REDEFINE PROPERTIES LIMITED (Incorporated in the Republic of South Africa) (Registration number 1999/018591/06) JSE share code: RDF ISIN: ZAE000143178 (Approved as a REIT by the JSE) ( Redefine or the company ) ACQUISITION OF THE MACSTEEL PROPERTY PORTFOLIO AND UPDATE ON 90 GRAYSTON DRIVE A. ACQUISITION OF THE MACSTEEL PROPERTY PORTFOLIO 1. INTRODUCTION Redefine has concluded an agreement (the portfolio sale agreement ) with Macsteel Coreprop Proprietary Limited ( Macsteel Coreprop ), Macsteel Genprop Proprietary Limited ( Macsteel Genprop ) (collectively, the sellers or Macsteel ) and Macsteel Service Centres SA Proprietary Limited ( MSCSA ) for the acquisition of the rental enterprises conducted in respect of and including the properties and buildings of the property portfolio of the sellers (collectively, the Macsteel property portfolio ) (the Macsteel acquisition or acquisition ). 2. RATIONALE The Macsteel acquisition will transform Redefine s industrial property portfolio, increasing it from approximately R5 billion to R7.7 billion, lifting the weighted average lease period from 2.5 years to 5.5 years and will bolster the defensive component of Redefine s property portfolio. In addition, cost ratios will similarly benefit from this significant single tenant triple net lease. 3. DETAILS OF THE MACSTEEL PROPERTY PORTFOLIO Details of the properties in the Macsteel property portfolio, including property name and address, geographical location, sector, gross lettable area ( GLA ), weighted average rental per square metre and the purchase considerations attributed to the properties, are as follows: Property name Physical address GLA (m 2 ) Province Office Industrial Other Total Rental per m 2 Purchase consideration and valuation 1 Macsteel Lilianton facility 12 209 60 452 410 73 071 R 46.98 R 473 305 051 Macsteel Tube & Pipe Esson Road Lilianton Gauteng 2 468 41 462 410 44 340 7 Brook Road Lilianton Macsteel Head Office Boksburg Gauteng 9 741 8 990 18 731 Macsteel Tube & Pipe Gild Road Lilianton Gauteng Macsteel Tube & Pipe Gild Road Lilianton Gauteng 10000 10 000 Macsteel Tube & Pipe Brook Road Gauteng 2 Macsteel Cape Town Cape Town Macsteel VRN Cape Town Steelpark, Modderdam Road, Bellville Steelpark, Modderdam Road, Bellville Western Cape Western Cape 3 929 34 411 0 38 340 R 34.07 R 180 096 242 2729 25411 28140 1200 9000 10200
GLA (m 2 ) Rental per m 2 Purchase consideration and valuation Property name Physical address Province Office Industrial Other Total 3 Macsteel Coil Processing 6 906 45 067 913 52 886 R 36.37 R 265 221 926 Macsteel Coil Processing 243 Dyson Road Wadeville Gauteng 5046 28144 193 33383 Macsteel Coil Processing 243 Dyson Road Wadeville Gauteng 300 2500 2800 Macsteel Coil Processing 250 Dyson Road Wadeville Gauteng 8216 301 8517 Macsteel Coil Processing Truck Staging (MCP) Gauteng 0 Macsteel Exports 252 Dyson Road, Wadeville Gauteng 1560 6207 419 8186 4 Macsteel VRN Roodekop 5579 52052 14 57645 R 35.18 R 279 621 572 Macsteel VRN 17 Berry Road, Roodekop Gauteng 3449 30096 33545 Macsteel VRN Stainless 10 Berry Road, Roodekop, Germiston Gauteng 1000 13272 14 14286 Macsteel Flanges (VRN Reef) Berry Road, Roodekop, Germiston Gauteng 580 4400 4980 Macsteel VRN Reef Berry Road, Roodekop, Germiston Gauteng 550 4284 4834 5 3779 51669 1047 56495 R 30.49 R 237 499 185 Cnr Crompton & Simon Bekker Str. Germiston South Gauteng 2177 37407 258 39842 Cnr Simon Bekker & Crompton Streets, Gauteng 862 5 990 789 7 641 Tielman Roos Property (Next to Trading H/O) Gauteng 370 4 136 4 506 No 1 Tielman Roos Corner Property Gauteng 370 4 136 4 506 6 Macsteel Roofing Tedstone Avenue, Wadeville Gauteng 1 504 21 418 807 23 729 R 33.96 R 111 097 954 7 Macsteel Roofing Cnr Helium and Molecule Roads, Vulcania Gauteng 1 658 12 475 0 14 133 R 33.00 R 64 298 747 8 Wadeville Road Wadeville Wadeville Gauteng 2 602 19 041 2 485 24 128 R 34.35 R 114 268 520 9 Macsteel Special Steels Seymour Road, Industrial Sites, Meyerton Gauteng 1 323 10 316 54 11 693 R 21.75 R 35 062 919 10 Macsteel Special Steels Lea Road, Dunswart Gauteng 1 700 17 613 21 19 334 R 34.43 R 91 783 646 11 Bloemfontein 6 Gutsche Street, Hamilton, Bloemfontein Free State 505 4269 173 4947 R 54.51 R 37 176 518 12 Durban 46 Jeffels Road, Prospecton Kwa-Zulu Natal 1 890 19 542 108 21 540 R 40.96 R 121 641 693 13 Macsteel VRN Pinetown 10 Wiltshire Rd, Mariann Ind. Estates, Pinetown Kwa-Zulu Natal 523 6994 0 7517 R 43.70 R 45 289 855 14 Klerksdorp 3 Teak Avenue, Klerkindustria, Klerksdorp North West Province 5 667 4 860 4 736 15 263 R 33.57 R 70 641 977 15 Nelspruit 5 Bosch Street, Nelspruit Mpumalanga 850 2355 2057 5262 R 54.15 R 39 282 413 16 Pretoria Cnr Rene & Daan de Wet Nel Drives, Wintersnest, Arcadia Gauteng 393 7293 12 7698 R 24.33 R 25 819 712 17 9 Brons Street Zanniaville North West Province 1 380 6 480 0 7 860 R 43.75 R 47 407 972 18 4 Van der Bijl Street, Witbank Meyersbank, Witbank Mpumalanga 476 4208 334 5018 R 86.31 R 59 709 722 19 Macsteel Tube & Pipe - Usufruct Commet ERPM Gauteng 7052 40270 21500 68822 R 26.83 R 254 581 629 20 Macsteel Roofing - Queenstown 21 Kimberley 22 Newcastle 23 Welkom 24 Macsteel VRN Klerksdorp 25 Macsteel VRN Richards Bay 26 Macsteel VRN 28 Stevenson Road, Queendustria, Queenstown Eastern Cape 462 4212 0 4674 R 20.01 R 12 897 568 2-4 Hendrik van Eck Road, Kimdustria, Kimberley Northern Cape 999 5823 0 6822 R 27.58 R 25 944 637 13A Edison Street, Riverside Industrial Township, Newcastle 12 2nd Street, Kwa-Zulu Natal 157 1903 0 2060 R 15.28 R 4 340 132 Voorspoed, Welkom Free State 717 4527 306 5550 R 14.99 R 11 468 754 16 Chromium Road, North West Uraniaville, Klerksdorp Province 275 2045 50 2370 R 28.62 R 9 352 182 23, 25 Brass Link, Alton, Kwa-Zulu Richards Bay Natal 436 3516 165 4117 R 58.03 R 32 941 569 90 Dawes Street, North West Industries, Province 427 3068 1229 4724 R 31.53 R 20 535 962
Property name Physical address GLA (m 2 ) Province Office Industrial Other Total Rental per m 2 Purchase consideration and valuation 27 Macsteel VRN Vaal 66 Michelin Street, NW7, Vanderbijlpark Gauteng 1131 5655 157 6943 R 21.18 R 20 273 264 28 Macsteel VRN Welkom 9th Street, Industrial Area, Welkom Free State 656 5379 0 6035 R 10.14 R 8 438 679 Total 65 185 456 913 36 578 558 676 R35.05 R2 700 000 000 4. TERMS OF THE ACQUISITION 4.1. In terms of the portfolio sale agreement, Redefine will purchase the Macsteel property portfolio from the sellers for a purchase consideration of R2.7 billion (the purchase consideration ). 4.2. The purchase consideration will be paid in cash to the sellers on the first day of the month following the month during which the last of the conditions precedent is fulfilled or waived (the effective date ). 4.3. From the effective date the holding company of the sellers, MSCSA, will lease the Macsteel property portfolio from Redefine and Redefine will bear all the risks and reward and receive all rentals paid in respect of the Macsteel property portfolio. 4.4. The salient terms of the lease agreement between Redefine and MSCSA (the lease ) are as follows: 4.4.1. The lease will continue for a period of 12 years after the effective date (the initial lease period ). 4.4.2. MSCSA will have the right to extend the lease for a further period of five years commencing on the expiry of the initial lease period. 4.4.3. The rental payable in respect of each property in the Macsteel property portfolio will escalate annually at a rate of 8%. 4.4.4. The lease will be a fully repairing, operating, maintaining and insuring lease. 4.4.5. MSCSA will have the right to repurchase the Macsteel property portfolio from Redefine and terminate the lease with effect from the expiry of the initial lease period. 4.5. The portfolio sale agreement provides for warranties and indemnities that are normal for an acquisition of this nature, and for Macsteel to undertake certain remedial work in relation to the Macsteel property portfolio, at its cost. 5. CONDITIONS PRECEDENT The portfolio sale agreement is subject to the fulfilment of the following conditions precedent:
5.1. by not later than 17h00 seven business days after the signature date (being Friday, 8 August 2014) (the signature date ), Redefine confirming in writing that it is satisfied with its due diligence investigation in respect of the Macsteel property portfolio and the sellers, in its sole discretion; 5.2. by not later than 17h00 seven business days after the signature date, the sellers and MSCSA furnishing Redefine with the requisite written third-party confirmations and consents in relation to the cancellation of existing mortgage bonds in respect of the Macsteel property portfolio, in a form acceptable to Redefine; 5.3. by not later than 17h00 seven business days after the signature date, the sellers signing and delivering to the company such special powers of attorney and other documents which the company or the appointed conveyancers may require the sellers to sign in order to register transfer of all the properties in the Macsteel property portfolio and to register certain mortgage bonds in favour of Redefine, all in a form acceptable to Redefine; 5.4. by no later than 17h00 on the 30 August 2014, Redefine and MSCSA agreeing in writing, to the satisfaction of Redefine, on measures to mitigate the anticipated risks to Redefine relating to the fact that, as at the effective date, Macsteel Genprop is not expected to be the registered owner of, or the holder of a registered usufruct in respect of, the "ERPM property", which forms part of the Macsteel property portfolio; 5.5. by not later than 17h00 on the 30 August 2014, Redefine and MSCSA finally reviewing the contents of the Macsteel property portfolio schedule attached to the portfolio sale agreement for accuracy and completeness, and have either confirmed to each other in writing that they are satisfied therewith or have by written agreement substituted such annexure; 5.6. by not later than 17h00 on 30 August 2014, the board of directors of MSCSA approving the acquisition and the acquisition documents comprising, inter alia, the portfolio sale agreement and the lease (the acquisition documents ); 5.7. by not later than 17h00 30 days after the signature date, MSCSA, as the sole shareholder of each seller passing various shareholder resolutions as required under the acquisition documents and the Companies Act, in connection with the acquisition and the acquisition documents; 5.8. by not later than 17h00 30 days after the signature date, Redefine and MSCSA entering into the lease and that the lease has become unconditional in accordance with its terms; 5.9. by not later than 17h00 45 days after the signature date, various security documents and other acquisition documents envisaged in the portfolio sale agreement, and which are ancillary to the portfolio sale agreement, being entered into or adopted, as the case may be, and becoming unconditional in accordance with their terms; 5.10. by not later than 17h00 45 days after the signature date, any third parties who have any leases, rights of occupation, options, rights of first refusal or similar rights in respect of any of the properties forming part of the Macsteel property portfolio providing in writing such consents or waivers as may be required in connection with the implementation of all the transactions contemplated in the portfolio sale agreement; and
5.11. by not later than 17h00 120 days after the signature date, the acquisition being approved by the Competition Authorities in terms of the Competition Act, No 89 of 1998, as evidenced by the issue of a merger clearance certificate. 6. VALUATION The board of directors of Redefine is satisfied that the aggregate value attributed to the Macsteel property portfolio is in line with the aggregate purchase consideration being paid by the company and the individual values attributed to each property in the Macsteel property portfolio are in line with the individual purchase considerations. The directors of the company are not independent and are not registered as professional valuers or as professional associate valuers in terms of the Property Valuers Profession Act, No 47 of 2000. 7. FINANCIAL EFFECTS Set out below are the forecast revenue, operating profit, net profit after taxation and distributable earnings of the Macsteel property portfolio ( the Macsteel forecasts ) for the 10 months ending 31 August 2015 and the year ending 31 August 2016 (the forecast periods ). The Macsteel forecasts have been prepared on the assumption that the acquisition will be implemented on 1 November 2014. The Macsteel forecasts, including the assumptions on which they are based and the financial information from which they are prepared, are the responsibility of the directors of Redefine. The Macsteel forecasts have not been reviewed or reported on by the independent reporting accountants or external auditors. The Macsteel forecasts presented in the table below have been prepared in accordance with the company s accounting policies and in compliance with IFRS. 10 months ending 31 August 2015 R 000 Year ending 31 August 2016 R 000 Contractual rental and tenant recoveries 195 833 250 666 Straight-line of lease income adjustment 113 863 120 969 Rental revenue 309 696 371 635 Net operating income* 309 696 371 635 Net profit after taxation* nil nil Distributable earnings 195 833 250 666 *Includes the effects of straight-lining rental income. The Macsteel forecasts incorporate, inter alia, the following material assumptions: 1. Contracted revenue is based on a valid lease agreement. 2. Currently there is no vacant space in the Macsteel property portfolio and no vacant space is assumed to arise during the forecast periods.
3. The entire purchase consideration is assumed to be funded through the proceeds from an equity capital raise. 4. No fair value adjustment has been provided for in respect of the 10 months ending 31 August 2015 or the year ending 31 August 2016. 8. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION The unaudited pro forma financial effects of the acquisition on Redefine s net asset value and tangible net asset value per share, based on the unaudited consolidated statement of financial position as at 28 February 2014 as published on SENS on 8 May 2014, are not significant and have not been presented. 9. CATEGORISATION The Macsteel acquisition is a category 2 transaction in terms of the JSE Listings Requirements and accordingly does not require approval by linked unitholders. B. UPDATE ON 90 GRAYSTON DRIVE Redefine has significantly de-risked its office development at 90 Grayston Drive through the conclusion of a 10 year lease with IBM South Africa for approximately 10 300 m 2 and the letting of a further 1 500 m 2 to various tenants taking the confirmed occupancy level to approximately 66%. The conclusion of the leases are not categorisable in terms of the JSE Listings Requirements. The information provided in this paragraph is for information purposes only. 12 August 2014 Corporate advisor and sponsor to Redefine Java Capital Legal advisor to Redefine Cliffe Dekker Hofmeyr