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SA CORPORATE REAL ESTATE LIMITED - Disposal of a portfolio of Johannesburg inner-city residential properties, commercial rental businesses and land

Release Date: 16/09/2021 17:10
Code(s): SAC     PDF:  
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Disposal of a portfolio of Johannesburg inner-city residential properties, commercial rental businesses and land

SA Corporate Real Estate Limited
(Incorporated in the Republic of South Africa)
Share Code: SAC      ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
(“SA Corporate” or the “Company”)
REIT status approved



     SA Corporate is pleased to announce that it has, through its group companies, Afhco Holdings
     Proprietary Limited and Afhco Proprietary Limited (the “Seller”), entered into a sale and
     implementation agreement (the “Agreement”) with Firstmile Properties JHB CBD Crown Mines
     Proprietary Limited (“Firstmile” or the “Purchaser”), ultimately wholly owned by Lonsa
     Group Limited, to dispose of a property portfolio comprising a number of the Seller’s
     residential properties, commercial rental businesses and development land (the “Sale
     Assets”) in the Johannesburg inner-city (the “Disposal”).

     It is anticipated that all conditions precedent will be fulfilled by 31 December 2021, whereafter
     each of the Sale Assets will be transferred to the Purchaser as soon as reasonably possible
     thereafter (the “Effective Date/s”). However, if any of the Sale Assets have not been
     transferred twelve months after the signature date of the Agreement (the “Signature Date”),
     either the Seller or the Purchaser may terminate the sale of the Sale Assets that have not yet
     been transferred.


     2.1    Disposal consideration

            SA Corporate will dispose of the Sale Assets to Firstmile for a total consideration of
            R546.25 million exclusive of value-added tax and transfer duty but inclusive of an
            amount of R16.25 million in respect of sales commission and transaction costs (the
            “Disposal Consideration”). The Disposal will be implemented through the sale of
            residential properties and sectional title sections, the sale of residential and
            commercial rental businesses by a transfer of shareholding of the SA Corporate group
            companies owning such businesses (the “Income Generating Assets") and the sale
            of development land by the transfer of erven.

            The Disposal Consideration will be settled by the Purchaser upon transfer of the Sale
            Assets net of a R30.00 million "Agterskot" (the “Agterskot”) payable on the expiry of
            a 3-year period from the implementation of the various transactions comprising the
            Disposal. During the aforementioned 3-year period the property management of the
            Sale Assets will be undertaken by a SA Corporate group company, Afhco Property
            Management (Pty) Ltd. The Agterskot will be payable if the Income Generating Assets
            achieve an aggregate actual average net property income (“Actual NPI”) over the
            aforementioned 3-year period of at least R54.00 million pro-rated across the Income
            Generating Assets (“Target NPI”). If the Actual NPI is less than the Target NPI, then
            the following calculation shall be performed to calculate how much of the Agterskot, if
            any, shall be payable: Actual NPI multiplied by 10.115 less R500.00 million.

     2.2    Material terms

            The terms of the Disposal contain undertakings, warranties and indemnities which are
            normal for a transaction of this nature.

2.3   Rationale and use of proceeds

      The Disposal is aligned to SA Corporate’s strategy to increase the proportion of its
      suburban residential portfolio through a partial divestment of non-precinct inner-city
      properties, and to reduce its exposure to inner-city properties not located in precincts
      which the Afhco group of companies, wholly-owned by SA Corporate, can ensure
      accessibility, security and lifestyle amenities.

      The Disposal Consideration will be used to strengthen the Company’s financial position.

2.4   Conditions precedent

      The Disposal is subject to the following conditions precedent:

      2.4.1 the Purchaser confirming in writing that it is satisfied with the results of its due
            diligence investigation within 30 days after the Signature Date (“1st CP Date”);

      2.4.2 the Purchaser procuring debt funding by third party debt providers in order to
            partly fund the Disposal Consideration in the amount of not more than 75% on
            such terms and conditions as the Purchaser may determine in its sole discretion
            (the “Debt Funding”) and all agreements relevant to the Debt Funding having
            been concluded within 30 days of the fulfilment or waiver of the condition
            precedent set out in paragraph 2.4.1 (“2nd CP Date”);

      2.4.3 the requisite regulatory approvals to implement the Disposal having been
            obtained by the 2nd CP Date;

      2.4.4 consent having been given by the mortgagee to the cancellation of the existing
            mortgage bonds over certain of the properties included in the Sale Assets within
            90 days of the fulfilment or waiver of the last of the conditions precedent set
            out in paragraphs 2.4.2 and 2.4.3 (“3rd CP Date”);

      2.4.5 the Disposal having been unconditionally approved by the Competition
            Authorities by the 3rd CP Date; and

      2.4.6 all agreements relevant to the Debt Funding and the Disposal having become
            unconditional by the 3rd CP Date.

2.5   Value of the net assets and profits attributable to the net assets of the

      The Income Generating Assets, excluding the development land of the Long Street
      property (“Long Street”), were valued at R561.30 million as at 31 December 2020.
      The Long Street development land valuation was written down to reflect an earlier
      contracted value of R45.00 million. The terms of the earlier contract in respect of Long
      Street were not fulfilled and consequently terminated. The portion of the Disposal
      Consideration attributable to the Income Generating Assets is R487.89 million and
      R58.36 million is attributable to Long Street. The annual net property income (“NPI”)
      for the years ended 31 December 2019 and 31 December 2020 attributable to the
      Income Generating Assets is tabulated below:

                                                          2019 NPI                2020 NPI
       NPI including expected credit loss                 54 074 266              36 926 476
       Expected credit loss                                1 932 743               9 330 661
       NPI excluding expected credit loss                 56 007 009              46 257 138
               The annual holding costs associated with Long Street for the year ended 31 December
               2020 were R1.77 million. The aforementioned information has been extracted from SA
               Corporate’s audited annual financial statements for the year ended 31 December 2019
               and 31 December 2020, which have been prepared in terms of International Financial
               Reporting Standards.


        Details of the Sale Assets are as follows:

Property          Location               Sector         Rentable      Weighted      Value of the        Disposal
                                                            area        average     Sale Assets    consideration
                                                                   rental per m2        as at 31
                                                           (m2)              (R)             (R)             (R)
Cavendish         183 Rahima Moosa       Residential       5 604          142.41     63 500 000       60 005 846
                  Street,                and Retail
Greatermans       220 Commissioner       Residential      12 435          103.57     112 000 000     105 837 082
                  Street, City and       and Retail
Ilanga            131 Pritchard          Residential       7 325          119.14      71 000 000      67 093 150
                  Street,                and Retail
Legae             219 Lilian Ngoyi       Residential       7 109          125.29      68 500 000      64 730 716
                  Street,                and Retail
Long Street       Margaret Mcingana      Development      26 000             N/a      45 000 000      58 359 950
                  Street, Spes Bona,     Land
                  Jeppestown South,
Lustre            114 Goud Street,       Residential       3 940          117.65      34 100 000      32 223 612
                  Johannesburg           and Retail
Panama            200 Commissioner       Residential       8 081          118.98      76 600 000      72 385 005
                  Street, City and       and Retail
Queens Court      245 Lilian Ngoyi       Residential       2 395          186.46      40 200 000      37 987 952
                  Street,                and Retail
Sambro House      25 – 29 Kruis          Residential       5 031          122.21      50 400 000      47 626 687
                  Street, Marshalltown   and Retail
Total                                                                                561 300 000     546 250 000

Note:     The valuation of the Sale Assets was undertaken by Quadrant Properties (Pty) Ltd, an independent valuer
          registered as a professional valuer in terms of the Property Valuers Profession Act, No 47 of 2000.


        The Disposal constitutes a Category 2 transaction in terms of the JSE Limited Listings
        Requirements and accordingly, no shareholder approval is required.

Cape Town
16 September 2021

Sponsor: Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Legal Advisors: Cliffe Dekker Hofmeyr Inc

Date: 16-09-2021 05:10:00
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