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Emira - Acquisition of properties and Black Economic Empowerment Transaction
Emira Property Fund
A property fund created under the Emira Property Scheme, registered in terms of
the Collective Investment Schemes Control Act
Share Code: EMI & ISIN ZAE000050712
("Emira" or "the Fund")
ACQUISITION OF PROPERTIES AND BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. Introduction
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Further to the cautionary announcement published on 4 May 2006,
participatory interest ("PI") holders are advised that Emira has entered
into agreements in respect of the acquisition of the portfolio of
properties set out in paragraph 3.1 below ("the acquisition").
PI holders are further advised that Emira has entered into agreements which
will result in 14.2% of its PIs being placed with historically
disadvantaged South Africans through a partial vendor consideration
placement of the PIs issued to the vendors of the properties referred to
above, as well as a specific issue of PIs for cash ("the BEE transaction").
2. Rationale
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2.1 The acquisition
It is Emira"s strategy to increase the size and quality of its
portfolio through the acquisition of properties at market-related
prices that will enhance net income growth of the fund over the medium
to long term.
The acquisition will reduce Emira"s reliance on office properties and
increase the retail component of the asset base, such that these two
sectors will each comprise slightly in excess of 40% of the portfolio,
with the balance of the portfolio consisting of industrial properties.
The acquisition will also result in Emira acquiring a regional
shopping centre. Regional and super regional shopping centres have
outperformed all other categories of physical property over the past
ten years on a total return basis.
2.2 The BEE transaction
Emira recognises that there are a number of compelling reasons to
introduce black economic empowerment ("BEE") partners into the fund.
These include, but are not limited to:
- transferring ownership of land to people who were previously
denied access to land through discriminatory policy and
legislation;
- empowering previously disadvantaged individuals in order to
redress the imbalances of the past; and
- achieving a change in the racial and gender composition of
ownership, control and management within the property sector.
The Property Sector Transformation Charter ("the Property Charter") entered
into between the representatives of the South African property industry and
the Department of Public Works lists these reasons amongst its objectives
and the Board of Strategic Real Estate Managers ("STREM"), the management
company of Emira, believes that the BEE transaction is the first step
towards achieving the targets as set out in the Property Charter.
3. The acquisition
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3.1 Details of the property portfolio
In terms of the acquisition, Emira will acquire the following properties
(collectively "the property portfolio"):
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Property Purchase Rentable Forecast Vacancy
price Area net (% Rentable
(R"000) rental Area)
per sq.m
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Newlands Terraces 43,750 4,262 85.00 0.0
RTT Warehouse 217,117 44,085 39.06 0.0
WesBank House 44,000 9,172 41.64 4.0
Wonderpark Shopping 406,400 59,702 49.32 3.6
Centre
WorldWear 133,090 13,260 85.06 0.0
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The lease expiry profile of the property portfolio is as follows:
Vacant 2.4%
FY2007 3.0%
FY2008 1.6%
FY2009 8.8%
FY2010 12.2%
FY2011 16.4%
>FY2011 55.6%
CB Richard Ellis has been appointed to value the property portfolio in
terms of the Listings Requirements ("Listings Requirements") of the JSE
Limited ("JSE").
These valuation reports will be included in the circular to be posted to PI
holders setting out the terms of the acquisition as detailed in paragraph 7
below.
3.2 Description of the properties
3.2.1 Newlands Terraces
Address: Diagonally opposite the corner of Lower
Kelvin and Boundary Roads, Newlands, Cape
Town
Description: Multi-storey office building and parking
garage located adjacent to the Newlands Rugby
Stadium.
Tenants: Western Province Rugby Football Union, UCS
Software
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3.2.2 RTT Warehouse
Address: Corner Jones and Springbok Roads, Bartlett,
Johannesburg
Description: Warehouse and office development located
adjacent to the Johannesburg International
Airport.
Tenants: Railit Total Transportation (RTT)
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3.2.3 Wesbank House
Address: Corner Riebeeck, Long and Waterkant Streets,
Cape Town
Description: Multi-storey office building with retail
space on the ground floor, located in the
Cape Town CBD.
Tenants: Department of Labour, Wesbank
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3.2.4 Wonderpark Shopping Centre
Address: Corner R513 Brits Road and Heinrich Avenue,
Karenpark, Pretoria
Description: Regional shopping centre north-west of
Pretoria.
Tenants: Pick `n Pay, Game, Virgin Active, Edgars,
Cashbuild, Woolworths
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3.2.5 WorldWear
Address: Corner Beyers Naude Drive and Wilson Street,
Fairlands, Johannesburg
Description: Specialist, branded shopping centre.
Tenants: Mr Price Home, The Pro Shop, Seemans, Adidas,
JB Rivers, Cape Storm
3.3 Terms of the acquisition
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The aggregate purchase consideration of R844,4 million will be settled
through cash payments totalling R340,2 million the balance of R504.2
million will be settled through the issue of 61 219 383 PI"s. Details
of the individual property acquisitions are set out below:
3.3.1 Newlands Terraces
Subject to the fulfillment of the conditions precedent,
Emira will acquire Newlands Terraces from RMB Properties
(Proprietary) Limited ("RMB Properties") for R43 750 000.
The purchase consideration will be settled through the issue
of 4 467 907 PIs at R9.79 per PI, to be issued upon receipt
of PI holder approval of the transaction and which will be
entitled to pro rata distributions from the issue date. The
effective date of the acquisition is the later of practical
completion, which is anticipated to be 1 September 2006, or
registration.
3.3.2 RTT Warehouse
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Subject to the fulfillment of the conditions precedent,
Emira will acquire the RTT Warehouse from RMB Properties for
R217 117 357. The purchase consideration will be settled
through the issue of 622 665 PIs at R8.03 per PI and the
balance of the purchase consideration of R212 117 357 will
be settled in cash. The PIs are to be issued upon receipt
of PI holder approval of the transaction and will be
entitled to pro rata distributions from the issue date. The
effective date of the acquisition is the later of the trade
commencement date, which is anticipated to be 1 April 2007,
or registration.
3.3.3 WesBank House
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Subject to the fulfillment of the conditions precedent,
Emira will acquire Wesbank House from Momentum Group Limited
("Momentum") for R44 000 000. The purchase consideration
will be settled through the issue of 5 479 452 PIs at R8.03
per PI, the holders of which will be entitled to pro-rata
distributions from the effective date. The effective date of
the acquisition is to be on transfer of the property to
Emira, which is expected to be approximately October 2006.
3.3.4 Wonderpark Shopping Centre
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Subject to the fulfillment of the conditions precedent,
Emira will acquire Wonderpark Shopping Centre from Hawley
Road Developments (Proprietary) Limited for R406 400 000.
The purchase consideration will be settled through the issue
of 50 026 694 PIs at R8.12 per PI, the holders of which will
be entitled to pro rata distributions from the effective
date. The effective date of the acquisition is to be on
transfer of the property to Emira, which is expected to be
approximately October 2006.
3.3.5 WorldWear
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Subject to the fulfillment of the conditions precedent,
Emira will acquire WorldWear from RMB Properties for R133
090 000. The purchase consideration will be settled through
the issue of 622 665 PIs at R8.03 per PI and the balance of
the purchase consideration of R128 090 000 will be settled
in cash. The PIs are to be issued upon receipt of PI holder
approval of the transaction and will be entitled to pro rata
distributions from the issue date. The effective date of the
acquisition is the later of the trade commencement date,
which is anticipated to be 1 November 2006, or registration.
3.4 Financial information
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The forecast financial information attributable to the property
portfolio is set out below. The forecast financial information has
not been reviewed or reported on in terms of the Listings
Requirements.
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-
Forecast for the Forecast for
the
12 months ending 12 months
ending
30 June 2007 30 June 2008
(R"000) (R"000)
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Revenue 68,602 115,397
Property expenses (17,037) (24,868)
Administration expenses (2,540) (3,949)
Management expenses (2,795) (4,992)
Depreciation (1,426) (2,036)
Operating profit 44,804 79,552
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The forecast has been prepared based on the following assumptions:
- revenue from the properties has been included in the forecast
from the anticipated effective date of acquisition of each
property acquired;
- uncontracted revenue constitutes 2% of the portfolio revenue in
the year ended 30 June 2007 and 2.8% of revenue for the year
ended 30 June 2008. It has been assumed that this will be
contracted at market related rentals; and
- leases in respect of approximately 4.6% of the property
portfolio"s gross rentable area will expire during the forecast
period. For the purposes of the forecast, it has been assumed
that leases expiring during the forecast period will be renewed
at market related rentals.
4 The BEE transaction
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4.1 The BEE parties
4.1.1 The Tiso Group (Proprietary) Limited ("Tiso")
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Tiso is a leading black-owned, controlled and managed
investment holding company. Tiso is predominantly controlled
by its management and the Tiso Foundation, a registered
public benefit organisation.
Established in 2001, Tiso"s strategy is to:
- acquire control of enterprises in selected sectors of
the economy; and
- enter into a limited number of strategic BEE
partnerships with select partners.
Tiso is the controlling shareholder of Idwala Industrial
Holdings, whilst strategic partnerships include Aveng, AECI
and Investec.
4.1.2 Penreach/Shalamuka Foundation ("Penreach")
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Penreach was established in 1993 as a school-based outreach
programme, with the goal of uplifting the standard of
education in under-resourced communities. Based in Nelspruit
and servicing the surrounding areas of Mpumalanga, it is
currently the largest such programme in Africa, assisting
approximately 2,000 teachers and 900 schools each year.
Penreach is managed by full-time staff and governed by a
board of trustees. The establishment of the Shalamuka
Foundation will ensure that this important programme
continues to benefit the communities it serves.
4.1.3 Avuka Investment Holdings (Proprietary) Limited ("Avuka")
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Avuka is a black controlled company established in 2005. The
company is wholly-owned by the following black women:
- Dr Lulu Gwagwa: ex-Deputy Director General in the
Department of Public Works and a non-executive director
on the boards of the Airports Company of South Africa
("ACSA"), FirstRand, the Development Bank of Southern
Africa ("DBSA") and the Mineworkers Investment Company;
- Mrs Nocawe Makiwane: Managing Director of Avuka
Investments and non-executive director of National
Housing Finance Corporation ("NHFC");
- Nhlanhla Mjoli Mncube: Economic adviser to the Deputy
President of South Africa and a board member of Pioneer
Foods, Capitec Bank, Cadiz Holdings and the NHFC;
- Ms Monhla Hlahla: Chief executive of ACSA and an ex-
executive of Old Mutual, the DBSA and the Commonwealth
Africa Investment Fund. Ms Hlahla was voted South
Africa"s Business Woman of the Year for 2005.
4.1.4 Other Black Executives
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Mr Ben van der Ross serves on the Boards of FirstRand,
Naspers and the Momentum Group. Mr van der Ross is also
Chairman of STREM.
4.1.5 Black Employees
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In terms of the existing contracts between STREM and RMB
Properties, all asset and property management functions are
currently outsourced to RMB Properties. RMB Properties
employs approximately 113 black individuals, many of whom
are responsible for the administration of the fund and the
day-to-day management of properties owned by Emira.
It is proposed that a portion of the PIs to be issued in
terms of the BEE transaction will be issued to a trust, the
beneficiaries of which will be black employees of RMB
Properties. The trust will be utilised to retain and
incentivise existing black employees and to attract future
black executives.
4.2 Mechanics of the BEE transaction
Momentum and RMB Properties have agreed to place 40 010 339 of the PIs
they receive as consideration for the disposal of the properties
referred to above with the BEE parties in terms of a vendor
consideration placing.
In terms of the vendor consideration placing:
- Tiso, through wholly-owned subsidiary Tiso Property (Proprietary)
Limited, will acquire 35 491 905 PIs; and
- the remaining BEE parties will acquire 4 518 434 PIs.
- Emira will issue a further 11 172 765 PIs to the remaining BEE
parties in terms of a specific issue for cash. The cash raised
through the specific issue for cash will be used to repay
existing short-term debt.
The BEE parties will pay R8.03 per PI in terms of the vendor
consideration placement and the specific issue for cash. This purchase
consideration amounts to:
- a 6% discount to the clean, volume weighted average Emira PI
price as at 18 January 2006, being the date of approval of the
transaction by the STREM board; and
- a 23.2% discount to the clean Emira share price as at 2 June
2006, being the last practicable date prior to the publication of
this announcement.
Given that the pricing of the properties and the issue price of the
PIs was determined at the same time, the STREM board believes that the
transaction is equitable for Emira PI holders.
The BEE parties have raised third party debt totaling R391 000 000,
and will fund the balance of R20 000 000 through equity.
The BEE parties have agreed:
- not to dispose of their Emira PIs for a period of five years;
- for a further three years the PIs may only be sold to a black
person and/or a BEE entity; and
- that the BEE parties which are corporate entities shall not allow
any transfer of shares in their respective capitals that will
result in the percentage shareholding being held by black people
and/or BEE entities being materially reduced from that at the
effective date without prior written consent from Emira.
It has further been agreed that as anchor partner, Tiso will be
entitled to appoint one director to the STREM board, while the
remaining BEE parties will also be entitled, collectively, to appoint
one director to the STREM board.
5. PI holder approval
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The vendors of the property portfolio are related parties in terms of the
Listings Requirements, as they are subsidiaries of FirstRand, which holds
38.5% of Emira through Momentum. Accordingly, the acquisition is subject
to the passing by PI holders, excluding the related parties, of an ordinary
resolution approving the acquisition. Emira has appointed Deloitte &
Touche to provide PI holders with a fair and reasonable opinion on the
terms of the acquisition in terms of the related party provisions of the
Listings Requirements.
As the price at which the vendor consideration placing is being implemented
represents a discount of more than 10% to the 30-day volume weighted
average price prior to the date that the placing was approved by the STREM
board, the vendor consideration placing is subject to the passing by PI
holders of an ordinary resolution, by a 75% majority, approving such vendor
consideration placing.
The specific issue of PIs for cash is subject to the passing by PI holders
of an ordinary resolution, by a 75% majority, approving such specific issue
of PIs for cash.
6. Conditions precedent
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The acquisition and the BEE transaction are subject to the fulfilment of
the following conditions precedent:
- the approval by PI holders, as set out in paragraph 5 above; and
- the approval of the requisite documentation by the JSE.
7. Withdrawal of cautionary announcement and further documentation
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Having regard to the contents of this announcement, the cautionary
announcement relating to Emira is hereby withdrawn and PI holders need no
longer exercise caution when dealing in their PIs.
A circular, which is subject to approval by the JSE, containing further
information on the acquisition and the BEE transaction and convening a
general meeting of Emira PI holders, is in the process of being prepared
and will be posted to PI holders within 28 days of the date of publication
of this announcement.
Sandton
5 June 2006
Merchant bank and joint sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Lead sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Attorneys to Emira
Werksmans Incorporated
Independent valuer
CB Richard Ellis
Attorneys to Tiso
Tugendtaft Wapnick Banchetti and Partners
Independent expert
Deloitte Corporate Finance Division
Date: 05/06/2006 05:50:11 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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