HOSPITALITY PROPERTY FUND LIMITED - Update regarding the acquisition of Tsogos casino precincts

Release Date: 07/09/2018 17:05
 
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Update regarding the acquisition of Tsogo’s casino precincts

HOSPITALITY PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
JSE share code: HPB ISIN: ZAE000214656
Company code: HPAI
(Approved as a REIT by the JSE)
("Hospitality" or the "company")



UPDATE REGARDING THE ACQUISITION OF TSOGO'S CASINO PRECINCTS


1.    ADDENDUM TO THE SUBSCRIPTION AGREEMENT

      1.1.    Shareholders are referred to the announcement released on SENS on 9 July 2018 (the "terms announcement")
              advising shareholders that Hospitality and its wholly-owned subsidiary Merway have entered into a subscription
              agreement with Tsogo and its wholly-owned subsidiaries for the acquisition of a portfolio of seven mixed-use casino
              precincts for an agreed aggregate purchase consideration of R23.0 billion. Unless otherwise stated, the terms defined
              in the terms announcement, where read in this announcement, bear the same meanings as in the terms announcement.
      1.2.    Shareholders are advised that Hospitality has entered into an addendum to the subscription agreement with Tsogo
              in terms of which:

              1.2.1.   Tsogo has undertaken to Hospitality to distribute its entire holding of Hospitality shares (including the
                       Hospitality shares it already holds, as well as the subscription shares which are to be transferred by the
                       vendors to Tsogo) to the shareholders of Tsogo, pro rata to their respective Tsogo shareholdings at such
                       time (the "unbundling"), provided that the internal restructuring (defined below) has been implemented.
                       The unbundling will occur in two tranches as follows:

                       1.2.1.1.   a distribution in specie of 918 069 783 Hospitality shares, in the ratio of 0.86316 Hospitality
                                  shares for every ordinary share in Tsogo held at such time, such that Tsogo’s interest in
                                  Hospitality post this distribution will be 35%; and
                       1.2.1.2.   an unbundling in terms of section 46 of the Income Tax Act of the remaining 620 284 782
                                  Hospitality shares then held by Tsogo, in the ratio of 0.58318 Hospitality shares for every
                                  ordinary share in Tsogo held at such time;

              1.2.2.   Tsogo has undertaken to Hospitality that the vendors will transfer to Tsogo all the Hospitality shares held
                       by them following the implementation of the transaction, as soon as practically possible after the effective
                       date, but in any event within 45 days of the effective date; and

              1.2.3.        Hospitality has undertaken to Tsogo to effect an internal restructuring whereby beneficial ownership
                            of the casino portfolio and the existing hotel portfolio will be vested in HPF Properties Proprietary
                            Limited ("HPF Properties") as soon as practically possible after the effective date, but in any event
                            within 45 days after the effective date (the "internal restructuring"). The internal restructuring will
                            include an amalgamation of Cassava and Listed Investments with HPF Properties in terms of
                            section 44 of the Income Tax Act.

      1.3.    The following conditions precedent to the subscription agreement have been inserted and/or amended:
              1.3.1.   to the extent necessary, Tsogo obtaining the requisite approvals of the JSE for the implementation of the
                       transaction;
              1.3.2.   to the extent necessary, Hospitality obtaining the requisite approvals of the JSE for the implementation of
                       the transaction;
              1.3.3.   the unbundling being authorised by the directors of Tsogo (acting through the independent board) in
                       accordance with section 46(1)(a)(ii) of the Companies Act, and the JSE Listings Requirements, noting that
                       it reasonably appears that Tsogo will satisfy the solvency and liquidity test immediately after completing
                       the proposed distribution as contemplated in section 46(1)(b) of the Companies Act;
              1.3.4.   the disposal of the greater part of Tsogo’s assets by way of the unbundling being approved by the requisite
                       majority of Tsogo shareholders in terms of section 112 and 115 of the Companies Act;
              1.3.5.   the TRP issuing a compliance certificate in respect of the unbundling; and
              1.3.6.   during the time period prescribed in section 164(7) of the Companies Act, appraisal rights in terms of
                       section 164 of the Companies Act are not exercised by dissenting Tsogo shareholders holding more than
                       1% of the entire issued share capital of Tsogo at such time (or such higher percentage as the board of Tsogo
                       may determine).
      1.4.       Save as stated above, there have been no other material changes to the terms and conditions precedent contained in
                 the terms announcement.

2.    FORECAST FINANCIAL INFORMATION

      Set out below are extracts from the profit forecast of the casino precincts (the "forecast") for the one month ending
      31 March 2019 and year ending 31 March 2020 (the "forecast period"). The forecast has been updated due to the amendment
      of the anticipated effective date from 1 January 2019 to 1 March 2019.

      The forecast, including the assumptions on which it is based and the financial information from which it is prepared, is the
      responsibility of the Hospitality board.

      The forecast has been prepared on the assumption that the transaction will be effective from 1 March 2019 and on the basis
      that the forecast includes forecast results for the duration of the forecast period. The forecast has not been reviewed or
      reported on by independent reporting accountants. The forecast has been prepared in accordance with Hospitality's
      accounting policies, which are in compliance with International Financial Reporting Standards.

                                                                                             Forecast for the       Forecast for the
                                                                                               1 month ending            year ending
                                                                                   Notes        31 March 2019          31 March 2020
       Revenue                                                                         1              162 007              2 031 572
       Operating costs                                                                                      -                     -
       Operating profit                                                                               162 007              2 031 572
       Finance costs                                                                   4              (58 780)              (697 483)
       Transaction costs                                                                              (17 220)                     -
       Net profit before tax                                                                           86 007              1 334 089
       Taxation                                                                                             -                     -
       Net profit after tax                                                                            86 007              1 334 089

       Reconciliation of profit and earnings available for distribution
       Profit after tax                                                                                86 007              1 334 089
       Transaction costs                                                                               17 220                     -
       Earnings available for distribution                                                            103 227              1 334 089

      1.     All rental income is contracted. Rental income has been forecast based on the agreed initial rental per the rental
             aggregation agreement and escalated on 1 April 2019 at 4.50%, which is an assumption of the annual inflation rate for
             March 2019.
      2.     There will be no unforeseen economic factors that will affect the lessee’s ability to meet its commitments in terms of the
             lease agreement.
      3.     No fair value adjustments are assumed.
      4.     Finance costs comprises interest incurred on the R8.1 billion of new debt facilities, and the amortisation of upfront debt
             fees. The weighted average interest rate on the new facilities is expected to be c.8.54%.

3.    DISTRIBUTION OF CIRCULAR AND NOTICE OF GENERAL MEETING

      Shareholders are further advised that a circular containing all the relevant information relating to the transaction and the
      unbundling is expected to be issued on or about 21 September 2018. Further announcements will be released on SENS in
      due course.

7 September 2018


Corporate advisor and sponsor to Hospitality
Java Capital


Legal advisors to Hospitality
enSAfrica


Independent Expert
MAZARS

Independent reporting accountant
PWC
Date: 07/09/2018 05:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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