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Private Placement and Listing of Spear on the Altx and Abridged Pre-listing Statement
SPEAR REIT LIMITED
(previously Arrow 2 Investments Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2015/407237/06)
(Share Code: SEA, ISIN ZAE000228995)
(“Spear” or “the Company”)
PRIVATE PLACEMENT AND LISTING OF SPEAR ON THE ALTERNATIVE EXCHANGE
(“ALTX”) OF THE JSE LIMITED (“JSE”) AND ABRIDGED PRE-LISTING
STATEMENT
1. INTRODUCTION
1.1. Spear is a Western Cape focused diversified property investment
company with a Cape Town bias.
1.2. Spear’s property portfolio is made up of 25 properties situated
throughout the Western Cape, save for one property in Gauteng,
with a total value of approximately R1.39 billion, a net asset
value of approximately R568 million (prior to the capital
raising) and which generates a forward net property related
revenue of approximately R128.1 million (based on actual
contractual revenue). The property portfolio comprises a well-
balanced mix of residential (5%), industrial (37%), retail
(22%), office (27%), hospitality (7%) and other (2%) assets.
The total gross lettable area of the property portfolio is
171 786 m² of which 28% is let to single tenants and 72% to
multiple tenants, ranging from JSE listed entities to small and
medium-sized enterprises.
1.3. The JSE has granted Spear a listing of all its issued ordinary
no par value shares (“Shares”) on the AltX (“Listing”) under
the abbreviated name “SpearReit”, share code “SEA” and ISIN
ZAE000228995 with effect from the commencement of trade on
Friday, 11 November 2016 (“Listing Date”), subject to Spear
having satisfied the JSE Listings Requirements regarding the
spread of public shareholders. The Company will be listed in
the “Diversified REITS” sector.
1.4. Although Spear will initially list as a REIT on the Altx, over
time it is the intention of management to migrate its listing
to the main board of the JSE.
1.5. Prior to the Listing, the Company will raise up to R112 500 000
by way of a private placement with invited investors (“Invited
Investors”) who fall within the categories envisaged in section
96(1)(a) of the Companies Act, No. 71 of 2008 (“Companies Act”)
of up to 12 500 000 new Shares at the placement price of R9 per
Share (“Placement Price”). In addition, Mike Flax (chief
executive officer), Quintin Rossi (managing director) and Abu
Varachhia (non-executive chairman) (“Founders”) will sell up
to 1 612 000 Shares to Invited Investors at the Placement Price
of R9 per Share, the proceeds of which will be used to settle
a portion of the listing fees and an assumed liability of a
Spear subsidiary (collectively the “Private Placement”).
1.6. In terms of a pre-placement undertaken by the Company, it has
already received irrevocable commitments from Invited Investors
to subscribe for 23 308 822 Shares in the Company to the value
of R187 500 000 (“Pre-Placement”).
1.7. The abridged Pre-listing Statement appearing below is not an
invitation to the public to subscribe for securities, but is
issued in compliance with the JSE Listings Requirements, for
the purpose of providing information to the public with regard
to the Company.
2. DISTRIBUTION OF PRE-LISTING STATEMENT
2.1. Spear has distributed a pre-listing statement to Invited
Investors regarding the Listing and Private Placement
containing detailed information regarding the Company (“Pre-
listing Statement”). The Pre-listing Statement is available on
the Company’s website at www.spearprop.co.za.
2.2. Terms appearing in title case in this announcement and that are
not otherwise defined herein, shall bear the meanings assigned
to them in the Pre-listing Statement.
3. SALIENT DATES AND TIMES RELATING TO THE LISTING AND PRIVATE
PLACEMENT
The salient dates and times relating to the Listing and Private
Placement are set out below:
Pre-listing Statement distributed on Friday, 21 October
Abridged Pre-listing Statement Monday, 24 October
published on SENS on
Opening Date of the Private Placement Monday, 31 October
(09:00)
Closing Date of the Private Placement Friday, 4 November
(17:00)
Results of the Private Placement Monday, 7 November
published on SENS on
Notification of applications to Monday, 7 November
successful Invited Investors on
Accounts at CSDPs/Brokers updated in
respect of Dematerialised Shareholders Friday, 11 November
on
Listing of Shares on the JSE expected Friday, 11 November
at commencement of trade on
Notes:
- The above dates are subject to change. Any such change will
be announced on SENS.
- All references to dates and times are to local dates and
times in South Africa.
- Invited Investors must advise their CSDP or Broker of their
acceptance of the Private Placement Shares in the manner and
cut-off time stipulated by their CSDP or Broker.
- CSDPs effect payment on a delivery-versus-payment basis.
4. ABRIDGED PRE-LISTING STATEMENT OF SPEAR
4.1. BRIEF OVERVIEW OF SPEAR
4.1.1. Spear was established in 2011 as a private portfolio of
investment properties (held through the Spear Property
Trust), by three South African real estate industry leaders,
namely, Mike Flax (chief executive officer), Quintin Rossi
(managing director) and Abu Varachhia (non-executive
chairman). Mike Flax and Quintin Rossi still lead the business
today and Abu Varachhia has taken on the role of non-executive
chairman.
4.1.2. As a private portfolio, the Spear Property Trust invested
across a variety of real estate sectors including office,
retail, industrial, residential and hospitality, all of which
were successful investments.
4.1.3. The Spear Property Trust achieved substantial organic growth
in its property portfolio by consistently applying the
principle of “value-addition” to all acquisitions made. The
principle of “value-addition” entails that a property would
only be acquired to the extent that management was able to
enhance the value of the property through aggressive letting
strategies or through value enhancing development or
redevelopment, in a relatively short space of time and at an
acceptable cost. By applying this strategy and through a
combination of organic growth and new acquisitions, the Spear
Property Trust saw its property portfolio grow from an asset
base of R358 million in 2011 to R1.39 billion in 2016.
4.1.4. Following a decision by the Founders to seek a listing on the
Altx as a real estate investment trust (“REIT”), the Spear
Property Trust resolved to transfer its portfolio to the
Company. The Founders are substantial Shareholders in the
Company and intend to remain so after the Listing, thereby
aligning their interests with Shareholders.
4.1.5. After the Listing, Spear will continue to invest across the
real estate sectors, however it will maintain a strict Western
Cape focus with a Cape Town bias.
4.2. STRATEGY AND VALUE PROPOSITION
4.2.1. Spear’s primary objective is to provide sustainable and
growing distributable income as a listed REIT through yield-
accretive acquisitions and the execution of its “SMART”
strategy, as set out below.
- Specialist in the Western Cape real estate market - Spear
will only invest in properties in the Western Cape due
to the favourable economic and property fundamentals in
the Western Cape and management’s belief that proximity
to assets allows its management team to extract maximum
value out of its properties from an asset management,
property management and general oversight perspective;
- Management conducted internally on all levels - The asset
and property management capabilities of Spear are all
conducted internally which is one of the key assets of
the business, providing Spear with a significant
competitive advantage over its competitors;
- Acquisitions to be yield-accretive - Spear will only
acquire a property to the extent that the acquisition is
yield-accretive or has value addition potential that will
enhance the yield;
- Redevelopments and active asset management - Spear will
create organic growth in its existing portfolio through
redevelopments and active asset management; and
- Timeous execution of tenant retention objectives - Spear
has a core focus on retaining tenants in a timeous manner.
4.2.2. The board of directors of Spear (“Board”) views the Listing
as the first step to growing the business into a mid-sized
property company with a market capitalisation of
approximately R8 billion over the next five years.
4.2.3. The Spear value proposition can be summarised as follows:
- Western Cape based diversified property investment
company, investing in retail, industrial, office,
hospitality and residential properties;
- offers investors access to a prime Western Cape focused
real estate portfolio;
- located in South Africa’s best location for growth;
- internally managed with a low cost structure;
- led by industry veterans with solid and successful track
records; and
- property portfolio underpinned by high quality tenancies
and lease covenants.
4.3. RATIONALE FOR LISTING AND PRIVATE PLACEMENT
The Company’s rationale for the Listing and the Private
Placement is to:
4.3.1. provide the Company with access to capital in order to grow
its business both organically and by way of future
acquisitions;
4.3.2. enhance the Company’s capital raising ability, as its scrip
can be placed in the form of vendor consideration placings;
4.3.3. raise capital to initially reduce debt and to have capacity
to fund future acquisitions;
4.3.4. obtain REIT status and the resultant tax benefits that arise
from such REIT status;
4.3.5. provide Spear Shareholders with a liquid, tradable instrument
within a regulated environment; and
4.3.6. create awareness with prospective institutional and retail
investors about the merits of investing in Spear.
4.4. PROSPECTS
The Spear portfolio is of a high quality, is underpinned by
strong tenancies and lease covenants and is situated in South
Africa’s best location for growth. Considering the success
achieved by the Company and the management team over the last
five years and the significant opportunities available to it
to enhance the existing portfolio and to grow through new
acquisitions, the Board is of the view that the future prospects
of the Company are very encouraging and is confident of
delivering sustainable income and capital growth to
Shareholders.
4.5. SUMMARY OF SPEAR PROPERTY PORTFOLIO
4.5.1. The property portfolio of the Spear Group on Listing, is
summarised as follows:
Number of Portfolio at Portfolio Average Weighted Gross
properties fair value NAV (prior property average lettable
owned (as per to Capital yield rental per area (GLA)
directly or Independent Raisings) m² m²
indirectly Property
through Valuer)
Spear
Subsidiaries
25 R1.393 R568 million 8.9% * R91.80 ** 171 786
million
Vacancy (% Portfolio Average Weighted Sectors Geographic
of rentable value per m² portfolio average profile
area escalations lease
expiry
periods
1.50% R8 109 8% 45 months Industrial, Western Cape
Retail, & Gauteng
Office, ***
Hospitality,
Residential
Notes:
* Average property yield which excludes the effects of lease
smoothing.
** Includes utilities and rates recoveries.
*** One property is situated in Gauteng, which will be sold at
the appropriate time after the Listing.
4.5.2. The evenly distributed geographical spread of the portfolio
within the greater Cape Metropole gives Spear the opportunity
to enjoy a broader market catchment as opposed to being overly
represented in one specific area within the Cape Metropole.
4.5.3. The portfolio presents stable income over the short, medium
and long term, with a number of “value-addition”
opportunities that will allow the organic growth and
increased income in the portfolio.
4.5.4. Currently the portfolio is spread across all sectors, with
an average portfolio rental of R91.80 per m², excluding VAT,
including utility recoveries. The portfolio is well
positioned for an upturn in average portfolio rentals due to
a number of leases that are due to be renewed shortly, which
are currently on a relatively low rental. In addition, the
portfolio currently has approximately 141 000 m² of bulk
which is available for redevelopment.
4.6. DIVIDEND POLICY
The Company will distribute at least 75% of its total
distributable profits as dividends to Shareholders by no later
than six months after its financial year end, subject to the
relevant solvency and liquidity tests as defined in the
Companies Act being applied. The Company aims to declare and
pay between 96% and 100% of its annual distributable profit as
a dividend to Shareholders.
The Company envisages paying interim and final dividends.
4.7. MANAGEMENT
4.7.1. The Company is governed by the Board, which is responsible
for ensuring that the Company complies with all of its
statutory and regulatory obligations as specified in the
Companies Act, its memorandum of incorporation (“MOI”) and,
following the Listing, in the JSE Listings Requirements.
4.7.2. The Board has appointed a number of further committees to
assist the Board in discharging its duties, with the
particulars of such committees outlined in Annexure 9 to the
Pre-listing Statement.
4.7.3. At an operational level, the chief executive officer is
supported by members of the Group’s executive management team
and the chairman who, between them, have more than 70 years’
experience.
4.7.4. No part of the business of the Group is managed, or is
proposed to be managed, by a third party under a contract or
arrangement.
4.8. PRIVATE PLACEMENT
4.8.1. Overview of the Private Placement
Prior to the Listing, the Company will raise up to
R112 500 000 by way of a private placement with Invited
Investors of up to 12 500 000 new Shares at the Placement
Price of R9 per Share. In addition, the Founders will sell
up to 1 612 000 Shares to Invited Investors at the Placement
Price of R9 per Share, the proceeds of which will be used to
settle a portion of the listing fees and an assumed liability
of a Spear subsidiary.
In terms of the Pre-Placement, the Company has already
received irrevocable commitments from Invited Investors to
subscribe for 23 308 822 Shares to the value of R187 500 000.
The Board has the discretion to increase or decrease the
number of Private Placement Shares and the amount sought to
be raised in the Private Placement.
Only persons who fall within any of the categories envisaged
in section 96(1)(a) of the Companies Act or who subscribe for
or purchase Private Placement Shares, the subscription and/or
acquisition cost of which exceeds R1 million per single
addressee acting as principal (as contemplated in section
96(1)(b) of the Companies Act), are entitled to participate
in the Private Placement.
The proceeds of the Private Placement will be employed, inter
alia, to initially reduce debt and to have capacity to fund
future acquisitions.
4.8.2. Condition Precedent
The Listing is conditional on the achievement of a public
spread of Shareholders acceptable to the JSE, being a minimum
of 10% of the issued share capital of the Company being held
by the public.
Should the Condition Precedent fail, the Private Placement
and any acceptance thereof shall not be of any force or effect
and no person shall have any claim whatsoever against the
Company or any other person as a result of the failure of the
Condition Precedent.
4.9. LISTING ON JSE
The JSE has granted the Company a listing of all its issued
ordinary Shares as a REIT on the Altx under the abbreviated
name “SpearReit”, share code “SEA” and ISIN ZAE000228995 with
effect from the commencement of trade on Friday,
11 November 2016, subject to the Company having satisfied the
JSE Listings Requirements regarding the spread of public
shareholders. The Company will be listed in the “Diversified
REITS” sector.
4.10. SHARE CAPITAL
The authorised and issued share capital of the Company,
immediately prior to the Listing Date, is as set out below:
Number of Shares R
Authorised share capital
Ordinary Shares of no par 1 000 000 000 -
value
Issued share capital
Stated capital – ordinary 56 806 299 567 917 843
Shares of no par value
Treasury Shares - -
Total 567 917 843
Following the Capital Raisings, the authorised and issued share
capital of the Company on the Listing Date is expected to be
as follows (on the assumption that 12 500 000 new Private
Placement Shares are issued in terms of the Private Placement
and 23 308 822 new Shares are issued in terms of the Pre-
Placement):
Number of Shares R
Authorised share capital
Ordinary Shares of no par 1 000 000 000 -
value
Issued share capital
Stated capital – ordinary 92 615 121 867 609 843
Shares of no par value
Treasury Shares - -
Total 867 609 843
4.11. COMPOSITION OF THE BOARD
The full names, ages, business addresses and capacities of the
Directors of the Company are provided below:
Full names Capacity Age Business address Date of
appointment
Abubaker Non- 58 5th Floor, Upper 19 April 2016
(Abu) executive Eastside, 31
Varachhia chairman Brickfield Road,
Salt River, Cape
Town
Michael Chief 53 5th Floor, Upper 19 April 2016
(Mike) executive Eastside, 31
Naftali officer Brickfield Road,
Flax Salt River, Cape
Town
Quintin Executive 35 5th Floor, Upper 18 November 2015
Michael managing Eastside, 31
Rossi Director Brickfield Road,
Salt River, Cape
Town
Christiaan Financial 28 5th Floor, Upper 20 July 2016
Barnard Director Eastside, 31
Brickfield Road,
Salt River, Cape
Town
Brian Leon Non- 53 No 12 Avenue La 20 July 2016
Goldberg executive Croix, Fresnaye,
Director Cape Town
Jalaloodien Lead 59 1st Floor, 20 July 2016
(Jalal) independent Riverside
Ebrahim non- Centre, Corner
Allie executive Main & Belmont
Director Road, Rondebosch
Niclas Independent 46 18th Floor, 30 September 2016
Kjellström non- Metropolitan
-Matseke executive Centre, 7 Walter
Director Sisulu Avenue,
Cape Town
5. COPIES OF THE PRE-LISTING STATEMENT
Copies of this Pre-listing Statement are available in English
only and may, from Monday, 24 October 2016 until the Listing
Date, be obtained from the registered office of the Company and
from the Designated Adviser, at the addresses set out in the
“Corporate Information” section of this Pre-listing Statement. A
copy of this Pre-listing Statement will also be available on the
Company’s website (www.spearprop.co.za).
Cape Town
24 October 2016
PSG Capital Proprietary Limited: Designated Advisor, Transaction
Adviser and Bookrunner
Grant Thornton Cape: Auditors and Independent Reporting Accountants
Cliffe Dekker Hofmeyr: Legal Advisers
Date: 24/10/2016 07:30:00 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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