Wrap Text
Announcement - Empowerment Transformation Transaction
VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
ISIN: ZAE000056370
JSE Share code: VKE NSX Share code: VKN
("Vukile" or the “company”)
ANNOUNCEMENT – EMPOWERMENT TRANSFORMATION TRANSACTION
1. Introduction
Vukile proposes implementing a sustainable and commercially driven black economic transformation
transaction through the acquisition of an approximate R1.4 billion commercial property portfolio from
Encha Properties (Proprietary) Limited (the “Encha Properties”) and/or its subsidiaries (collectively the
“Encha group”). The net realisation proceeds of approximately R600 million will be invested by the
Encha group in Vukile to achieve a long-term and sustainable alignment between Vukile and its
empowerment partner. The transaction will position Vukile as a leading JSE listed empowered property
company.
2. Proposed empowerment transaction and acquisitions
Vukile has concluded a non-binding heads of agreement with Encha Properties (the “proposed
transaction”) pursuant to which:
- Vukile will acquire five investment grade substantially national government tenanted properties
from subsidiaries of Encha Properties (the “Encha vendors”), which properties are known as
Navarre Wachthuis, the Pretoria Momentum Building, the Koedoe Arcade (Pretoria), De Bruyn
Park (Pretoria) and the Bloemfontein Fedsure Building (the “acquisition properties”);
- a sub-portfolio will be established within Vukile to own and house the acquisition properties and
potentially other properties already owned by Vukile or properties which may from time to time be
acquired by Vukile where the property is fully or predominantly tenanted by the national and/or
provincial government (the “Sovereign tenant portfolio”);
- the Encha group will be appointed as the property manager of the properties housed within the
Sovereign tenant portfolio and a member of the Encha group (the “Encha Manco”) will be
appointed as asset manager of the properties housed within the Sovereign tenant portfolio;
- pursuant to the disposal of the acquisition properties to Vukile, the Encha group will acquire an
initial approximate R470 million ungeared net equity investment in Vukile. Dependent on the terms
on which certain current lease extensions are concluded in respect of the acquisition properties and
which are currently under negotiation, Encha’s net equity investment in Vukile is anticipated to
increase to approximately R600 million by December 2013. This will represent an approximate
7.5% unitholding in Vukile’s enlarged unit capital. Such unit holding will represent an approximate
25% empowerment holding in Vukile for the purposes of the Property Sector Charter (in terms of
which mandated investments in Vukile are capped at 70% and are excluded for the purposes of the
calculation of empowered equity holding);
- an equity funding platform will be established to facilitate:
- the acquisition by a new special purpose vehicle/s established within the Encha group (the
“Encha SPV”) of additional equity in Vukile, thus enhancing the empowerment credentials of
Vukile and increasing the Encha group’s strategic investment in Vukile; and
- future Vukile capital raising through the placement of new Vukile units into such equity
funding platform,
(the “equity funding platform”); and
- a transformation strategy will be implemented within Vukile.
3. Rationale and the transformation imperative
The primary rationale of the proposed transaction is to address the transformation strategy within Vukile
in a commercially sustainable manner and on a basis consistent with the Property Sector Charter.
Key to the transformation imperatives of the proposed transaction will be that –
- the Encha group will have an initial ungeared net equity investment in Vukile of approximately
R470 million which is anticipated to increase by December 2013 to approximately R600 million. At
this level Encha’s unitholding will, for empowerment purposes and applying Property Sector
Charter methodology, represent an approximate 25% empowerment equity holding in Vukile;
- Sedise Moseneke (the current President of SAPOA and CEO of Encha Properties) will be appointed
as an executive director of Vukile with specific responsibility in respect of the Sovereign tenant
portfolio. In addition Sedise will work with Vukile’s CEO Laurence Rapp in growing the fund in
line with Vukile’s stated strategy of building a large diversified fund, overweight the retail sector.
Sedise will have executive responsibility for driving Vukile’s holistic transformation strategy;
- an existing Encha group employee will be appointed and/or seconded to Vukile who will be
responsible for implementing and monitoring the transformation strategy within the Vukile group
aimed at enhancing Vukile’s transformation strategy;
- the Encha group’s long-term property related interests will be aligned with those of Vukile through
a combination of exclusivity and other equity lock-in arrangements (as more fully dealt with below).
4. Encha Properties
Encha Properties is a leading Level 1 BEE rated black managed and black owned property company
which has been in operation since 1998. The Encha Properties services business manages in excess of 30
properties with a combined value in excess of R2 billion. The acquisition properties have been owned and
managed by the Encha group for periods ranging from 3 to 8 years.
5. Terms of the proposed transaction and conditions precedent
5.1. The portfolio acquisition
The acquisition properties will be acquired by Vukile with effect from 1 July 2013, or such later
date as may be agreed to between Vukile and the Encha vendors (the “effective date”).
The aggregate purchase consideration payable for the acquisition properties (in an amount of
approximately R1.3 billion (before any upward price adjustment expected to be approximately
R130 million (the “upward price adjustment”) to compensate the Encha vendors for the effects of
certain lease renewals in respect of the acquisition properties which are currently under negotiation)
will be calculated applying a 9.5% yield to the aggregate 12 month forward net property income
after deducting asset management fees to be derived from the acquisition properties.
The purchase price of the acquisition properties is to be reduced by an amount equal to the agreed
capital expenditure which is to be expended on the acquisition properties by Vukile post the
effective date.
The purchase price will be discharged on the date of registration of transfer of the acquisition
properties into the name of Vukile to the Encha vendors as follows:
- a cash payment of an aggregate amount of approximately R800 million which is to be utilised
by the Encha vendors to discharge various bank debt and other amounts due to third parties by
the Encha vendors;
- the balance of the purchase price will be discharged by the allotment and issue by Vukile of
new Vukile units (valued at a 2.5% discount to the volume weighted average “clean” traded
price at which Vukile units trade on the JSE over the 30 trading day period (“VWAP”)
immediately prior to the effective date). Any additional amount payable by Vukile in respect
of any upward price adjustment will also be discharged by the allotment and issue of new
Vukile units valued at the 30 trading day VWAP prior to the date of determination of any
adjustment amount (anticipated to be December 2013). The Vukile units to be issued in part
discharge of the purchase price of the acquisition properties are referred to as the “Vukile
consideration units”.
5.2. Suspensive conditions
The formal agreement shall be subject to, inter alia, the following suspensive conditions:
- the conclusion by Vukile of its due diligence investigation in respect of the acquisition
properties;
- the securing of Competition Authority approval;
- the securing by Vukile of such approvals and consents as may be required in terms of the
Companies Act (Act 71 of 2008) and/or the JSE Listings Requirements.
5.3. Asset management and property management arrangements
Encha Manco will render asset management services in relation to the properties housed within the
Sovereign tenant portfolio in terms of a written service level agreement to be concluded between the
Encha Manco and Vukile on market related terms. Asset management services shall be charged at a
cost of 0.5% per annum (exclusive of VAT) based on the most current independent valuations of the
properties comprised within the Sovereign tenant portfolio from time to time.
Encha Properties shall render property management services in respect of the properties housed
within the Sovereign tenant portfolio. The property management agreement and service level
requirements will substantially replicate the terms upon which Vukile currently contracts with third
party managers in respect of Vukile’s existing core portfolio. The property management services
will be rendered by Encha Properties at a fee (exclusive of VAT) of 3% of the gross amount of all
rentals and recoveries (exclusive of VAT) collected by Encha Properties in relation to the Sovereign
tenant portfolio.
5.4. The equity funding platform
The equity funding platform will facilitate the acquisition by the Encha group of additional equity in
Vukile which will both entrench the Encha group’s strategic equity holding in Vukile and enhance
Vukile’s empowerment credentials.
If during each of the four 1 year periods commencing on the effective date (each a “1 year period”
and the first 4 years commencing on the effective date the “initial 4 year period”), Vukile requires
to raise equity capital (other than by way of a rights offer and/or an issue of new Vukile units to
vendors of assets to Vukile pursuant to an acquisition issue in terms of the JSE Listings
Requirements) Vukile shall be obliged to place with the Encha SPV, in respect of each 1 year
period, the lesser of: (i) R250 million in placement value of Vukile units and (ii) subject to a
sufficient number of Vukile units being placed under the control of the Vukile board by Vukile
unitholders to facilitate the placement of additional Vukile units with Vukile unitholders, 50% of the
Vukile units to be placed by Vukile during the relevant 1 year period on the following terms:
- the Vukile placement units shall be acquired by the Encha SPV at a price which equates to a
discount of 2.5% to the 30 trading day volume weighted traded price of Vukile units for the
period immediately prior to the date on which the placement is to be effected;
- if during any 1 year period (during the initial 4 year period) Vukile places less than
R250 million in placement value of Vukile units with the Encha SPV, the shortfall in the
placement value of Vukile units for such 1 year period shall be accumulated so as to increase
the potential placing of Vukile units with the Encha SPV in the next 1 year period such that
over the initial 4 year period R1 billion of Vukile units (not including the Vukile consideration
units) will be placed with and acquired by the Encha SPV via the equity funding platform;
- the Encha SPV will be obliged to utilise all of the Vukile units owned by the Encha SPV from
time to time (including the Vukile consideration units) as security to raise senior debt funding
in order to acquire additional Vukile units under the equity funding platform;
- to the extent that the acquisition of Vukile units by the Encha SPV cannot be funded by the
Encha SPV utilising its senior debt capacity and/or its own resources, Vukile shall use its best
commercial endeavours and subject to Vukile’s lending covenants, to advance loans to the
Encha SPV and such additional amounts from time to time to enable the Encha SPV to
discharge the acquisition cost of the additional Vukile units to be placed with the Encha SPV
on the following terms:
- the mezzanine loans advanced by Vukile (the “mezz debt”) will attract interest at
Vukile’s then current cost of raising new debt plus 3% per annum (the “mezz debt
premium”).
- Vukile will be entitled to a mezz carry participation fee (payable forthwith after the 8th
anniversary of the effective date) on Vukile units acquired by the Encha SPV which are
funded by the mezz debt (the “qualifying Vukile units”) in an amount equal to 30% of
the profit made by the Encha SPV calculated on each tranche of such qualifying Vukile
units less the aggregate of the mezz debt premium paid to Vukile.
5.5. Long-term alignment of interests
A long-term alignment of interests between the Encha group and Vukile will be achieved through,
inter alia, an undertaking by Encha to continue to hold all of the Vukile units within the Encha
SPV for a minimum period of 8 years. Save for any Vukile units to be realised by the Encha SPV
after the initial 8 year period in order for the Encha SPV to discharge its funding obligations to
Vukile and/or other third parties, no more than 50% of the Vukile units will be realised after the
8th anniversary of the effective date and the balance after the 9th anniversary of the effective date.
In addition to granting Vukile a right of first refusal to purchase any immovable properties which
are owned from time to time by the Encha group, the Encha group will make available all property
related corporate opportunities in South Africa in the first instance for Vukile to exploit.
6. The acquisition properties
The property specific information in relation to the acquisition including property name and address,
sector, geographical location and rentable area is set out below.
Property name and address Sector Geographical Rentable
location Area (m2)
Navarre Wachthuis, 231 Pretorius Street, Commercial Pretoria, Gauteng 44 725
Pretoria
Pretoria Momentum Building, 329/339 Commercial Pretoria, Gauteng 37 703
Pretorius Street, Pretoria
the Koedoe Arcade, 236 Pretorius Street, Commercial Pretoria, Gauteng 10 970
Pretoria
De Bruyn Park, 253 Vermeulen Street, Pretoria Commercial Pretoria, Gauteng 35 742
The Bloemfontein Fedsure Building, 49 St Commercial Bloemfontein, Free 10 609
Andrews Street (Maitland Street), State
Bloemfontein
7. Categorisation of the proposed transaction
The acquisition of the acquisition properties will be classified as a Category 2 transaction in terms of the
JSE Listings Requirements.
However –
7.1. the issue of linked units to the Encha SPV under the equity funding platform constitutes a specific
issue of shares for cash under the JSE Listings Requirements, requiring approval of unitholders by
way of a 75% majority of votes cast in favour of such resolution at a duly constituted meeting of
unitholders;
7.2. the mezz debt to be potentially provided by Vukile to the Encha SPV under the equity funding
platform will constitute financial assistance to the Encha SPV for the purpose of, or in connection
with, the subscription of securities issued or to be issued by the company under section 44 of the
Companies Act, 2008 and accordingly will require the approval of unitholders by way of a special
resolution.
Accordingly, a general meeting of unitholders will be required to be convened for that purpose. Upon, the
formal signed agreements being concluded regulating for the proposed transaction, a circular together
with a notice of general meeting will be prepared by the company and posted to unitholders.
8. Financial effects and extension to cautionary
The financial effects of the proposed transaction, including the acquisition of the acquisition properties
and the specific issue of linked units in terms of the equity funding platform, are still in the process of
being finalised and will be published in due course. Based on Vukile’s current approximate 7.5%
weighted average cost of capital, the acquisition of the acquisition properties will be yield enhancing to
Vukile.
Unitholders of Vukile are advised that this announcement details the transaction which forms the subject
matter of the 21 February 2013 cautionary announcement. Unitholders should continue to exercise caution
when dealing in their linked units until the financial effects of the proposed transaction are announced.
12 March 2013
Corporate adviser and JSE sponsor: Java Capital
NSX sponsor: IJG Securities (Pty) Ltd
Date: 12/03/2013 03:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
