Real estate investment trust (Reit) SA Corporate Real Estate’s acquisition of the Parks Lifestyle Apartments, in Gauteng, presents an opportunity for the company to further its strategic focus on high-quality, precinct-based developments that align with its long-term goals of sustainability, defensive incomes and enhanced stakeholder value.

As confirmation, SA Corporate noted during a November 6 briefing that it did not currently own or manage any property with the same scale or mixed-use development potential as The Parks, making this a compelling expansion.

During an investor site visit, SA Corporate Real Estate CEO Rory Mackey said The Parks Lifestyle Apartments represented a compelling strategic acquisition for the company focused on a high-quality suburban, but affordable residential estate that offers residents safety, security, extensive lifestyle amenities and access to educational facilities.

He explained that the R1.67-billion investment is forecast to generate an initial yield of 9.55%.

He said the transaction was expected to result conservatively in an accretion of more than 1.5% to SA Corporate’s distributable income in the first 12 months of ownership.

In a Sens announcement released last month, SA Corporate noted that it had, through its subsidiary Afhco Holdings, concluded a sale of shares and claims agreement with CH Development Investments and Century Property Developments pursuant to which, subject to the fulfilment or waiver of the condition’s precedent, Afhco would acquire all the shares and claims in and against Riversands Residential Apartments at a transaction value equal to R1.67-billion – excluding acquisition costs.

The release explained that the sellers would complete the development of a new block of 40 units provided that if the new block was not completed by implementation of the acquisition (Phase 2) a portion of the purchase consideration of up to R31-million – based on progress to date – would be deferred and paid when Phase 2 reached applicable development milestones.

The new block will be underpinned by a 12-month net operating income (NOI) guarantee.

Phase 1 comprises 1 960 residential units with a total gross lettable area (GLA) of 118 528 m² while Phase 2 comprises 40 units with a GLA of 2 419 m².

The property is located in the rapidly growing Riversands development area near Steyn City, Fourways, which offers a secure, convenient and high-value living environment for residents.

The unit mix includes bachelor units, as well as one-, two- and three-bedroom apartments, within three-storey blocks.

In the Sens announcement, the company noted that The Parks provided a high-quality, scalable residential asset that supported SA Corporate’s growth in the middle-income rental market.

The company explained that the acquisition would increase SA Corporate's exposure to suburban estates which was expected to increase from 58.7% currently to 67.2% of SA Corporate's residential portfolio.

The Parks also delivers strong occupancy and stable cash flows, owing to affordability, lifestyle offering and supply constrained location.

Additionally, green spaces, recreational facilities and enhanced security increase tenant retention and attractiveness.

The Parks also benefits from strong infrastructure, proximity to employment hubs and potential long-term appreciation.

Moreover, Mackey explained that The Parks aligned with its long-term environmental, social and governance objectives.

He explained that the Parks had 1 432 units with Excellence in Design for Greater Efficiencies (EDGE) Advanced and 528 units with EDGE certification.

He said these certifications recognised energy savings of up to 46%, water savings of up to 23%, reductions in embodied energy of up to 30%, and meaningful cuts in operational carbon emissions.

Mackey said the current solar installation was limited to certain blocks, noting that SA corporate had already initiated the process to extend the installation to be a more substantive electricity source for the estate.

In the Sens announcement, the company said that the acquisition also allowed SA Corporate the ability to dispose of other less strategic units within its residential portfolio at sub 8.5% yields.

SA Corporate said the acquisition was expected to close and take effect on the first business day of the month following the month in which the last of the conditions precedent (CP) were fulfilled, or to the extent legally permissible, waived.

The upfront portion of the purchase consideration of R1.64-billion for Phase 1 will be applied, first, to settle any external debt of the acquiree to be confirmed by a settlement statement obtained from the acquiree's debt funders.

Second, as consideration for the acquisition by the purchaser of the loan owing by the acquiree to the seller being an amount of R125-million under the relevant loan agreement.

The remaining balance of the purchase consideration was consideration for shares in the acquiree.

The company noted in the Sens release that deferred purchase consideration would be payable to the seller upon certain milestones being reached, the last of which being the issuance of the temporary occupancy certificate for the new block of 40 units once construction of the new block was completed.

In addition, the seller will provide a monthly NOI guarantee of R316 667.

To the extent that the monthly NOI amounts to less than the NOI Guarantee, the sellers will pay the deficit to the purchaser every month for the first 12 months post-closing in respect of Phase 2.

The purchase consideration will be funded through a combination of SA Corporate's and Afhco's existing and new debt facilities, disposal proceeds and/or equity to be raised.

The three-year Afhco debt to be raised will be competitively priced at a margin of 125 basis points above three-month Johannesburg Interbank Average Rate, secured to fund socially responsible investment in affordable accommodation residential property.

“We believe that the transaction is transformative for SA Corporate’s residential portfolio, both in quality and scale.

“The Parks is a model for future growth of our portfolio that provides a prototype for a middle income yet affordable accommodation, suburban estate. This will increase our South Africa exposure, or our residential portfolio exposure, of our South African property to 49% and as previously mentioned, will now be two-thirds suburban estates,” said Mackey.