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LIBERTY TWO DEGREES - Abridged Pre-listing Statement

Release Date: 21/11/2016 08:00
Code(s): L2D     PDF:  
Wrap Text
Abridged Pre-listing Statement

Liberty Two Degrees
JSE code: L2D
ISIN: ZAE000230553
(Approved as a REIT by the JSE)
(“Liberty Two Degrees”)
a portfolio established under the Liberty Two Degrees Scheme,
a Collective Investment Scheme in Property established
in terms of the Collective Investment Schemes Control Act, No 45 of 2002, as amended,
and managed by STANLIB REIT Fund Managers Proprietary Limited (RF)
(Registration number: 2007/029492/07)
(“the Manager” or “STANLIB REIT Fund Managers”)


ABRIDGED PRE-LISTING STATEMENT – OPENING OF OFFER TO INVITED INVESTORS TO
SUBSCRIBE FOR UNITS AND LISTING OF LIBERTY TWO DEGREES ON THE JSE


Abridged pre-listing statement relating to:

-     a private placement (“the private placement”) to raise up to approximately R2.8 billion by way of:

            -   subscription by invited investors for up to approximately 200 000 000 units (“private placement
                units”) at a subscription price of R10.00 per private placement unit;

            -   subscription by Liberty Group Limited (“Liberty”) (using its new policyholders’ funds) for
                82 127 545 private placement units at a 5% discount to the subscription price payable by invited
                investors, being R9.50 per private placement unit. Liberty has undertaken to subscribe for these units;

-     Liberty, to the extent that there is demand by invited investors, selling (out of its shareholders’ funds) up to
      approximately 100 000 000 Liberty Two Degrees units; and

-     the subsequent listing (“listing”) of all Liberty Two Degrees units in the “Diversified REITs” sector on the
      Main Board of the exchange operated by JSE Limited (“JSE”).

This abridged pre-listing statement is not an invitation to the general public to subscribe for units in Liberty
Two Degrees. It is issued in compliance with the Listings Requirements of the JSE (“Listings Requirements”)
for the purpose of providing information to the public regarding Liberty Two Degrees and to provide
information to select investors with regards to the private placement.

Invited investors will be contacted by and will receive application forms to participate in the private placement
from the joint bookrunners, The Standard Bank of South Africa Limited and Java Capital Proprietary
Limited.

This announcement contains the salient information in respect of Liberty Two Degrees, which is more fully described
in the pre-listing statement (“the full pre-listing statement”) which will be made available to invited investors from
today. For a full appreciation and understanding of Liberty Two Degrees, the private placement and the listing, the full
pre-listing statement should be read in its entirety.

Terms defined in the full pre-listing statement bear the same meaning in this abridged pre-listing statement.

1.    Introduction

      Liberty Two Degrees is a portfolio established under the Liberty Two Degrees Scheme in terms of the
      Collective Investment Schemes Control Act No 45 of 2002 (“CISCA”) to afford investors growth in income
      and capital by investing at fair prices in a balanced spread of immovable properties and related assets permitted
      by the trust deed in terms of which the Liberty Two Degrees Scheme was established. The Liberty Two Degrees
      Scheme was registered by the Registrar on 28 October 2016 and is to be managed by STANLIB REIT Fund
      Managers, the approved/registered manager of the Liberty Two Degrees Scheme (registration number 34). The
      financial year end of Liberty Two Degrees is 31 December.

     The JSE has granted Liberty Two Degrees a listing of all of its issued units on the JSE in the “Diversified
     REITs” sector of the Main Board of the JSE under the abbreviated name: “Liberty2D”, JSE code: L2D and
     ISIN: ZAE000230553 with effect from the commencement of trade on Tuesday, 6 December 2016, subject to
     Liberty Two Degrees having satisfied the Listings Requirements regarding the spread of unitholders, being
     public unitholders holding not less than 20% of the issued units of Liberty Two Degrees at the point of listing
     on the JSE and the exchange agreement (in terms of which Liberty and Liberty Propco Proprietary Limited
     (“Propco”) dispose of 22% of the Liberty Property Portfolio in exchange for units to be issued by Liberty Two
     Degrees (“exchange agreement”)) becoming unconditional, confirmation thereof to be provided to the JSE by
     no later than 48 hours prior to the listing date.

2.   The Liberty Property Portfolio

     The Liberty Property Portfolio comprises predominantly retail real estate assets in South Africa. In
     Johannesburg, the retail assets are an interest in the Sandton City Complex, the Eastgate Complex and Nelson
     Mandela Square. Other retail assets comprise two regional shopping centres, being Liberty Midlands Mall in
     Pietermaritzburg in KwaZulu-Natal and Liberty Promenade in Mitchells Plain in the Western Cape, the mixed-
     use precinct of Melrose Arch in Johannesburg and the newly developed Botshabelo Mall in the Free State.

     The Sandton City Complex is located in the economic heartland of the country and showcases some of the most
     prestigious international and domestic retailers. The attraction of its long-established presence and overall
     quality make it irreplaceable and confers brand-value and recognition on the Liberty Property Portfolio.
     Similarly, the Eastgate Complex, with its strong history and recent upgrade, is located in a large catchment area
     with good access. The recently refurbished Nelson Mandela Square is a destination centre with a compelling
     entertainment offering complementing the neighbouring Sandton City Complex. Melrose Arch’s office and
     retail component supports its status as one of the leading mixed use precincts in Johannesburg’s high end
     Northern Suburbs.

     Liberty Midlands Mall and Liberty Promenade Mall are large high-quality centres within regional catchment
     areas positioned for growth.

     In addition to the offices included in the Liberty Property Portfolio’s main retail complexes, the Liberty
     Property Portfolio includes select office properties located in key business nodes with blue-chip anchor tenants.
     These properties include the Standard Bank Centre in Johannesburg, the Liberty Centre in Century City Office
     Park in Cape Town and Liberty Centre in Umhlanga Ridge, Durban.

     The Liberty Property Portfolio also includes John Ross Eco-Junction, where the Melomed hospital and other
     development opportunities will provide diversification and higher yield opportunities.

     The total Liberty Property Portfolio has a value of approximately R27 389 176 000 and a GLA of
     approximately 615 826m2.

3.   Liberty Two Degrees’ investment in the Liberty Property Portfolio

     The exchange agreement, further details of which are set out in paragraph 2.1 of the full pre-listing statement,
     provides for Liberty Two Degrees' initial investment in the Liberty Property Portfolio to be implemented
     immediately prior to listing. In terms of the exchange agreement, Liberty and Propco dispose of 22% of the
     Liberty Property Portfolio in exchange for units to be issued by Liberty Two Degrees. This will be achieved by
     Liberty Two Degrees acquiring an undivided share of each property (and letting business carried on thereon)
     which is equal to 22% of Liberty's and Propco's share of that property prior to the acquisition by Liberty Two
     Degrees. Consequently, where the properties are wholly owned by Liberty, Liberty Two Degrees will acquire a
     22% undivided share of the properties, but where Liberty owns only an undivided share of the properties
     Liberty Two Degrees will acquire a lesser undivided share which is equal to 22% of Liberty's share prior to the
     acquisition by Liberty Two Degrees.

     Prior to the implementation of the exchange agreement, Liberty holds the Liberty Property Portfolio in its
     policyholders' funds and in its shareholders' funds and Liberty has concluded the exchange agreement in order
     to transfer undivided shares in the Liberty Property Portfolio to Liberty Two Degrees to the extent elected by
     Liberty's policyholders and to an extent determined by Liberty in dealing with its shareholders' funds. When
     Liberty receives units in exchange for disposing of those undivided shares, Liberty will allocate those units to
     the funds out of which those undivided shares are transferred.
     In addition to enabling its policyholders to switch their interests in the Liberty Property Portfolio to units in
     Liberty Two Degrees, Liberty also enabled its policyholders to invest new funds in Liberty Two Degrees.
     Policyholders provided in excess of R780 million for this purpose, which will be invested by Liberty in the
     course of the private placement.

4.   Investment and growth strategy

     The investment policy of Liberty Two Degrees shall be aimed at achieving the primary objective of affording
     investors growth in income and capital by investing at fair prices in a balanced spread of the following assets:

     4.1.    immovable property in the Republic of South Africa (including undivided shares or other interests
             therein or leasehold in respect thereof);

     4.2.    securities of holding companies or fixed property companies, which will indirectly or directly own
             immovable properties referred to in 1.7.1 of the full pre-listing statement;

     4.3.    liquid assets and other qualifying assets determined by the Registrar in terms of section 47(2) of
             CISCA; or

     4.4.    immovable property in a foreign country and property shares or participatory interests in a collective
             investment scheme in property in a foreign country, in accordance with the provisions of section 49 of
             CISCA.

5.   Prospects and application of proceeds

     The board is of the opinion that the scale, long-established presence, quality and location of the retail
     component of the Liberty Property Portfolio, together with its experienced management team, position it as one
     of the premier real estate investment opportunities in South Africa. The listing of Liberty Two Degrees provides
     invited investors with a unique opportunity to invest in one of South Africa’s iconic retail property portfolios.

     A significant amount of capital expenditure has been historically incurred to maintain the high quality of the
     Liberty Property Portfolio. Over the past 5 years, in excess of R2.5 billion has been spent on developments and
     redevelopments, including Botshabelo Mall, Sandton City Complex, Eastgate Complex, John Ross Eco-
     Junction – Melomed Hospital and Nelson Mandela Square. The expansion of Liberty Midlands Mall
     commenced earlier this month.

     The Liberty Property Portfolio has consistently outperformed its benchmark of CPI +5% over a rolling 5 year
     period. As set out in paragraph 11.7 of the full pre-listing statement, Liberty Two Degrees is forecast to have a
     12 month forward yield of 6.5% on an ungeared basis. The defensive nature of the portfolio is expected to drive
     performance in a challenging economic environment. Note, however, that the past performance of the Liberty
     Property Portfolio is not indicative of the future performance of Liberty Two Degrees.

     Liberty Two Degrees will be ungeared on listing and will be able to take on debt (in line with gearing levels in
     the sector) to fund future quality acquisitions, as appropriate.

     In the short term, Liberty Two Degrees will focus its growth strategy in South Africa. Growth is expected to
     come from a select number of identified high quality acquisition targets, as well as from Liberty Two Degrees’
     current development pipeline in respect of those properties detailed in Annexure 8A and Annexure 8C of the
     full pre-listing statement, namely Liberty Midlands Mall, Eastgate Complex and John Ross Eco-Junction –
     Melomed Hospital.

     Liberty and Liberty Two Degrees are in discussions to acquire an iconic property that is aligned to the Liberty
     Property Portfolio and Liberty Two Degrees’ investment strategy. This would be the primary, but not the sole,
     use of the proceeds of the private placement and it is expected that the consideration payable by Liberty Two
     Degrees, should a transaction be concluded, would be a mixture of units and cash. The discussions to acquire
     this property have advanced but a final agreement has not been concluded. Liberty Two Degrees expects to
     provide more details in the first quarter of 2017 and the transaction will be dealt with in terms of section 9 of the
     Listings Requirements, to the extent that it is applicable. If concluded, this transaction will provide an
     immediate use of some of the capital to be raised in terms of the private placement and it is expected that the
     acquisition yield will not materially change the current expected forward yield. In addition, the transaction will
     provide for growth in line with expectations.

     The abovementioned growth strategy will be funded from the proceeds of the private placement, internally
     generated cash and future gearing, giving Liberty Two Degrees significant capacity to deliver on its growth
     potential.

     It is intended that funds invested in undeveloped properties will not exceed 15% of the value of Liberty Two
     Degrees’ portfolio at any given point in time.

     Liberty Two Degrees has granted a put option to Liberty policyholders (“put option”), in terms of which
     Liberty may elect to sell all (or any portion having a value of at least R200 million) of its undivided shares in
     the co-owned properties to Liberty Two Degrees, but when doing so Liberty must sell the same portion of its
     undivided shares in all of the co-owned properties to Liberty Two Degrees. The put option presents a unique
     opportunity for Liberty Two Degrees to gain further exposure to the Liberty Property Portfolio. Liberty Two
     Degrees can elect to settle the consideration payable in either units or cash, whichever is the most optimal at the
     time. The ability to settle in cash provides an opportunity for Liberty Two Degrees to utilise any excess cash it
     may have, or to consider raising gearing to acquire new properties if yields and cost of debt are supportive.
     Alternatively, the ability to settle in units means Liberty Two Degrees can reserve its cash and debt capacity for
     other uses and at the same time increase the market capitalisation and free float of Liberty Two Degrees. The
     put option will be settled at the higher of the clean VWAP or NAV per unit. The put option will only apply to
     existing properties (defined in paragraph 2.3.2 of the full pre-listing statement). Further details of the put option
     are set out in paragraph 2.3 of the full pre-listing statement.

     Liberty Two Degrees will also look to invest in income-producing and development opportunities in sub-
     Saharan Africa outside of South Africa (the “rest of Africa portfolio”). By leveraging off the expertise of
     Liberty and STANLIB in these regions, investors will have access to the growth opportunities Africa offers, the
     long term capital appreciation and the further diversification benefits of Liberty Two Degrees. Liberty Two
     Degrees will seek both accretive acquisitions and development activity to deliver this growth and will be guided
     by the following investment principles:

     -   selecting premium investment opportunities in high-end retail and commercial space, targeting
         multinational anchor tenants;

     -   ensuring adequate repatriation of distributions to the South African investor base; and

     -   it is intended that in the short-term the investment in the rest of Africa jurisdictions will not exceed 10% of
         the total portfolio value at the time of investment. Liberty Two Degrees will from time to time re-evaluate
         its investment policy as regards the rest of Africa portfolio and any deviations from the stated policy will be
         duly communicated to investors.

6.   Directors

      Name and age           Amelia Beattie (Amelia) (46)

      Business address       17 Melrose Boulevard, Melrose Arch, 2196

      Qualification          B Com, Certificate in Shopping Centre Management

      Position               CEO

      Name and age           John Sturgeon (John) (64)

      Business address       17 Melrose Boulevard, Melrose Arch, 2196

      Qualification          CTA, CA (SA), CMA, Hdip Tax

      Position               CFO

      Name and age           Mthandazo Peter Moyo (Peter) (54)
      Business address       Building 4, Parc Nicol Office Park, 3001 William Nicol Drive, 2191

      Qualification          B Compt, B Compt (Hons), CA(SA), CA(Z), Hdip Tax, AMP

      Position               Chairman, independent non-executive director

      Name and age           Wolf Eli Cesman (Wolf) (74)

      Business address       17 Melrose Boulevard, Melrose Arch, 2196

      Qualification          B Com, CA (SA), Hdip Tax

      Position               Independent non-executive director

      Name and age           Michael Ilsley (Mike) (55)

      Business address       23 Wild Pear Crescent, Fourways Gardens, 2191

      Qualification          B Com, B Acc, CA (SA)

      Position               Independent non-executive director


     All of the directors are South African nationals.

7.   Property management

     The property management function in respect of the Liberty Property Portfolio is undertaken predominantly by
     JHI Retail Proprietary Limited (“JHI Retail”) but the consortium comprising JHI Retail and Epsidex
     Proprietary Limited is to manage the newly developed Botshabelo Mall and Amdec Investments Proprietary
     Limited will continue to manage Melrose Arch.

     The property managers have been appointed by Liberty and Liberty Two Degrees to provide property
     management services in respect of the Liberty Property Portfolio.

8.   Summarised forecast information

     Given the nature of its business, Liberty Two Degrees uses distribution per unit as its key performance measure
     as it is considered a more relevant performance measure than earnings or headline earnings per share.

     Set out below are the summarised forecast statements of comprehensive income (“summarised forecasts”) for
     the one month ending 31 December 2016 and the year ending 31 December 2017 (“forecast periods”). The
     summarised forecast information is based on the assumption that the private placement is fully subscribed and
     that R2.8 billion is raised through the issue of 200 000 000 private placement units at a subscription price of
     R10.00 per private placement unit and the issue of 82 127 545 private placement units at a subscription price of
     R9.50 per private placement unit.

     The summarised forecasts comprise forecast figures for the duration of the forecast periods.

     The summarised forecasts, including the assumptions on which they are based and the financial information
     from which they are prepared, are the responsibility of the directors of the Manager.

     The summarised forecasts have been prepared in compliance with IFRS and in accordance with Liberty Two
     Degrees’ accounting policies.
                                                   Forecast for the one month             Forecast for the year ending
                                                          ending 31 Dec 2016                               31 Dec 2017
     Number of units in issue                                      908 443 334                            908 443 334
     Weighted average number of units in
     issue                                                           908 443 334                          908 443 334
                                                                                                                    
     Basic and diluted earnings per unit
     (cents)                                                                 4.93                                65.07
     Headline earnings per unit (cents)                                      4.80                                64.24
     Distributable income per unit (cents)                                   4.93                                65.07


     The figures set out above are extracted from detailed forecasts for the one month ending 31 December 2016 and
     the year ending 31 December 2017 and have been reported on by the independent reporting accountants,
     PricewaterhouseCoopers Inc. The detailed forecasts, the independent reporting accountants’ report on the
     detailed forecast and the assumptions on which the detailed forecasts are based, are set out in the full pre-listing
     statement.

9.   Purposes of the private placement and the listing

     The main purposes of the private placement and the listing are to:

     - restructure the Liberty Property Portfolio to better suit changing policyholder demand following the growth
         of South Africa’s listed REIT offering. As South Africa’s listed property sector evolved, certain
         policyholders’ expectations diverged from what the Liberty Property Portfolio was originally designed to
         serve prior to the growth of South Africa’s listed property space. The Liberty Property Portfolio continues
         to provide a unique investment offering to those policyholders with the matching investment profile,
         however Liberty believes its portfolio range must also continue to keep in step with changing policyholder
         demand. In particular, customers desired several features typical of REITs which were not available
         through an unlisted portfolio or within the Liberty Property Portfolio’s investment parameters. These
         features include:

             - market driven prices of listed securities;

             - enhanced returns via gearing of the portfolio;

             - creating an efficient platform to access equity and debt capital;

             - growth in the portfolio through new developments and acquisitions; and

             - measured exposure to growth markets including rest of Africa economies;

     -    enable Liberty to match policyholder liquidity requirements and as such better utilise its balance sheet as
          well as access new forms of capital that can be deployed for both the benefit of Liberty’s policyholders as
          well as investors;

     -    enable policyholders and other members of the public to invest in Liberty Two Degrees;

     -    provide invited investors, both institutional and private, and policyholders with an opportunity to
          participate over the long-term in the income streams and future capital growth of Liberty Two Degrees;

     -    obtain a spread of investors in order to enhance the liquidity and tradability of the units;

     -    raise up to approximately R2.8 billion to be used as outlined above;
      -   provide Liberty Two Degrees with access to a central trading facility thereby providing liquidity to
          unitholders;

      -   provide Liberty Two Degrees with a platform to raise funding to pursue growth and investment
          opportunities in the future; and

      -   enhance the public profile and general public awareness of Liberty Two Degrees.

10.   Details of the private placement

      A private placement will be undertaken by:

      -     Liberty Two Degrees to raise up to approximately R2.8 billion by way of:

            -      subscription by invited investors for up to approximately 200 000 000 private placement units at a
                   subscription price of R10.00;

            -      subscription by Liberty (using its new policyholders’ funds) for up to approximately 82 127 545
                   private placement units at a 5% discount to the subscription price payable by invited investors,
                   being R9.50 per private placement unit. Liberty has undertaken to subscribe for these units ; and

      -     Liberty, to the extent that there is demand by invited investors, selling (out of its shareholders’ funds) up
            to approximately 100 000 000 Liberty Two Degrees units. These will be units that are issued to Liberty in
            terms of the exchange agreement immediately prior to the listing. The exchange agreement provides for
            these units to be issued to Liberty at an issue price of R10.00 per unit, so Liberty will not make any profit
            on the sale of these units. The exchange agreement therefore distinguishes between units that will be sold
            by Liberty in terms of the private placement, which are issued at R10.00 per unit under the exchange
            agreement, and units that are not to be sold by Liberty in terms of the placement, which are issued at
            R9.50 per unit under the exchange agreement.

      Applications in terms of the private placement must be for a minimum of R1 000 000 per invited investor.

      The private placement units issued in terms of the full pre-listing statement will rank pari passu in all respects
      including distributions, with all existing issued units in Liberty Two Degrees.

      There are no convertibility or redemption provisions relating to any units.

      The private placement units will only be issued in dematerialised form. No certificated private placement units
      will be issued.

      No fractions of private placement units will be offered in terms of the private placement.

      The private placement is open to invited investors only. The following parties may not participate in the private
      placement:

      -   any person who may not lawfully participate in the private placement; and/or

      -   any investor who has not been invited to participate; and/or

      -   any person acting on behalf of a minor or deceased estate.
11.   Salient dates and times
                                                                                                           2016
      Opening date of the private placement (09:00)                                         Monday, 21 November

      Closing date of the private placement (12:00)                                         Monday, 28 November

      Results of the private placement released on SENS on                                  Tuesday, 29 November

      Notification of allotments to successful invited investors                            Tuesday, 29 November

      Listing of units and the commencement of trading on the JSE (09:00) on                 Tuesday, 6 December

      Accounts at CSDP or broker updated and debited in respect of                           Tuesday, 6 December
      dematerialised unitholders

      Notes:

      1   All references to dates and times are to local dates and times in South Africa. These dates and times are
          subject to amendment. Any such amendment will be released on SENS and published in the press.

      2   Invited investors must advise their CSDP or broker of their acceptance of the private placement in the
          manner and cut-off time stipulated by their CSDP or broker.

      3   CSDP’s effect payment on a delivery-versus-payment basis.

12.   Condition to which the private placement and the listing are subject

      The private placement and the listing are subject to Liberty Two Degrees achieving a spread of unitholders
      acceptable to the JSE, being a minimum of 20% of the issued units being held by public unitholders at the point
      of listing on the JSE and the exchange agreement becoming unconditional, confirmation thereof to be provided
      to the JSE by no later than 48 hours prior to the listing date.

      If the conditions precedent fail, the private placement and any acceptance thereof shall not be of any force or
      effect and no person shall have claim whatsoever against Liberty Two Degrees or any other person as a result of
      the failure of those conditions.

13.   Mandatory disclosure

      In accordance with section 6(1) of Financial Services Board Notice 92 of 2014, investors are reminded that:

      - collective investment schemes are generally medium to long-term investments;
      - the value of units or the investment may go down as well as up;
      - past performance is not necessarily a guide to future performance;
      - collective investment schemes can engage in borrowing;
      - units are traded at ruling prices and Liberty Two Degrees and the Manager are not obliged to redeem units;
      - the listing and related fees are set out in paragraph 47 and the ongoing costs and Manager’s fees are
        described in Annexure 5 of the full pre-listing statement; and
      - the Manager does not provide any guarantee either with respect to the capital or the return on Liberty Two
        Degrees.

14.   Availability of the full pre-listing

      Copies of the full pre-listing statement may be obtained between 08:30 and 17:00 on business days from
      Monday, 21 November 2016 to Tuesday, 6 December 2016 at the following places and on Liberty Two
      Degrees' website at www.liberty2degrees.co.za
      
      Liberty Two Degrees
      Liberty Life Centre, 1 Ameshoff Street, Braamfontein, Johannesburg, 2001

      Java Capital Proprietary Limited
      6A Sandown Valley Crescent, Sandown, Sandton, 2196

      The Standard Bank of South Africa Limited
      30 Baker Street, Rosebank, 2196


21 November 2016


Joint corporate advisor, sponsor and bookrunner
Java Capital Proprietary Limited

Joint corporate advisor, sponsor and bookrunner
The Standard Bank of South Africa Limited

Independent reporting accountants and auditors
PricewaterhouseCoopers Inc

Attorneys to Liberty Two Degrees
Webber Wentzel

Attorneys to the joint bookrunners
Cliffe Dekker Hofmeyr Inc.

Date: 21/11/2016 08:00:00 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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