciation. The
Development is expected to increase portfolio values to unlock future value for shareholders and
diversify the portfolio further into retail properties, while reducing the portfolio weighting in the
industrial segment.
2.6 Conditions precedent, resolutive condition and effective date
2.6.1 Conditions precedent to the Joint Venture
2.6.1.1. The Joint Venture is subject to the fulfilment or waiver, as the case may be, of the
following conditions precedent within 12 months of the Agreement Date:
2.6.1.1.1 Putprop being satisfied with the Feasibility Study, in its sole and
absolute discretion, and informing McCormick of its satisfaction
therewith in writing;
2.6.1.1.2 McCormick procuring pre-lease agreements in respect of the
Shopping Centres which equals 70% of anticipated revenue, to render
the Development commercially feasible in the sole and absolute
satisfaction of Putprop;
2.6.1.1.3 a registered financial institution granting a development/construction
loan to the Co-owners in respect of the Development, the value of
which loan shall be no less than 75% of the estimated Development
costs; and
2.6.1.1.4 Putprop obtaining the requisite approvals, including Board,
shareholder and any other relevant approvals, including JSE Limited
approval, that may be required to conclude the Joint Venture.
2.6.1.2. The conditions precedent referred to in paragraphs 2.6.1.1.1 and 2.6.1.1.2 are
imposed for the benefit of Putprop and may be waived by written notice to
McCormick.
2.6.2 Resolutive condition to the Joint Venture
2.6.2.1 The Co-owners Agreement is subject to the resolutive condition that the Co-
owners Agreement will terminate if the 50% undivided shareholding in and to the
Properties is not transferred to McCormick in accordance with the Sale
Agreement.
The effective date of the Joint Venture shall be the date of fulfilment or waiver, as applicable, of the
last of the conditions precedent.
2.7 The value of, and profits attributable to the Properties
Valuations of the Properties were performed on 30 June 2018 by Joshua Askew, representing
Jones Lang LaSalle, who is independent and is registered as a professional valuer in terms of the
Property Valuers Profession Act, 2000 (Act 47 of 2000). The Dobsonville Property was valued at
an amount of R26 300 000 and the Mamelodi Property was valued at an amount of R18 000 000.
Valuations of the Properties were subsequently performed on 31 December 2018 by Putprop’s
directors, who are not registered as professional valuers in terms of the Property Valuers
Profession Act, 2000 (Act 47 of 2000), with no differences to the values recorded by Jones Lang
LaSalle being noted for the Dobsonville Property. However, the Mamelodi Property was written
down by R1 000 000 to a value of R17 000 000.
Updated valuation reports, taking into account the effect of the Development, will be included in a
circular incorporating, inter alia, full details of the Joint Venture and a notice convening a general
meeting of shareholders (“Circular”).
The unaudited profit after tax attributable to the Dobsonville Property for the six months ended
31 December 2018 was R1.403 million and the unaudited loss after tax attributable to the
Mamelodi Property for the six months ended 31 December 2018 was R455 000. The financial
statements for the six months ended 31 December 2018 were prepared in accordance with
International Financial Reporting Standards and the Companies Act, 2008 (Act 71 of 2008), as
amended.
Further financial information pertaining to the Joint Venture will be announced on SENS once the
Feasibility Study has been completed and will be included in the Circular.
3. CLASSIFICATION OF THE JOINT VENTURE AND FURTHER DOCUMENTATION
The costs in respect of the Development will result in the Joint Venture being classified as a Category 1
transaction in terms of the JSE Listings Requirements. Accordingly, the Circular will be distributed to
shareholders in due course. Putprop will, at the general meeting of shareholders convened in terms of
the Circular, seek authority from shareholders to fund the equity contribution payable by Putprop in
terms of the Development over the Development Period.
4. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement dated 17 October 2018 and the subsequent renewal of
cautionary announcements, the last of which was dated 26 February 2019, shareholders are advised to
continue exercising caution when dealing in the Company’s securities until a further announcement
incorporating the financial information and property specific information required by section 13 of the JSE
Listings Requirements pertaining to the Joint Venture is made.
Johannesburg
9 April 2019
Sponsor and Corporate Advisor
Merchantec Capital
Date: 09/04/2019 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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