JSE-listed property group Redefine Properties has concluded an agreement to buy the rental enterprises within the property portfolio of Macsteel Coreprop and Macsteel Genprop, which stretch across South Africa, upping its industrial property portfolio to about R7.7-billion from R5-billion.

The company explained in a statement to shareholders on Tuesday that the Macsteel acquisition would also lift Redefine’s weighted average lease period from 2.5 years to 5.5 years and strengthen the defensive component of its property portfolio. In addition, cost ratios would similarly benefit from the significant single-tenant triple-net lease.

Redefine said the R2.7-billion purchase consideration would be paid in cash to the sellers, Macsteel Coreprop and Macsteel Genprop, on the first day of the month following the month during which the last of the conditions precedent were fulfilled or waived.

The Macsteel property portfolio included Gauteng-based properties such as the Macsteel Lilianton facility, valued at about R 473.305-million, the Macsteel Coil Processing property, valued at around R 279.621-million and the Macsteel Trading Germiston South property, with a purchase consideration of about R237.499-million. The Macsteel property portfolio also included properties based in the Western Cape, Free State, KwaZulu-Natal, the North West province, Mpumalanga and the Eastern Cape.

Should the acquisition be implemented on November 1, Redefine forecast net operating revenue of the Macsteel property portfolio for the ten months ending August 31, 2015, of R309.696-million and R371.635-million for the year ending August 31, 2016.

Net profit after taxation was expected to be nil for both periods, while distributable earnings were forecast at R195.833-million and R250.666-million respectively.

Redefine noted that the Macsteel forecasts assumed that the contracted revenue was based on a valid lease agreement, there was no current vacant space in the Macsteel property portfolio and no vacant space would arise during the forecast periods, the entire purchase consideration was funded through the proceeds from an equity capital raise and no fair value adjustment had been provided for in respect of the ten months ending August 31, 2015, or the year ending August 31, 2016.

The Macsteel forecasts had not been reviewed or reported on by the independent reporting accountants or external auditors, added Redefine.

From the effective date, the holding company of the Macsteel Coreprop and Macsteel Genprop, Macsteel Service Centres SA (MSCSA), would lease the Macsteel property portfolio from Redefine, which would bear all the risks and reward, and receive all rentals paid in respect of the Macsteel property portfolio.

The fully repairing, operating, maintaining and insuring lease would continue for a period of 12 years after the effective date, with the rental payable in respect of each property in the Macsteel property portfolio escalating yearly at a rate of 8%.

The MSCSA would have the right to extend the lease for five years, starting on the expiry of the initial lease period, but would also have the right to repurchase the Macsteel property portfolio and terminate the lease at this time.