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SPEAR REIT LIMITED - Acquisition Of 2 Long Street Cape Town And Cautionary Announcement

Release Date: 03/03/2017 17:10
Code(s): SEA     PDF:  
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Acquisition Of 2 Long Street Cape Town And Cautionary Announcement

Spear REIT Limited
(previously known as 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 2 LONG STREET CAPE TOWN AND CAUTIONARY ANNOUNCEMENT

1.     INTRODUCTION

1.1.     Shareholders of the Company are hereby advised that the
         Company, through its subsidiary, Spear One Proprietary
         Limited (“Spear One”), entered into an agreement (“Sale of
         Letting Business Agreement”) with Capital Propfund 1
         Proprietary Limited (“Seller”) to acquire, as a going
         concern, the letting enterprise operated by the Seller
         (“Letting Enterprise”) on the property on Erf 9363 Cape Town,
         City of Cape Town, Western Cape, situated at 2 Long Street,
         Cape Town, Western Cape (“Property”) (“Acquisition”).

1.2.     The effective date of the Acquisition shall be the date of
         registration of transfer of ownership of the Property to
         Spear (“Effective Date”), which is expected to occur on or
         about 1 July 2017.

1.3.     Spear will hold a 70% interest in Spear One on the Effective
         Date, with the balance being held by acquisition partners.

2.     RATIONALE FOR THE ACQUISITION

       The Acquisition is in line with Spear’s strategy to increase
       its investments in high quality Western Cape real estate and
       in this instance the Cape Town central business district.
       Management is of the opinion that the demand for commercial
       office accommodation within the Cape Town central business
       district will continue to grow, given that marginal vacancy
       reductions in the Cape Town central business district have
       commenced and are anticipated to continue. The Acquisition is
       at a yield that is accretive to shareholders.

3.      PURCHASE CONSIDERATION

3.1.      The purchase consideration for the Acquisition is
          R395 000 000, which includes VAT at the rate of 0% (“Purchase
          Consideration”), payable on the Effective Date.

3.2.      The Purchase Consideration shall be settled in cash and shall
          be funded in the manner stated below –

3.3.1        R217 000 000 will be funded by loan funding (“Loan
             Funding”); and

3.3.2        the balance of the Purchase Consideration will be settled
             through a vendor placement.

3.3.      Spear shall be entitled to raise additional equity to pay
          down the Loan Funding by way of a vendor placement.

3.4.      If the registration of transfer of ownership of the Property
          occurs after 30 June 2017, interest will accrue on the
          Purchase Consideration (excluding VAT) at a rate of 0.67%
          per month from 1 July 2017 to the date on which the transfer
          of ownership of the Property is registered, calculated daily
          and compounded monthly in arrears.

4.      THE PROPERTY

      Details of the Property are as follows:

         Property Name    Geographical    Sector    GLA       Weighted
         and Address      Location                  (m2)      Average
                                                              Gross
                                                              Rental/m2
                                                              (R/m2)

         2 Long Street,   2 Long Street,   Retail    23,671    120.3
         Erf 9363, Cape   Cape Town,
         Town, Western    Western Cape
         Cape

5.      PROPERTY SPECIFIC INFORMATION

        Details regarding the Acquisition, as at the expected Effective
        Date, are set out below:

         Property Name    Weighted       Lease       Vacancy
         and Address      Average        Duration    % by GLA
                          Escalation     (years)

          2 Long Street,      8%            2          13%
          Erf 9363, Cape
          Town, Western
          Cape

     Notes:
     a) The costs associated with the Acquisition of the Property
         are estimated at R3,500,000.

     b)    The cost of 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.

6.     FINANCIAL INFORMATION IN RESPECT OF THE ACQUISITION

       The financial information relating to the Acquisition is still
       being prepared and will be published in due course.

7.     CONDITIONS PRECEDENT

7.1.       The Acquisition is subject to fulfilment of the following
           conditions precedent –

7.1.1.      Spear confirms in writing to the Seller that it is satisfied
            with the results of the due diligence investigation by
            Wednesday, 15 March 2017;

7.1.2.      Spear resolves to approve the implementation of the
            Acquisition and delivers a copy of the resolution to this
            effect to the conveyancers and the Seller by Friday, 7 April
            2017;

7.1.3.      Spear procures written confirmation from a financial
            institution that it has been granted loan funding for no
            less than R217 000 000, by Tuesday, 18 April 2017;

7.1.4.    the Seller resolves to approve the conclusion and
          implementation of the Acquisition by Wednesday, 22 March
          2017;

7.1.5.    the Competition Commission or the Competition Tribunal, if
          applicable, unconditionally approves the implementation of
          the Acquisition, evidenced by a merger clearance
          certificate, by Wednesday, 31 May 2017; and

7.1.6.    Spear notifies the Seller that the balance of the Purchase
          Consideration has successfully been procured through a
          vendor placement and delivers confirmation to the Seller
          and the conveyancers confirming that all the regulatory
          approvals, including any approvals required by the JSE
          Limited in respect of such vendor placement, have been
          obtained, by Wednesday, 7 June 2017.

7.2.     Certain conditions precedent are capable of waiver by either
         the Spear or the Seller, as the case may be.

7.3.     The parties to the Acquisition may extend the date for
         fulfilment of any of the conditions precedent to such further
         date/s as they may, in writing, agree. In respect of the
         condition precedent in paragraph 7.1.5, should the required
         approval not be obtained by 31 May 2017, the period for
         fulfilment of such condition precedent shall automatically
         be extended by an additional 30 days.

8.     RENTAL GUARANTEE

       The Seller has provided Spear with a rental undertaking in
       respect of certain vacant premises within the Property. The
       undertaking is limited to R110 per square meter gross rental
       per month, excluding VAT for a maximum period of 18 months from
       the Effective Date.

9.     OTHER TERMS OF THE SALE OF LETTING BUSINESS AGREEMENT

       The Seller has provided the Company with limited warranties in
       relation to the transfer of the Property.

10.    CATEGORISATION

       The Acquisition qualifies as a Category 2 acquisition for the
       Company in terms of the JSE Listings Requirements.

11.    CAUTIONARY

       As indicated above, the financial information relating to the
       Acquisition is still being prepared and will be published in
       due course. Accordingly, shareholders are advised to exercise
       caution when dealing in Spear’s securities until the financial
       information relating to the Acquisition is published.

3 March 2017
Cape Town

Sponsor and Corporate Advisor
PSG Capital

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