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Acquisition of additional Edward Street property in Tygervalley
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”)
ACQUISITION OF ADDITIONAL EDWARD STREET PROPERTY IN TYGERVALLEY
1. INTRODUCTION
Shareholders are hereby advised that the Company, through its wholly-
owned subsidiary Spear Holdco Proprietary Limited (“Purchaser”), has
entered into a sale of letting enterprise agreement with Ingenuity
Property Investments Limited (“Seller”) dated 25 November 2016 (“the
Agreement”). In terms of the Agreement, the Purchaser will acquire the
property situated on Erf 38063 Bellville, City of Cape Town, known as
142 Edward Street, Tygervalley (“the Property”) and the letting
enterprise conducted by the Seller as a going concern (“Letting
Enterprise”) in respect of the Property (“the Acquisition”).
2. RATIONALE FOR THE ACQUISITION
The Acquisition is in line with Spear’s strategy to increase its
investments in Edward Street and the surrounding Tygervalley node and is
at a yield that is accretive to shareholders. The Property is in very
close proximity to Spear’s existing properties on Edward Street and will
allow Spear to enhance value to the Property given Spear’s acute
understanding of tenant demands in the area.
3. PURCHASE CONSIDERATION
3.1. In terms of the Agreement, the purchase price for the Letting
Enterprise is R41 200 000 (inclusive of VAT at a rate of 0% (zero
percent)) (“Purchase Consideration”).
3.2. The Purchase Consideration will be paid by the Purchaser on the date
of transfer of the Property into the name of the Purchaser, following
the fulfilment or waiver of the conditions precedent (“Transfer
Date”).
3.3. The Purchaser will furnish the Seller with an irrevocable and
unconditional bank guarantee for payment of the Purchase
Consideration on or before 20 January 2017.
3.4. The Purchase Consideration will be funded by debt and/or equity
raised through a vendor consideration placing.
4. CONDITIONS PRECEDENT
4.1. The Acquisition is subject to the fulfilment or waiver by no later
than 21 December 2016 of the following conditions precedent:
4.1.1. the Purchaser being satisfied with the results of the due diligence
investigation in respect of the Letting Enterprise (which includes
the Property) and delivering written notice to the Seller of its
satisfaction; and
4.1.2. the investment committee of the Purchaser approving the
Acquisition and delivering written notice to that effect to the
Seller.
4.2. The conditions precedent set out above are expressed solely for the
benefit of the Purchaser, who shall be entitled to waive or relax
fulfilment thereof upon written notice to the Seller.
5. EFFECTIVE DATE
The Acquisition will become effective on the Transfer Date, which is
intended to be as close to 31 January 2017 as possible.
6. WARRANTIES AND OTHER TERMS
6.1. The Agreement contains representations and warranties by the Seller
in favour of the Purchaser which are standard for a transaction of
this nature.
6.2. Subject to such warranties, the Letting Enterprise is sold
“voetstoots”, including the Property which is sold as it stands at
the date of signature of the Agreement and the Transfer Date.
6.3. In terms of the Agreement, the Seller has indemnified the Purchaser
against all liabilities, actual or contingent, of howsoever cause
arising in respect of the Letting Enterprise and the Property,
accrued or for which the cause of action arose prior to the Transfer
Date.
7. THE PROPERTY
7.1. Details of the Property are as follows:
Property Name Geographical Sector Gross Weighted
and Address Location Lettable Average Gross
Area Rental/m2 (R)
(m2)
142 Edward Bellville, Commercial 2 609m2 R 123/m2
Street, City of Cape
Tygervalley Town
7.2. Details regarding the Property, as at the anticipated Transfer Date,
are set out below:
Purchase Yield Average Weighted Average Vacancy % by
Escalation Lease Duration Gross Lettable
(years) Area
Rate
9,7% 7,8% 2 years 16%
Notes:
Notes:
a) The costs associated with the Acquisition are estimated at R100
000.
b) The Purchase Consideration payable in respect of the Letting
Enterprise (which includes the Property) is considered to be its
fair market value, as determined by the directors of the Company.
The directors of the Company are not independent and are not
registered as professional valuers or as professional associate
valuers in terms of the Property Valuers Profession Act, No. 47 of
2000.
c) A rental guarantee to the value of R500 000 is in place relating
to the vacancies (uncontracted revenue), which is payable by the
Seller to the Purchaser on registration of the transfer of the
Property.
8. FORECAST FINANCIAL INFORMATION OF THE ACQUISITION
The forecast financial information relating to the Acquisition for the
financial periods ending 28 February 2017 and 28 February 2019 are set
out below. The forecast financial information has not been reviewed or
reported on by a reporting accountant in terms of section 8 of the JSE
Listings Requirements and is the responsibility of Spear’s directors.
Forecast for the Forecast for the
1-month period 12-month period
ending 28 ending 28
February 2017 February 2018
(R) (R)
Revenue 430 315 5 302 698
Straight-line rental accrual (8 724) (227 624)
Gross revenue 421 591 5 075 073
Property expenses (103 250) (1 267 910)
Net property income 318 341 3 807 163
Finance cost (317 583) (3 811 000)
Profit before taxation 758 (3 837)
Taxation 0 0
Net profit after taxation 758 (3 837)
Adjustment: Straight-line rental 8 724 227 624
Distributable profit 9 482 223 788
Notes:
a) Revenue includes gross rentals and other recoveries, but excludes
any adjustment applicable to the straight-lining of leases.
b) Property expenses include all utility and council charges
applicable to the Property.
c) The forecast information for the 1-month period ended 28 February
2017 has been calculated from the anticipated Transfer Date, being
on or about 31 January 2017.
d) Non-rental revenue constitutes 14% of the revenue for the 1-month
period ended 28 February 2017 and 14% of the revenue for the 12-
month period ended 28 February 2018.
e) Uncontracted revenue constitutes 12% of the revenue for the 1-
month period ended 28 February 2017 and 12% of the revenue for the
12-month period ended 28 February 2018. A rental guarantee to the
value of R500 000 is in place relating to the vacancies
(uncontracted revenue), which is payable by the Seller to the
Purchaser on registration of the transfer of the Property.
f) Near-contracted revenue constitutes 0% of the revenue for the 1-
month period ended 28 February 2017 and 0% of the revenue for the
12-month period ended 28 February 2018.
g) Leases expiring during the forecast period have been assumed to
renew at the future value of current market related rates.
h) This forecast has been prepared on the assumption that 100% of the
Purchase Consideration is funded initially through debt facilities
available to the Company. The Company may elect to partially or
fully fund the Acquisition through the issue of new equity in terms
of a vendor consideration placing.
9. CATEGORISATION
The Acquisition constitutes a Category 2 transaction in terms of the
JSE Listings Requirements.
Cape Town
29 November 2016
PSG Capital Proprietary Limited: Transaction Adviser and Sponsor
Date: 29/11/2016 03:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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