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Small-Related Party Transaction Involving The Acquisition Of The Neighbourhood Square Property
Burstone Group Limited
(Previously Investec Property Fund Limited)
Approved as a REIT by the JSE
(Incorporated in the Republic of South Africa)
(Registration number 2008/011366/06)
Share code: BTN ISIN: ZAE000180915
Bond Code: BTN
("Burstone" or "the Group")
SMALL-RELATED PARTY TRANSACTION INVOLVING THE ACQUISITION OF THE NEIGHBOURHOOD
SQUARE PROPERTY
1. BACKGROUND AND INTRODUCTION
Shareholders are referred to the transaction circular distributed to shareholders on 17 April 2023
in respect of the successful internalisation of the South African and European asset management
functions of Burstone (the Internalisation Transaction).
In terms of the transitional support and alignment agreement which was entered into between
Burstone, Investec Limited (Investec) and Investec Property Proprietary Limited (Investec
Property) pursuant to the Internalisation Transaction, Investec Property granted Burstone a right
of first offer over certain properties (ROFO Properties), in the event that during the 24 months
post the closing of the Internalisation Transaction (being, 6 July 2023), Investec seeks to dispose
of any ROFO Properties, with "The Neighbourhood Square" being one such property (the Investec
ROFO).
Accordingly, pursuant to the completion of the Investec ROFO in respect of "The Neighbourhood
Square", shareholders are advised that Burstone and Flanagan and Gerard Frontiers Proprietary
Limited (F&G) (collectively, the Purchasers) have on 12 March 2024 entered into a sale of rental
enterprise agreement (the Transaction Agreement) with Investec Property, a wholly-owned
subsidiary of Investec, in terms of which Burstone and F&G will each acquire a 50% undivided
share in "The Neighbourhood Square" (the Transaction), for an aggregate purchase consideration
of R380,000,000 (Three hundred and eighty million rand) (the Purchase Consideration).
2. RATIONALE FOR THE TRANSACTION
Burstone aims to invest in best-in-class assets with compelling property fundamentals in
strategically selected sectors or regions where the Group has an in-depth understanding of the
market dynamics. As part of its core strategic objectives, Burstone regularly assesses opportunities
to enhance its portfolio with quality assets where management can leverage its expertise and
unlock value over time. The Group's long-term track record is testament of this approach and the
Group's ability to deliver sustainable income and capital returns.
The Transaction provides Burstone with the following benefits:
Property specific
- A newly built, high quality open-air, dominant nodal convenience retail shopping centre;
- Exceptional trading statistics; average trade density of c.R7,000/m² and cost of occupation
below 4.5%, resulting in a significant amount of turnover rental already being paid, and is
anticipated to result in long term sustainable rental growth above market trends;
- Strong operating fundamentals, with a Weighed Average Lease Expiry *("WALE") of 4.3 years,
zero vacancy and c.86% national retail tenants;
- Best-in-class anchors in Checkers and Woolworths, both with exceptional trade figures,
further complemented by Dischem and others;
- A retail offering which is easily accessible and highly visible, with approximately 320 metres of
frontage on Club Street (M16), in the predominantly upmarket residential suburb of Linksfield;
and
- A sizable catchment area catering for a growing, high LSM node.
Strategic rationale
- The centre is expected to deliver long-term returns in excess of typical core assets due to
demand for space in the premises;
- Best-in-class retail asset with predictable, long-term income streams supporting Burstone's
strategic objective of delivering sustainable returns across its portfolio;
- Although the Transaction is marginally dilutive to FY2025 earnings, the impact on future
earnings and capital value is expected to be positive; and
- The opportunity to partner with F&G, a leading property development and investment
company with a core focus on dominant regional malls and niche community centres. Since
its inception in 2001, F&G has successfully developed many quality shopping centres including
Nicoleway, Bryanston and the award-winning Morningside Shopping Centre which it
continues to own (for additional details see (https://fgprop.com/).
3. SALIENT TERMS OF THE TRANSACTION AGREEMENT AND CONDITIONS PRECEDENT
3.1 Payment of the Purchase Consideration (inclusive of VAT levied at 0%) as follows:
3.1.1 Burstone will pay an amount equal to 50% of the Purchase Consideration, being an
amount of R190,000,000 (One hundred and ninety million rand) (the Burstone
Purchase Consideration) in cash against registration of transfer of ownership of its
undivided share in "The Neighbourhood Square" into the name of Burstone
(Transfer Date); and
3.1.2 F&G will pay an amount equal to 50% of the Purchase Consideration, being an
amount of R190,000,000 (One hundred and ninety million rand) in cash on the
Transfer Date and against transfer into the name of F&G.
3.2 Upon the Purchasers becoming co-owners of equal undivided shares in "The
Neighbourhood Square", Burstone and F&G will jointly, subject to each co-owner's internal
delegated authority framework, make all day-to-day operational decisions, including
capital expenditure, budgets and the overall strategy pertaining to "The Neighbourhood
Square".
3.3 The effective date of the Transaction is the Transfer Date.
3.4 The Transaction is subject to the approval by the Competition Authorities in accordance
with the Competition Act, No 89 of 1998, either unconditionally or, in the event of a
conditional approval, on terms acceptable to the relevant parties.
3.5 The Transaction is subject to representations and warranties consistent with general
practice for transactions of this nature.
4. PROPERTY SPECIFIC INFORMATION
The property specific information required in terms of the Listings Requirements of the JSE
Limited (Listings Requirements) in respect of "The Neighbourhood Square" property is set out
below:
Property name The Neighbourhood Square
Sector Convenience retail
Geographical location Linksfield, Gauteng
Rentable area m2 10,897
Weighted average rental per m2 Per Month 285
Value attributed to the property as at 1 January 2024 R381,350,0001
1. The difference between the valuation and Purchase Consideration is as a result of the valuation being an open
market value, while the consideration paid is negotiated between the parties.
5. FINANCIAL INFORMATION
Set out below is the forecast (Forecast) for the Transaction for the year ending 31 March 2025.
The Forecast has been prepared on the assumption that the transfer of "The Neighbourhood
Square" will be completed on 1 June 2024. Accordingly, the Transaction has no impact for the
year ending 31 March 2024.
The Forecast is only in respect of Burstone's 50% undivided interest in "The Neighbourhood
Square", including assumptions on which it is based. The financial information from which it has
been prepared, is the responsibility of the directors of Burstone. The Forecast has not been
reviewed or reported on by Burstone's auditors or independent reporting accountants.
Forecast for the year ending 31
March 2025
(R'million)
Rental revenue 18.6
Net property income / net operating profit
15.3
Less: Finance costs (17.6)
Loss after tax (2.3)
Loss available for distribution
(2.3)
The Forecast incorporates the following material assumptions in respect of rental revenue and
expenses:
1. The forecast rental revenue (including rental recoveries) of R18.6 million for the 12-month
period to 31 March 2025 comprises 90% contracted income and 10% near contracted
income.
2. All contracted rental agreements are assumed to be valid and enforceable. The escalations
provided during the Forecast Period are in line with the rental agreements.
3. The leases are market standard retail leases, with the majority including turnover clauses,
and cost recoverability in line with market norms.
4. The marginal cost of debt is assumed to be 9.35%.
5. No fair value adjustment is recognised.
6. There will be no unforeseen economic factors that will affect the tenants' ability to meet its
commitments in terms of the leases.
7. The Forecast includes an assumption that turnover rental equivalent to the current turnover
rentals being paid are received in the Forecast Period.
6. SMALL RELATED PARTY CONSIDERATIONS
Investec Property is a wholly-owned subsidiary of Investec which is a material shareholder in
Burstone, holding c. 24% of the Burstone shares in issue as at the date of this announcement, and
is accordingly a related party to Burstone in terms of paragraph 10.1(b)(i) of the Listings
Requirements. The Burstone Purchase Consideration payable by Burstone to Investec Property
(as noted in paragraph 3.1.1 above) as a percentage of the market capitalisation of Burstone is
2.25% as at 12 March 2024 and accordingly the Transaction constitutes a small related party
transaction in accordance with paragraph 10.7 of the Listings Requirements.
"The Neighbourhood Square" was valued by Michael Gibbons of Mills Fitchet Magnus Penny
Proprietary Limited (Mills Fitchet), who is an independent external registered professional valuer
in terms of the Property Valuers Profession Act, No 47 of 2000 (the Independent Property
Valuation).
In accordance with the Listings Requirements, having regard to the Independent Property
Valuation and the fact that the value attributed to "The Neighbourhood Square" by Mills Fitchet
exceeds the Purchase Consideration, the board of directors of Burstone hereby confirms that it
is of the opinion that the Transaction is fair insofar as shareholders are concerned.
Copies of the Independent Property Valuation report will be available for inspection at the
registered office of Burstone (4 Sandown Valley Crescent, Sandown, Sandton, 2146) for a period
of 28 days from the date of this announcement.
On the basis of the aforegoing, the Transaction is not subject to shareholder approval.
13 March 2024
Transaction Sponsor to Burstone
Merrill Lynch South Africa (Pty) (Ltd) t/a BofA Securities
Financial Advisor and Sponsor to Investec Limited
Investec Bank Limited
Legal Advisor to Burstone
Cliffe Dekker Hofmeyr Inc.
Competition Law Advisor
Vani Chetty Competition Law Proprietary Limited
Date: 13-03-2024 11:00:00
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