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Acquisition Of 15 On Orange Hotel
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 15 On Orange Hotel
1. INTRODUCTION
1.1. Shareholders of the Company are hereby advised that the
Company acting through its subsidiary, Spear Holdco
Proprietary Limited (“Spear Holdco”), has entered into a
subscription agreement and a share purchase agreement
(“Agreements”), on or about 17 March 2017 (“Signature Date”),
to subscribe for and acquire 100% of the share capital
(“Acquisition”) of Blend Property 15 Proprietary Limited
(“Blend 15”) from Blend Property 17 Proprietary Limited and
Platinum Hospitality Corporation Proprietary Limited
(“Platinum”)(collectively, the “Sellers”).
1.2. Blend 15 currently owns the immovable property comprising
the portions of the 15 on Orange sectional title scheme that
comprise the 15 on Orange Hotel and certain retail sections
(“Property”).
1.3. Certain condominiums currently owned by Blend 15 are
effectively excluded from the transaction and will be
transferred to Blend 17 (“Condo Sales”) post the Acquisition.
2. RATIONALE FOR THE ACQUISITION
The Acquisition is in line with Spear’s strategy to invest into
high quality assets within the Western Cape and to furthermore
increase its hospitality assets in the Cape Town area given the
continued strong performance of the tourism market.
3. CONSIDERATION
3.1. The consideration for the Acquisition is an effective amount
of R298 000 000 (“Consideration”), plus or minus any working
capital adjustments.
3.2. The Consideration will be funded through a combination of
loan funding and new equity that will be raised through a
vendor consideration placement.
4. NET INCOME GUARANTEE
The Sellers have provided Spear with a guarantee in respect of
the net income of the Property for a period of 365 days post
the acquisition up to a maximum amount of R28 484 244.
5. EFFECTIVE DATE
The effective date of the entire Acquisition shall be the third
business day following the registration of a mortgage bond over
the Property in favour of the provider of the loan funding
required for the Acquisition (“Effective Date”), which is
expected to occur on or about 01 July 2017, subject to
fulfilment or waiver, where applicable of all conditions
precedent and the implementation of the Agreements.
6. 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)
15 on Orange Cape Town Hospitality 14 681 R161.68
7. 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)
15 on Orange, Note b 16 0
15 on Orange,
Cape Town
Notes:
a) The costs associated with the Acquisition are estimated at
R3 500 000.
b) A Weighted average escalation cannot be accurately
calculated due to the variable nature of the lease being
fully performance based, calculated on the revenue generated
by the lessee.
c) In determining the cost of the Acquisition, the value 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.
8. FINANCIAL INFORMATION IN RESPECT OF THE ACQUISITION
The forecast financial information relating to the Acquisition
for the financial periods ended 28 February 2018 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 the Company’s
directors.
Forecast for Forecast for
the 8 month the 12 month
period ended period ended
28 February 28 February
2018 2019
Rental income 25 572 765 40 907 989
Straight-line rental accrual 165 407 399 442
Gross revenue 25 738 172 41 307 431
Property expenses (6 717 278) (10 595 330)
Net property income 19 020 894 30 712 101
Finance cost (10 753 582) (16 152 500)
Profit before taxation 8 267 312 14 559 601
Taxation 0 0
Profit after taxation 8 267 312 14 559 601
Adjusted for:
Straight-line rental accrual (165 407) (399 442)
Total comprehensive income 8 101 905 14 160 159
attributable to shareholders
Forecast distribution 8 101 905 14 160 159
Notes:
a) Rental income 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 8 month period ended
28 February 2018 has been calculated from the anticipated
Effective Date, being on or about 01 July 2017.
d) The forecast distribution excludes straight-line rental
accrual.
e) Contracted revenue constitutes 98% of the revenue for the 8
month period ended 28 February 2018 and 98% of the revenue
for the 12 month period ended 28 February 2019.
f) Near-contracted revenue constitutes 0% of the revenue for
the 8 month period ended 28 February 2018 and 0% of the
revenue for the 12 month period ended 28 February 2019.
g) Uncontracted revenue constitutes 2% of the revenue for the
8 month period ended 28 February 2018 and 2% of the revenue
for the 12 month period ended 28 February 2019.
h) Leases expiring during the forecast period have been assumed
to renew at the future value of current market related rates.
9. CONDITIONS PRECEDENT
9.1. The Acquisition is subject to fulfilment of the following
remaining conditions precedent –
9.1.1. by not later than 14 days after the Signature Date, the
board of directors of Blend 15 authorised the entering into
of the transaction agreements;
9.1.2. by not later than 14 days after the Signature Date, all
agreements necessary to give effect to the Condo Sales have
been entered into, in the agreed form as between the parties
thereto, and such agreements have become unconditional and
of full force and effect in accordance with their terms,
save for any condition that the subscription agreement must
become unconditional and that the shares to be issued in
terms of the subscription agreement (“Subscription Shares”)
have been issued, and that Spear has reconstituted the board
of directors of Blend 15;
9.1.3. by not later than 21 days after the signature date, the
relevant debt funders of Blend 15 have consented to the
transaction, to the extent required;
9.1.4. by not later than 21 days after the Signature Date, the
shareholders of Blend 15 have passed a resolution to
increase the authorised ordinary share capital of Blend 15
to enable the issue of the Subscription Shares and all
relevant special resolutions and any applicable notices of
amendment required in terms of the Companies Act No. 71 of
2008 (“Companies Act”) have been filed in the manner
prescribed in the Companies Act;
9.1.5. by not later than 21 days after the Signature Date, the
shareholders of Blend 15 have passed resolutions in
accordance with section 41(3) of the Companies Act
authorising the issue and allotment of the Subscription
Shares;
9.1.6. by not later than 21 days after the Signature Date, the
shareholders of Blend 15 have passed resolutions in
accordance with sections 44 and 45 of the Companies Act
authorising the implementation of the loan funding to be
utilised for the Acquisition (“Loan Funding”);
9.1.7. by not later than 10 April 2017, the Company and/or Spear
Holdco have notified Blend 15 in writing that legally
binding agreements have been entered into in respect of the
Loan Funding and that the loan funding facilities are
capable of being drawn down subject only to (i) the
fulfilment or waiver, as applicable, of the remaining
conditions precedent, and (ii) the registration of a
mortgage bond over the Property;
9.1.8. by not later than 120 days after the Signature Date, the
transactions contemplated in the subscription agreement (to
the extent necessary) have been approved by the competition
authorities in accordance with the Competition Act No 89 of
1998 either unconditionally or conditionally on such terms
and conditions acceptable to Spear and the Sellers, as
applicable; and
9.1.9. by no later than 120 days after the Signature Date, the
subscription agreement has become unconditional in
accordance with its terms and the Subscription Shares have
been issued.
9.2. Save for the condition precedent in paragraph 9.1.7, all the
conditions precedent are not capable of being waived.
10. OTHER SIGNIFICANT TERMS OF THE AGREEMENTS
The Sellers have provided the Company with warranties and
indemnities standard for a transaction of this nature.
11. CATEGORISATION
The Acquisition qualifies as a Category 2 acquisition for the
Company in terms of the JSE Listings Requirements.
23 March 2017
Cape Town
Designated advisor
PSG Capital
Legal Advisor
Cliffe Dekker Hofmeyr
Corporate advisor to sellers
Java Capital
Date: 23/03/2017 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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