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TOWER PROPERTY FUND LIMITED - Update - Agrokor acquisition, proposed internalisation, distribution guidance, financial effects, caution withdrawal

Release Date: 13/04/2016 17:30
Code(s): TWR     PDF:  
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Update - Agrokor acquisition, proposed internalisation, distribution guidance, financial effects, caution withdrawal

TOWER PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2012/066457/06)
JSE share code: TWR ISIN: ZAE000179040
(Approved as a REIT by the JSE)
(“Tower” or the “company”)


UPDATE ON THE AGROKOR ACQUISITION, PROPOSED INTERNALISATION OF ASSET MANAGEMENT
THROUGH THE ACQUISITION OF TOWER ASSET MANAGERS, DISTRIBUTION GUIDANCE, FINANCIAL
EFFECTS OF THE AGROKOR ACQUISITION AND MANCO INTERNALISATION AND WITHDRAWAL OF
CAUTIONARY


1.     INTRODUCTION

       The purpose of this announcement is to provide shareholders with an update on the Agrokor acquisition, present the salient
       terms of the proposed internalisation of Tower’s asset management (the “Manco internalisation”), set out the forecast and
       financial effects of the Agrokor acquisition and Manco internalisation and to present shareholders with up-to-date guidance
       on the projected distribution to be received by a Tower shareholder for the year ending 31 May 2017.

2.     UPDATE ON THE AGROKOR ACQUISITION AND CIRCULAR

       Further to the announcements released on SENS on 27 January 2016 and 9 March 2016 regarding the proposed acquisition
       by Tower of four Konzum stores and shopping centres in Croatia from Agrokor d.d. and Konzum d.d. (the “Agrokor
       acquisition”), shareholders are advised that it is anticipated that a circular detailing the terms of the Agrokor acquisition
       and the Manco internalisation and incorporating a notice convening a general meeting of shareholders to consider, and if
       deemed fit, approve the requisite resolutions to implement the Agrokor acquisition and the Manco internalisation, will be
       sent to Tower shareholders before 30 April 2016.

3.     INTERNALISATION OF ASSET MANAGEMENT

       3.1.   Introduction and rationale

              Further to the announcement released on SENS on 4 May 2015, the Tower board has resolved to internalise its
              management company, by way of an acquisition of all the shares in Tower Asset Managers Proprietary Limited
              (“Tower Asset Managers” or “TAM”) by way of a subscription and purchase of shares in Tower Asset Managers.
              To this end Tower and all the shareholders of Tower Asset Managers (the “Manco shareholders”) including the
              majority shareholder Spire Property Group Proprietary Limited (“Spire”) have entered into a subscription and sale
              agreement (the “Manco subscription and sale agreement”) in terms of which Tower Asset Managers will be
              constituted as a wholly owned subsidiary of Tower for an aggregate consideration of R145 000 000.

              BDO South Africa, who were appointed as independent expert by Tower, have concluded that the terms of the
              Manco internalisation are fair to Tower shareholders. The fairness opinion will be included in the circular issued to
              Tower shareholders in respect of the Agrokor acquisition and Manco internalisation.

              Shareholders are referred to the illustrative financial effects of the Manco internalisation on the projected
              distribution to be received by a Tower shareholder for the year ending 31 May 2017 contained in paragraph 4 of this
              announcement which indicate that the Manco internalisation is yield neutral to Tower shareholders.

              Pursuant to the Agrokor acquisition, Tower has grown its property portfolio to a portfolio of 52 retail, commercial
              and industrial properties valued at R5.1 billion in aggregate. The board recognises that going forward the Manco
              internalisation will better align the interests of management with that of Tower shareholders and is in line with
              global best practice. The board further recognises that the failure to internalise Tower’s asset management function
              could be an impediment to Tower’s ability to raise further capital, given global best practice. Tower’s ability to
              raise further capital is essential to the company’s ability to grow shareholder value and diversify risk through off-
              shore investments. The Manco internalisation will also reduce Tower’s overhead costs relative to the size of the
              property portfolio in that as Tower’s property portfolio expands and the overall administrative expenses of operating
              the business increase, the increase in the asset management fee payable by Tower to Tower Asset Managers would
              have been more than the increase in the overall administrative expenses of operating the business.

       3.2.   Terms of the Manco internalisation

              Conditions precedent

              The Manco subscription and sale agreement remain subject to the fulfilment and/or waiver of, inter alia, the
              following conditions precedent:

              -      the Manco shareholders approving the Manco internalisation and all resolutions necessary to implement the
                     Manco internalisation, and, to the extent required, the filing of such resolutions with the Companies and
                     Intellectual Property Commission;
              -      all resolutions required to implement the Manco internalisation being approved by Tower shareholders;
              -      Cliffe Dekker Hofmeyr Inc. acceding to and becoming a party to a trust agreement, as contemplated in
                     sections 40(5) and 40(6) of the Companies Act, being concluded between Tower Asset Managers, the Manco
                     shareholders and Cliffe Dekker Hofmeyr Inc.

              The effective date for the Manco internalisation will be the fourth business day after the fulfilment of the last of the
              conditions precedent to be fulfilled, or waived, as the case may be (the “effective date”).

              Tower subscription for shares in Tower Asset Managers

              The subscription consideration of R145 000 000 (the “subscription consideration”) is payable by Tower for
              7 499 250 newly issued shares in Tower Asset Managers, which will comprise 99.99% of the Tower Asset
              Managers shares, as follows:

              -      50% will be paid on the fulfilment date of the conditions precedent to the Manco internalisation by the
                     allotment and issue of Tower shares at an issue price per share equal to the greater of:
                     -      R10.07, being the net asset value per Tower share as reflected in the unaudited interim results of
                            Tower for the six months ended 30 November 2015; and
                     -      a 5% discount to the volume weighted average traded price per Tower share for the 30 days prior to
                     the fulfilment of the conditions precedent to the Manco internalisation,
                     (the “subscription shares”); and
              -      50% (plus interest) will be payable in cash on the third business day after the fulfilment date of the
                     conditions precedent to the Manco internalisation.

              The subscription consideration will be distributed by Tower Asset Managers to the Manco shareholders upon
              receipt of the subscription consideration whereafter the Tower Asset Managers shares will be issued to Tower.
              Thereafter, Tower will acquire the remaining 750 shares in Tower Asset Managers for R750, thereby constituting
              Tower Asset Managers as a wholly owned subsidiary of Tower.

              Guarantee, Lock-up, pledge and distributions

              The shareholders of Spire (the “SPG guarantors”) guarantee the obligations of Spire under the Manco subscription
              and sale agreement. The Manco shareholders and in respect of Spire the SPG guarantors, to whom the subscription
              shares will be distributed and transferred have undertaken not to dispose of any interest in the subscription shares
              for 8 months (as to 33.33%), 16 months (as to 33.33%) and 24 months (as to the remaining 33.33%) without the
              prior written consent of Tower. The Manco shareholders and, in respect of Spire, the SPG guarantors have also
              undertaken not to dispose of any of the subscription shares before the second anniversary of the effective date at a
              price less than the volume weighted average traded price per Tower share for the 30 days prior to the date of such
              disposal.

              The subscription shares will only rank for distributions from the effective date and any part of a Tower distribution
              received by the Manco shareholders and the SPG guarantors in respect of a period prior to the effective date will be
              repaid to Tower.

              The Manco shareholders, and in respect of Spire, the SPG guarantors, have ceded and pledged the subscription
              shares to Tower for the above lock-up periods as security for the due and proper performance of their obligations in
              terms of the Manco subscription and sale agreement including repayment to Tower of any part of a distribution to
              which the Manco shareholders, and in respect of Spire, the SPG guarantors, were not entitled to as relating to the
              period before the Manco effective date.

              The Manco subscription and sale agreement includes warranties, indemnities and undertakings which are normal for
              an acquisition of this nature.
   
       3.3.   Related party transaction

              The Manco shareholders are Spire as to 53.34%, JTJ Investments Proprietary Limited (of which Bruce Rogerson is
              a shareholder) as to 13.33%, Blue Property Capital Proprietary Limited (of which Johan Malherbe is a shareholder)
              as to 13.33%, Alpha Trust as to 10% and Pencil Creek Trust (of which Martin Evans is a trustee and beneficiary) as
              to 10%. The shareholders of Spire are Hulk Investments Proprietary Limited (of which Marc Edwards is a
              shareholder and director) as to 25%, Tiger Mouse Investments Proprietary Limited (of which Bruce Kerswill is a
              shareholder and director) as to 25%, Symphony Investments Proprietary Limited (of which Keith Craddock is a
              shareholder and director) as to 25%, Scarborough Asset Management Proprietary Limited as to 12.67% and
              Scarborough Investments Proprietary Limited as to 12.33%.

              The Manco internalisation is considered a related party transaction in terms of section 10 of the Listings
              Requirements, requiring shareholder approval as Tower is entering into a transaction with the associates of its asset
              management company, Tower Asset Managers. The Manco internalisation is also considered a related party
              transaction in terms of section 10 of the Listings Requirements as each of Marc Edwards, Bruce Kerswill, Keith
              Craddock and Martin Evans, who hold an indirect beneficial interest in Tower Asset Managers, are also directors of
              Tower.

              BDO South Africa, who were appointed as independent expert by Tower, have concluded that the terms of the
              Manco internalisation are fair to Tower shareholders. The fairness opinion will be included in the circular issued to
              Tower shareholders in respect of the Agrokor acquisition and Manco internalisation.

4.     DISTRIBUTION GUIDANCE FOLLOWING THE AGROKOR ACQUISITION AND MANCO
       INTERNALISATION

       The table below sets out the illustrative financial effects of the Agrokor acquisition and Manco internalisation on the
       projected distribution to be received by a Tower shareholder for the year ending 31 May 2017. The distribution guidance
       and illustrative financial effects are not pro forma financial effects and are provided for illustrative purposes only. The
       illustrative financial effects are the responsibility of the directors of Tower and have not been reviewed or reported on by
       Tower’s auditors.

                                                             Adjustment for                   After the             Adjustment for
                                          Before the            the Agrokor                     Agrokor                      Manco              After the
                                        transactions1           acquisition2                acquisition3           internalisation4          transactions
       Dividend per share
       (cents)                                  92.6                    5.0                        97.6                       (0.1)                  97.5
       % change                                                        5.4%                                                  (0.1)%

       Notes and assumptions
       1.     Projected dividend per share for the year ending May 2017, assuming no new acquisitions for the year.
       2.     A maximum of R38 million or 16 cents per share can be utilised from a pool of value add profits and fees in order to achieve or exceed the
              growth forecast.
       3.     Assumes the Agrokor acquisition is implemented with effect from 31 May 2016 at exchange rates of R17.00 / Euro and 7.65 Croatian Kuna /
              Euro and R746.5 million is raised by issuing 88.9 million shares at R8.40 per Tower share in terms of a vendor consideration placement.
       4.     Assumes the acquisition of the entire issued share capital of Tower Asset Managers with effect from 1 June 2016. The subscription
              consideration of R145 million, plus transaction costs of R1 million, is assumed to be discharged as follows:
              4.1.     R72.5 million is to be discharged by issuing 7.2 million Tower shares at an issue price of R10.07 per share to the Manco shareholders;
                       and
              4.2.     R73.5 million is to be discharged in cash, raised by issuing 8.75 million Tower shares at an issue price of R8.40 per Tower share in
                       terms of a vendor consideration placement.

       On the assumption that the Agrokor acquisition is implemented, management’s previous distribution guidance for the year
       ending 31 May 2016, being a distribution of between 92.0 and 93.7 cents per Tower share for the year ending
       31 May 2016, will be achieved (3.1 cents of this guided distribution is contingent on the Agrokor acquisition and Manco
       internalisation being implemented on or before 31 May 2016).

5.     FINANCIAL EFFECTS OF THE AGROKOR ACQUISITION AND MANCO INTERNALISATION

       5.1.   Forecast statement of comprehensive income

              Set out below is an extract from the forecast statement of comprehensive income for the Agrokor portfolio
              (“forecasts”) for the one month ending 31 May 2016 and the year ending 31 May 2017, prepared in terms of section
              13.7 of the JSE Limited Listings Requirements.

              The forecasts, including the assumptions on which they are based and the financial information from which they are
              prepared, are the responsibility of the directors. Mazars, the reporting accountants of Tower, have issued an
              independent limited assurance report in respect of the forecast financial information set out below.
    
              The forecasts have been prepared in compliance with IFRS and in accordance with Tower’ accounting policies.

                                                                                                       Forecast for the one      Forecast for the year
                                                                                                                   month to                     ending
              EUR'000                                                                                           31 May 2016                31 May 2017
              Basic and diluted earnings per share (Euro cents)                                                        0.12                       1.07
              Headline earnings per share (Euro cents)                                                                 0.12                       1.07
              Distributable income per share (Euro cents)                                                              0.09                       1.07

              Notes and assumptions:
              1.       Tower’s management forecasts for the one month ending 31 May 2016 and the year ending 31 May 2017 are based on analysis of
                       contracts and information provided by the vendor.
              2.       Tower will acquire the Agrokor portfolio on an assumed effective date of 30 April 2016.
              3.       Tower’s sole income from the acquisitions will be in terms of the twelve year head lease agreements and property management
                       agreements from Konzum that are further guaranteed by Agrokor. No early termination is allowed. The agreements allow for renewal
                       terms to be negotiated within eighteen months of the expiry date.
              4.       The properties will be acquired on a ‘triple net lease’ basis as provided by the twelve year head lease agreements and property
                       management agreements whereby Tower will receive a contractual net income amount from a single source.
              5.       The rental amount to be received by Tower under the terms of the head lease agreements and property management agreements are
                       subject to indexation whereby the rent will increase each year on the anniversary of the commencement date by a percentage equal to
                       the weighted average of the Consumer Price Index of the member states of the European Currency Union (“CPI-ECU”) as published by
                       EUROSTAT. For the purpose of the forecast, CPI-ECU has been estimated as 2%.
              6.       Notwithstanding the turnover rent that Tower would be entitled to in respect of the future performance of Konzum stores, no amount has
                       been included in the forecast given the uncertain timing and amount involved.
              7.       Tower is in the process of securing new interest-bearing facilities with prospective European debt funders for a seven year term. For the
                       purpose of the forecasts, debt of EUR14.3 million has been assumed at a rate of 4.5% n.a.c.m. In addition, it has been assumed that
                       existing bank debt of EUR10.1 million will be retained, on new terms, for a period of twelve years at an estimated rate of 4.5% n.a.c.m.
              8.       Given that all properties are covered by the twelve year head lease agreements and property management agreements provided by
                       Konzum that are further guaranteed by Agrokor, all revenue is regarded as contracted and no vacant space exists nor leases regarded as
                       expiring during the forecast period.
              9.       No fair value adjustments have been forecast for the duration of the forecast period.
              10.      In terms of funding the acquisition of the Agrokor portfolio, it has been assumed that 89 225 561 Tower shares are issued at R8.40 per
                       share in terms of a vendor consideration placement, raising gross proceeds of R749.5 million.

       5.2.   Consolidated pro forma financial information

              Due to its nature, the consolidated pro forma financial information may not fairly present Tower’s financial
              position, changes in equity, results of operations and cash flows subsequent to the transaction and Manco
              internalisation. The consolidated pro forma financial information is the responsibility of the directors of Tower and
              has been prepared for illustrative purposes only in order to provide information about the financial position of
              Tower assuming that the transaction and Manco internalisation had been implemented on 30 November 2015 for
              statement of financial position purposes and assuming that the Manco internalisation had been implemented on
              1 June 2015 for statement of comprehensive income purposes.

              The consolidated pro forma financial information has been prepared in compliance with IFRS, the SAICA Guide on
              Pro forma Financial Information and in accordance with the accounting policies of the Tower group that were used
              in the preparation of the published unaudited condensed consolidated interim results for the six months ended
              30 November 2015.

              The consolidated pro forma financial information has been reviewed by Mazars, the independent reporting
              accountants of Tower. A copy of their report is contained in the circular.

              5.2.1.     The pro forma financial effects of the Manco internalisation on Tower’s distribution per share, basic and
                         diluted earnings per share and headline and diluted headline earnings per share are set out below in terms
                         of section 10.9 of the JSE Limited Listings Requirements.

                                                 Tower           Tower           Tower              Tower
                                               interim        reviewed     results for            interim
                                           results for     results for      six months        results for
                                         six months to        the year              to      six months to       Tower before      Pro forma after
                                           30 November        ended 31          31 May        30 November          the Manco            the Manco
                                              2014 1,2    May 2015 1,3          2015 1           2015 1,4   internalisation1     internalisation6     % change
              Distribution per
                                            42.0            86.8            44.8               45.2               90.0                 73.7        (18.1)
              share (cents)
              Basic and diluted
              earnings per share                  69.0           149.9            86.6               55.9              110.9                 48.4        (56.3)
              (cents)
              Headline and diluted
              headline earnings                   42.7            82.6            43.1               32.4               59.8                  0.6        (99.0)
              per share (cents)

              Notes and assumptions:

              For the purpose of the pro forma financial information, all Euro denominated amounts are assumed to be converted to South African Rands at an
              exchange rate of R17.00 per Euro, HRK7.6457 per Euro and R2.2235 per HRK.

              1.       The Manco internalisation is assumed to be implemented on 1 December 2014 for statement of comprehensive income purposes. To
                       calculate a pro forma twelve month period for Tower, a six month period to 31 May 2015 first has to be calculated by deducting the
                       unaudited condensed consolidated interim results for the six months to 30 November 2014 from the provisional reviewed annual results
                       for the year ended 31 May 2015. The resultant pro forma six month period to 31 May 2015 is then aggregated with the unaudited
                       condensed consolidated interim results for the six months to 30 November 2015 to obtain the twelve month unadjusted column forming
                       the basis for this pro forma statement of comprehensive income. By following this methodology, all source information is derived from
                       published interim and year-end reports.
              2.       The amounts set out in the “Tower interim results for six months to 30 November 2014” column have been extracted, without
                       adjustment, from the statement of comprehensive income within the unaudited condensed consolidated interim results of Tower as at
                       30 November 2014 and as published on 6 February 2015.
              3.       The amounts set out in the “Tower reviewed results for the year ended 31 May 2015” column have been extracted, without adjustment,
                       from the statement of comprehensive income within the reviewed condensed consolidated annual financial results of Tower as at
                       31 May 2015 and as published on 26 August 2015.
              4.       The amounts set out in the “Tower interim results for six months to 30 November 2015” column have been extracted, without
                       adjustment, from the statement of comprehensive income within the unaudited condensed consolidated interim results of Tower as at
                       30 November 2015 and as published on 4 February 2016.
              5.       The amounts set out in the “TAM before the Manco internalisation” column have been extracted, without adjustment, from the audited
                       financial statements of TAM for the year ended 29 February 2016.
              6.       The amounts set out in the “Pro forma after the Manco internalisation” column were calculated by consolidating the pro forma results of
                       Tower for the period from 1 December 2014 to 30 November 2015 and the audited financial statements of TAM for the year ended
                       29 February 2016, subject to the adjustments and assumptions set out below:
                       6.1.     The acquisition of TAM has been accounted for in terms of IFRS 3: Business Combinations whereby Tower will acquire the
                                shares in TAM and an intangible asset will be recognised. In accordance with this standard, at the date of the Manco
                                internalisation the fair value of the intangible asset was determined to be R143.3 million following a preliminary exercise to
                                recognise and measure the identifiable assets acquired and the liabilities assumed. This was the primary asset of TAM. The
                                asset was valued on a relief from royalty or cost approach using inputs generated from the agreement signed initially between
                                TAM and Tower as this was an arm’s length agreement and was considered representative of potentially similar agreements.
                       6.2.     In accordance with IAS38: Intangible Assets, the intangible asset arising from the acquisition of TAM is to be expensed over its
                                finite life, being the remaining period of the management agreement. However, as the management agreement with TAM will
                                cease to exist following implementation of the Manco internalisation, it has been assumed that the intangible asset is expensed
                                in full. No deferred taxation has been recognised in respect of the excess which is attributable to being an intangible asset.
                       6.3.     Represents the acquisition by Tower of the entire issued share capital of TAM as part of the Manco internalisation. The
                                aggregate purchase consideration of R145 million is assumed to be discharged through (i) the issue of 7 199 603 Tower shares
                                at an issue price of R10.07 per share and (ii) R72.5 million representing the balance of the consideration due, settled in cash
                                from part of the proceeds of the vendor consideration placement to be undertaken. For the purpose of this pro forma statement
                                of comprehensive income, 8 630 952 new Tower shares are assumed to be issued at an issue price of R8.40 per share for the
                                vendor consideration placement.
                       6.4.     The additional distributable income which results from the transaction is assumed to be earned evenly throughout the period
                                ended 30 November 2015.
                       6.5.     All adjustments are assumed to have a continuing effect.

              5.2.2.     The pro forma financial effects of the Agrokor acquisition and Manco internalisation on Tower’s net asset
                         value and net tangible asset value per share are set out below in terms of section 10.9 and section 13.7 of
                         the JSE Limited Listings Requirements.

                                                                                    Before           Pro forma after                  % change
               Net asset value per share (ZAR)                                                     10.07                     9.14                      (9.25)
               Net tangible asset value per share (ZAR)                                            10.07                     9.14                      (9.25)

               Notes and assumptions:

               For the purpose of the pro forma financial information, all Euro denominated amounts are assumed to be converted to South African Rands at an
               exchange rate of R17.00 per Euro, HRK7.6457 per Euro and R2.2235 per HRK.

               1.       The “Before” column is extracted, without adjustment, from the statement of financial position within the unaudited condensed
                        consolidated interim results of Tower as at 30 November 2015 and as published on 4 February 2016.
               2.       The financial information applied in the pro forma statement of financial position in respect of Sub Dubrovnik d.o.o (the “Dubrovnik
                        company”) which owns the Sub City Centre situated in the Dubrovnik area (the “Dubrovnik property”) has been extracted, without
                        adjustment, from the audited statement of financial position of Sub Dubrovnik d.o.o at 31 December 2015, prepared in compliance with
                        IFRS and audited by Mazars.
               3.       The Tower Asset Managers financial information applied in the pro forma financial information has been extracted, without adjustment,
                        from the audited statement of financial position of Tower Asset Managers at 29 February 2016, prepared in compliance with IFRS and
                        audited by Mazars.
               4.       The following adjustments have been applied and are reflected in the pro forma financial effects:
                        4.1.     The acquisition by Tower of the entire issued share capital of the Dubrovnik company is assumed to be with effect from
                                 30 April 2016. The aggregate purchase consideration of R73.3 million, calculated as R488.7 million (exclusive of VAT) less
                                 the amount of R415.4 million debt in the Dubrovnik company (which debt will remain in the Dubrovnik company pursuant to
                                 the Dubrovnik acquisition), is assumed to be funded through the vendor consideration placement; refer to note 4.10.
                        4.2.     The Dubrovnik property has been revalued to its fair value of R470.1 million as determined by the independent valuer, Spiller
                                 Farmer, and conducted in accordance with Croatian law. In the Dubrovnik company’s statement of financial position at
                                 31 December 2015, the property was recorded at a value of R394.8 million, a difference of R75.3 million to its fair value as
                                 determined by the independent valuer. No deferred tax has been recognised given Tower’s REIT status.
                       4.3.      The acquisition of the Dubrovnik company has been accounted for in terms of IFRS 3: Business Combinations whereby, on
                                 initial recognition and consolidation, the underlying investment property is restated to the value attributed by the independent
                                 valuer. The aggregate purchase consideration after debt of R73.3 million equated to more than the R55.0 million value
                                 attributed to the net assets following a preliminary exercise to recognise and measure the identifiable assets acquired and the
                                 liabilities assumed. Consequently, goodwill of R18.3 million has been recorded.
                       4.4.      The acquisition by Tower of the Meridijan 16 shopping centre situated in Zagreb, Gra?anska (the “Gra?ani property”), the
                                 standalone superKonzum situated in Velika Gorica (the “Velika Gorica property”) and the standalone superKonzum situated
                                 in Zagreb (the “Zagreb property”) are assumed to be acquired with effect from 30 April 2016 for an aggregate purchase
                                 consideration of R639.9 million. Tower is in the process of securing new interest-bearing facilities with prospective European
                                 debt funders and accordingly, R242.6 million of the aggregate purchase consideration is assumed to be funded through new
                                 Euro denominated debt facilities for a seven year term at a rate of 4.5% n.a.c.m. The balance of R397.3 million is assumed to
                                 be funded through the vendor consideration placement; refer to note 4.10.
                       4.5.      The acquisition of the Gra?ani property, Velika Gorica property and Zagreb property comprise the acquisitions of investment
                                 properties only, and do not include the associated rental and property management businesses. These acquisitions are therefore
                                 not considered to be the acquisition of a business and are therefore accounted for in terms of IAS 40: Investment Property.
                                 Investment property is initially recognised at the acquisition consideration attributable to the underlying investment.
                                 Subsequently at the reporting period-end, the investment property is measured at fair value in accordance with the fair value
                                 model adopted in Tower’s accounting policy.
                       4.6.      Relevant transaction costs of R0.4 million have been capitalised to the properties acquired in terms of IAS40.20. The
                                 transaction costs include due diligence fees and Croatian legal advisor fees. The transaction costs are assumed to be settled
                                 from part of the proceeds of the vendor consideration placement; refer to note 4.10.
                       4.7.      The acquisition of the entire issued share capital of Tower Asset Managers as part of the Manco internalisation is assumed to be
                                 with effect from 30 April 2016. The aggregate purchase consideration of R145 million is assumed to be discharged through (i)
                                 the issue of 7 199 603 Tower shares at an issue price of R10.07 per share and (ii) R72.5 million representing the balance of the
                                 consideration due, settled in cash from part of the proceeds of the vendor consideration placement; refer to note 4.10.
                       4.8.      The acquisition of TAM has been accounted for in terms of IFRS 3: Business Combinations whereby Tower will acquire the
                                 shares in TAM and an intangible asset will be recognised. In accordance with this standard, at the date of the Manco
                                 internalisation the fair value of the intangible asset was determined to be R143.3 million following a preliminary exercise to
                                 recognise and measure the identifiable assets acquired and the liabilities assumed. This was the primary asset of TAM. The
                                 asset was valued on a relief from royalty or cost approach using inputs generated from the agreement signed initially between
                                 TAM and Tower as this was an arm’s length agreement and was considered representative of potentially similar agreements.
                                 Further to the internalisation of TAM, the trade receivable shown in TAM’s accounts for an amount of R1.8 million due from
                                 Tower and the corresponding trade payable in Tower’s accounts of R1.8 million due to TAM have been eliminated.
                       4.9.      In accordance with IAS38: Intangible Assets, the intangible asset arising from the acquisition of TAM is to be expensed over its
                                 finite life, being the remaining period of the management agreement. However, as the management agreement with TAM will
                                 cease to exist following implementation of the Manco internalisation, it has been assumed that the intangible asset is expensed
                                 in full. No deferred taxation has been recognised in respect of the excess which is attributable to being an intangible asset.
                       4.10.     For the purpose of the vendor consideration placement, 97 856 513 new Tower shares are assumed to be issued at an issue price
                                 of R8.40 per Tower share raising a total of R822.0 million. It has been assumed that R774.6 million will be used to partially
                                 fund the transaction and Manco internalisation, R32.4 million retained in cash and the balance of R15.0 million of the total
                                 proceeds used to fund associated once-off expenses. R14.6 million of the expenses relating to the transaction and Manco
                                 internalisation have been set-off against stated capital as acquisition costs in terms of IFRS 3.53 with the balance of R0.4
                                 million capitalised; refer to note 4.6.

6.     WITHDRAWAL OF CAUTIONARY

       Following the release of this announcement, the cautionary announcements released on SENS on 27 January 2016 and
       9 March 2016 are withdrawn and caution is no longer required to be exercised by shareholders when dealing in their Tower
       shares.

13 April 2016


Corporate advisor and sponsor                                                  Legal advisor
Java Capital                                                                   Cliffe Dekker Hofmeyr



Independent reporting accountants                                              Independent expert
Mazars Corporate Finance                                                       BDO Corporate Finance
Date: 13/04/2016 05:30:00 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.

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