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Implementation of a Strategic Black Economic Empowerment Transaction
EMIRA PROPERTY FUND LIMITED
Incorporated in the Republic of South Africa
(Registration number 2014/130842/06)
JSE share code: EMI ISIN: ZAE000203063
(Approved as a REIT by the JSE)
(“Emira” or “the Company”)
IMPLEMENTATION OF A STRATEGIC BLACK ECONOMIC EMPOWERMENT TRANSACTION
INTRODUCTION
Emira is pleased to advise shareholders that, in furtherance of its transformation strategy, the
Company has concluded certain agreements (“the Agreements”) that will facilitate the acquisition
of an effective 5.0% interest in the enlarged issued share capital of Emira by Black Economic
Empowerment (“BEE”) entities (the “Proposed BEE Transaction”).
Tamela Holdings Proprietary Limited (“Tamela”), through Tamela Property Investments Proprietary
Limited (“Tamela SPV”) and Letsema Holdings Proprietary Limited (“Letsema”), through Luxanio
Trading 157 Proprietary Limited (“Letsema SPV”) (collectively, the “BEE Parties”) will participate
in the Proposed BEE Transaction on the basis detailed below, through the subscription for
26 133 364 Emira ordinary shares (in aggregate) (“Subscription Shares”), comprising 5.0% of the
enlarged issued share capital of Emira, at an issue price of R13.9372 per Share (“Subscription
Price”).
The Proposed BEE Transaction constitutes a specific issue of shares for cash (“Specific Issue”)
in terms of the Listings Requirements of the JSE Limited (“JSE Listings Requirements”) and will
require the approval of Emira shareholders by way of an ordinary resolution, achieving a 75%
majority of the votes cast in favour of such resolution in accordance with the JSE Listings
Requirements.
RATIONALE FOR THE PROPOSED BEE TRANSACTION
The board of directors of Emira (“Board”) is committed to the implementation of transformation and
empowerment in the property sector. The Proposed BEE Transaction will result in the Company
securing a strategic, sustainable and commercially driven BEE shareholding which underscores
Emira’s commitment to achieving sustainable BEE ownership.
The Proposed BEE Transaction will:
• place 5.0% of the Company’s enlarged issued share capital under strategic black
ownership;
• enhance Emira’s investment proposition and value, including through Board and strategic
contributions of the BEE Parties;
• begin to give effect to Emira’s long-term transformation strategy with this initial step of a
5.0% shareholding, including specifically achieving compliance with the objectives as set
out in Section 2 of the Broad-Based Black Economic Empowerment Act, 2003, and the
Broad-Based Black Economic Empowerment Regulations, as they relate to the property
sector; and
• improve the Company’s gearing ratio, by reducing interest-bearing debt with the cash
proceeds received from the Subscription Shares.
SALIENT TERMS OF THE PROPOSED BEE TRANSACTION
The salient terms of the Proposed BEE Transaction are as follows:
• Emira will issue 13 066 682 new shares to each of Tamela and Letsema, via Tamela SPV and
Letsema SPV, respectively, resulting in each of the BEE Parties acquiring 2.5% of the enlarged
issued share capital of the Company for the Subscription Price, and a total of 26 133 364
Subscription Shares being issued to the BEE Parties for a total subscription consideration of
R364 225 921 (“BEE Transaction Value”);
• The Proposed BEE Transaction will be facilitated by Emira providing vendor funding to each
of the BEE Parties (“Vendor Funding”), for a period of 5 years, in a total amount of
R182.1 million (“Vendor Loan Amount”). The Vendor Loan Amount will bear interest at the
rate derived by dividing the aggregate amount of distributions paid by the Company on 50% of
the Subscription Shares by the Vendor Loan Amount, expressed as a percentage, for each of
the six-month periods ending 30 June or 31 December in each year;
• The balance of the BEE Transaction Value will be funded as follows:
- a cash investment in the amount of R18.2 million by each of the BEE Parties
respectively, comprising R36.4 million in total; and
- third party debt funding in the amount of R72.8 million to each of the BEE Parties
respectively, comprising R145.6 million in total;
• The Subscription Price represents the 30-day VWAP at 22 May 2017, being the business day
immediately preceding the date of this announcement, and no discount is applicable thereto;
• The BEE Parties have committed to hold the Subscription Shares for a period of 5 years from
the Effective Date (as defined below), being two business days after the satisfaction of the
relevant conditions precedent, as set out below; and
• The Subscription Shares, once issued, will rank pari passu in all respects with the current
shares in issue.
The funding obligations of the BEE Parties will be secured by a cession and pledge of 100% of the
Subscription Shares together with their rights to distributions, in favour of the third-party debt funder,
with a reversionary cession and pledge therein in favour of Emira.
CONDITIONS PRECEDENT
The Proposed BEE Transaction is conditional, inter alia, on the fulfilment of the following conditions
precedent (the “Conditions Precedent”):
• the Agreements becoming unconditional;
• the requisite approval being obtained from Emira shareholders in general meeting; and
• the relevant regulatory approvals being obtained.
EFFECTIVE DATE
The effective date of the Proposed BEE Transaction will be the second business day following the
date on which the last of the Conditions Precedent have been fulfilled or waived, which is expected
to be on or about 30 June 2017 (the “Effective Date”). The Subscription Shares will be issued on
the Effective Date and will qualify for receipt of distributions with immediate effect.
PRO FORMA FINANCIAL EFFECTS
The table below sets out the pro forma financial effects of the Proposed BEE Transaction on the
published unaudited interim results of Emira for the six months ended 31 December 2016. The pro
forma financial effects have been prepared for illustrative purposes only and because of their pro
forma nature, may not fairly present the Company’s financial position, changes in equity, results of
operations or cash flows, nor the effect and impact of the Proposed BEE Transaction going forward.
The pro forma financial effects have been prepared using accounting policies that comply with IFRS
and that are consistent with those applied in the published unaudited interim results of Emira for
the six months ended 31 December 2016. The pro forma financial effects are presented in
accordance with the JSE Listings Requirements and the Guide on Pro Forma Financial Information
issued by the South African Institute of Chartered Accountants.
The Board is responsible for the compilation, contents and preparation of the pro forma financial
effects.
It should be noted that the pro forma financial effects include the earnings effects of the application
of the net proceeds from the Subscription Shares. The net proceeds of the Subscription Shares will
be applied towards existing interest bearing debt facilities.
Pro forma
Before the
after the % change
Proposed BEE (3)
Proposed BEE
Transaction (1)
Transaction (2)
Basic earnings per share (“EPS”)
(cents) 90.25 86.00 -4.7
Diluted EPS (cents) 90.25 85.95 -4.8
Basic headline earnings per share
(“HEPS”) (cents) 65.44 61.82 -5.5
Diluted HEPS (cents) 65.44 61.79 -5.6
Distributable earnings per Share (cents) 70.88 70.61 -0.4
Net asset value per share (“NAVPS”)
(cents) 1 758.67 1 748.38 -0.6
Net tangible asset value per share
(“NTAVPS”) (cents) 1 758.67 1 748.38 -0.6
Number of ordinary Shares in issue
(‘000)* 496 534 522 667
Weighted average number of Shares
in issue at period end (‘000) 500 482 513 549
Weighted average number of diluted
Shares in issue (‘000) 500 482 513 845
* Applicable to distributions only.
Notes and assumptions:
1. The “Before” column is based on the published unaudited interim results of Emira for the six
months ended 31 December 2016.
2. The effects on earnings, diluted earnings, headline earnings, diluted headline earnings and
distributable earnings per share are based on the following assumptions:
a. The Proposed BEE Transaction was effective 1 July 2016.
b. The economic substance of the Specific Issue of the 13 066 682 Subscription Shares to
the BEE Parties which are being funded in terms of the Vendor Loan Agreement (the
“Vendor Funded Subscription Shares”), is the granting of a call option on Emira
Shares. A once-off IFRS 2 charge on the Vendor Funded Subscription Shares of
R15.6 million has been accounted for. On initial recognition, being the date on which the
Specific Shares are issued, the equity settled share based payment arrangement will be
measured at fair value using a Black Scholes option pricing model. The assumptions
used in this model for purposes of the pro forma financial effects include a closing spot
price of R14.00 per Emira Share as at 30 April 2017, volatility of 16.49%, risk free rate of
7.50% and a dividend yield that ranges between 11.52% and 12.21% during the term of
the option. Expected volatility of the Emira Share price was determined by giving
consideration to the historical volatility of the Emira Share price. To the extent that the
actual spot price on initial recognition is higher than the assumed spot price of R14.00
used for purposes of illustrating the pro forma financial effects, the actual IFRS 2 charge
will exceed the R15.6 million pro forma IFRS 2 charge. The converse will also apply.
c. The cash proceeds from the Specific Issue of 13 066 682 Subscription Shares will be
used to repay interest bearing debt at an average rate of 8.7%, before taxation (the “Cash
Funded Subscription Shares”), which interest saving thereon is of a continuing nature.
d. Once-off transaction costs assumed of R4.7 million (excl. VAT) have been apportioned
equally between equity and profit and loss and are once-off in nature.
e. The weighted average number of shares in issue are increased for the Specific Issue of
the Cash Funded Subscription Shares, while the Vendor Financed Subscription Shares
are not treated as issued for accounting purposes on the basis that the economic
substance of the Vendor Funded Subscription Shares is the granting of a call option on
Emira Shares.
f. The calculation of diluted earnings and diluted headline earnings per share at reporting
dates is determined based on the number of Emira Shares to be issued for no
consideration which is calculated as the difference between the average market price of
Emira Shares for the period, minus the value of the Vendor Funding at the reporting date.
Based on the average share price of Emira for the six months ended 31 December 2016
and the fair value of the Vendor Loan Amount, there is currently a diluting effect arising
on the issue of the vendor funded Subscription Shares.
g. Distributable earnings have been calculated by adjusting profit attributable to equity
holders by adding back the once off transaction costs recognised against profit and loss
of R2.3 million together with the IFRS 2 charge of R15.6 million and including the interest
receivable on the Vendor Loan Amount of R9.2 million.
h. The calculation of distributable earnings per share is based on the actual number of Emira
Shares in issue and includes both the Specific Issue of the Cash Funded Subscription
Shares and the Specific Issue of the Vendor Funded Subscription Shares.
3. The effects on net asset value per share and tangible net asset value per share are based on
the following assumptions:
a. The BEE Transaction was effective 31 December 2016.
b. The Cash Funded Specific Issue for a cash consideration of R182.1 million.
Notwithstanding the Subscription Price on 22 May 2017, to the extent that the
Subscription Price is at a discount to the market price on the Effective Date, an IFRS 2
charge equivalent to the extent of the discount will be charged to the income statement
for accounting purposes.
c. As discussed in note 2b above, the economic substance of the Specific Issue of the
Vendor Funded Subscription Shares is the granting of a call option on Emira Shares. A
once-off IFRS 2 charge on the Specific Issue of the Vendor Funded Subscription Shares
and a corresponding share based payment reserve has been accounted for based on the
assumptions set out in note 2b above.
d. The net cash proceeds from the Specific Issue of the remaining Cash Funded
Subscription Shares will be used to repay interest-bearing borrowings.
e. Once-off transaction costs assumed of R4.7 million (excl. VAT) have been apportioned
equally between equity and profit and loss and are once-off in nature.
RELATED PARTY TRANSACTION
Tamela SPV is an associate of a related party, Vusi Mahlangu, a director of Emira. As such, the
Specific Issue of Emira Shares to Tamela SPV is regarded as a specific issue to a related party, in
terms of the JSE Listings Requirements. Given the existence of the Vendor Funding, a fairness
opinion is in the process of being prepared by Questco (Proprietary) Limited, in its capacity as
independent expert to Emira. A copy of this report will be included in the circular referred to below.
CIRCULAR TO SHAREHOLDERS
A circular, incorporating full details of the Proposed BEE Transaction and a notice of a general
meeting, will be distributed to shareholders on or about 29 May 2017.
Bryanston
23 May 2017
Transaction Sponsor and Independent Expert
Questco Proprietary Limited
Transaction Advisor
Macquarie Capital South Africa Proprietary Limited
Legal Advisor
Allen & Overy
5
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