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Category 1 Acquisition Announcement - Western Cape Real Estate Portfolio
SPEAR REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2015/407237/06)
Share Code: SEA
ISIN: ZAE000228995
LEI: 378900F76170CCB33C50
Approved as a REIT by the JSE
("Spear")
CATEGORY 1 ACQUISITION ANNOUNCEMENT – WESTERN CAPE REAL ESTATE PORTFOLIO
1. INTRODUCTION
Shareholders are advised that on 28 March 2024 ("Signature Date"), Spear entered into two inter-conditional
sale of rental enterprise agreements ("Agreements") with Emira Property Fund Limited, registration
number 2014/130842/06, a limited liability public company incorporated in South Africa listed on the Main Board
of the JSE Limited ("Emira"), and several wholly owned subsidiaries of Emira, namely Lowmer Investments
Proprietary Limited, Freestone Property Investments Proprietary Limited, Monagon Properties Proprietary Limited
and Rapidough Prop 509 Proprietary Limited (collectively the "Sellers"), in terms of which Spear will purchase
the Western Cape property portfolio ("Target Property Portfolio"), comprising of the properties listed in
paragraph 4 below ("Properties") and the rental enterprises conducted by the Sellers on the Properties ("Rental
Enterprises"), as going concerns, in one indivisible transaction ("Acquisition").
2. RATIONALE FOR THE ACQUISITION
The Acquisition of the Target Property Portfolio provides Spear with a strategic opportunity to meaningfully
increase its market share within the Western Cape, with a complementary high quality diversified property
portfolio comprising industrial, retail, mixed-use and commercial assets. In addition, it also offers an entry point
into long-dated medical and life sciences related facilities.
The Acquisition not only facilitates revenue and long-term growth prospects for Spear, but also creates operating
efficiencies, enabling Spear (being a fully internally managed REIT) to increase operating profit margins and drive
sustained profitability, by leveraging combined expertise and resources to reduce costs through economies of
scale.
The Acquisition of the Target Property Portfolio enables Spear to materially scale its current property portfolio, in
a real estate market that would otherwise be challenging to scale through piece-meal acquisitions or organic
growth, given the current market conditions and the strong real estate fundamentals in the Western Cape. The
Acquisition will increase Spear's assets under ownership from 29 to 40 high quality real estate assets and will
enhance Spear's portfolio diversification and geographical spread of assets within the Western Cape, while
maintaining its bias towards the Cape Town Metropole.
The Target Property Portfolio is acquired at no premium to its market value and is accretive to Spear shareholders,
from a distributable profit perspective, from the date of transfer.
The Target Property Portfolio is anticipated to generate an initial net operating income yield of 9,46% prior to the
once-off transaction fee ("Once-off Amount") payable by Emira to Spear, as detailed in paragraph 7 below. Post
recognition of the Once-off Amount, the anticipated initial yield generated by the Target Property Portfolio will be
10,1%.
The Acquisition of the Target Property Portfolio is aligned with Spear's investment strategy from an income, asset
value growth, asset type and geographical perspective. Furthermore, Spear will implement its PV solar strategy
across the Target Property Portfolio, in line with Spear's "People, Planet, Profit" approach to sustainability. Spear
will invest circa R20 million across the Target Property Portfolio to reduce the overall reliance on fossil fuel
generated electricity supply through its renewable energy program. To date, in excess of 60% of the current Spear
portfolio has PV solar installed, with the commissioned capacity generating just under 8 MW of PV solar electrical
supply, supplying up to 25% of Spear's total energy demands. Management is confident that the planned PV
solar installations at the Target Property Portfolio, once implemented, will increase the total installed and
commissioned PV solar capacity to in excess of 10 MW across the enlarged Spear portfolio.
Spear's growth strategy is to remain exclusively invested in the Western Cape with aspirations to becoming a
meaningful mid-cap sized REIT, with assets under ownership of circa R15 billion and a market capitalisation of
R8 billion over the next 7 to 10 years. Spear's growth strategy will not be rushed and must at all times comply
with its strict investment criteria.
Post the implementation of the Acquisition and the recent disposals by Spear (including the disposal of the Liberty
Life Building), Spear's assets under ownership will increase to circa R5,4 billion and the gross lettable area of its
portfolio will increase to circa 502 000 m2 within the Western Cape. The property type, size and quality of the
Target Property Portfolio displays strong similarities to the current Spear portfolio and given Spear's exclusive
Western Cape focus, managements' ability to replicate Spear's active asset management approach in respect of
the Target Property Portfolio is clear and executable.
The proposed Acquisition aligns firmly with Spear's three-pronged capital allocation strategy and its asset
acquisition strategy.
3. PURCHASE CONSIDERATION
The aggregate purchase consideration payable for the Target Property Portfolio (which include the Properties
and the Rental Enterprises) is an amount of R1 146 000 000, subject to the adjustment set out below ("Purchase
Consideration") and is inclusive of value added tax ("VAT") at a rate of 0%.
The Purchase Consideration in respect of certain Rental Enterprises were reduced by agreement between the
parties prior to the Signature Date to take into account certain capital expenditure that Spear anticipated would
be required in respect of the applicable buildings and Properties in the future. In the event that any Seller elects
to incur any capital expenditure in respect of the applicable buildings and/or Properties before the effective date
of the Acquisition, and provided that Spear consents thereto in writing, the Purchase Consideration will be
increased by an amount equal to the capital expenditure so incurred, subject to a total maximum amount of
R15 000 000.
As security for the payment of the Purchase Consideration in respect of each Property, Spear shall, within 7 days
after the date on which the Conditions Precedent (as defined below) are fulfilled, furnish the Sellers' conveyancers
with bank guarantees, payable to the respective Sellers upon the date of registration of transfer of ownership of
such Property to Spear ("Transfer Date").
In the event that the Transfer Date of any Property occurs after 1 October 2024, otherwise than as a result of any
delays caused by the Sellers (or any of them) or by any other cause not within the reasonable control of the
parties, the portion of the Purchase Consideration attributable to that Property shall be increased by a factor of
0.5% per month (not compounded and reduced pro rata for any period of less than 1 month).
4. PROPERTY SPECIFIC INFORMATION
The details of the Properties forming part of the Target Property Portfolio, which will be acquired by Spear in
terms of the Acquisition, are set out below as at the date of this announcement:
Rental Property Description Location Sector Total Gross Weighted Purchase
Enterprise Lettable average Consideration
Name Area 1 gross rental
per m2 per
month 2
Northpoint Erf 23210, Brackenfell, in the Brackenfell, Industrial 16,415 m² R81,22 R141 000 000
Industrial City of Cape Town, Stellenbosch Cape Town
Park Division, Western Cape
Province, in extent 3 1566
hectares
14 – 16 Erf 4643 Matroosfontein, in the Airport Industrial 7,899 m² R70,29 R57 000 000
Boston City of Cape Town, Cape Industria,
Circle Division, Western Cape Cape Town
Province, in extent 1 5001
hectares
The Section 1 as shown on sectional Atlas Gardens, Industrial 9,251 m² R71,14 R64 500 000
Studios plan number ss 110/2009, in the Cape Town
scheme known as STUDIOS, in
respect of the land and building
or buildings, situate in
Durbanville, City of Cape Town,
Western Cape Province, 4971
square meters in extent;
Section 2 as shown on sectional
plan number SS 110/2009, in
the scheme known as
STUDIOS, in respect of the land
band building or buildings,
situate in Durbanville, City of
Cape Town, Western Cape
Province, 4257 square meters in
extent,
Comprising all of the sections in
the above scheme.
Steelpark Erf 35609 Bellville, in the City of Bellville, Industrial 9,362 m² R58,72 R54 000 000
Industrial Cape Town, Cape Division, Cape Town
Park Western Cape Province, in
extent 1 4609 hectares
Freeway The notarial deed of lease in Maitland, Industrial 7,862 m² R102,17 R69 000 000
Business respect of certain portions of Erf Cape Town
Park 15334, Cape Town measuring
14,920 and 4,144 square metres
respectively
Boundary Erf 159023 Cape Town, in the Newlands, Office 8,676 m² R229,74 R210 500 000
Terraces City of Cape Town, Cape Cape Town
Division, Western Cape
Province, in extent 8037 square
meters
Waterside Erf 38527, Portion of ERF 37298 Tygervalley, Office 4,944 m² R147,67 R90 500 000
Place Bellville, Cape Town, in the City Cape Town
of Cape Town, Cape Division,
Western Cape Province, in
extent 4460 square meters
Newlands Remainder Erf 96678, Cape Newlands, Office 5,217 m² R136,76 R73 600 000
Terraces Town, in the City of Cape Town, Cape Town
Cape Division, Western Cape
Province, in extent 2302 square
meters
9 Long Erf 9596 Cape Town, in the City CBD, Cape Retail / 10,135 m² R139,88 R133 150 000
Street of Cape Town, Cape Division, Town Office
Western Cape Province, in
extent 2164 square meters
Chiappini Erf 583, Cape Town, in the City De Waterkant, Retail / 1,024 m² R183,09 R20 000 000
House of Cape Town, Cape Division, Cape Town Office
Western Cape Province, in
extent 248 square meters
Erf 571, Cape Town, in the City
of Cape Town, Cape Division,
Western Cape Province, in
extent 220 square meters
Hamilton Erf 568, Cape Town, in the City De Waterkant, Retail / 3,453 m² R169,74 R60 750 000
House of Cape Town, Cape Division, Cape Town Office
Western Cape Province, in
extent 496 square meters
Erf 569, Cape Town, in the City
of Cape Town, Cape Division,
Western Cape Province, in
extent 496 square meters
Parklands Erf 32909 Milnerton, in the City Parklands, Retail / 2,594 m² R199,04 R49 500 000
Health of Cape Town, Cape Division, Cape Town Medical
Centre Western Cape Province, in
extent 7601 square meters
The View, Erf 39248 (Portion of ERF Tygervalley, Retail / 6,659 m² R189,64 R122 500 000
Tygervalley 29818) Bellville, in the City of Cape Town Medical
Cape Town, Cape Division,
Western Cape Province, in
extent 5081 square meters
Total 93,491 m² R1 146 000 000
Notes:
1. Total Gross Lettable Area includes storage, patio and balcony m2.
2. Weighted average gross rental per m² for April 2024, excluding parking rental and recoveries but inclusive of assessment
rates.
3. In addition to the Purchase Consideration, the costs associated with the Acquisition (including, inter alia, the cost of the due
diligence investigation and the fees of the legal advisors, JSE sponsor, reporting accountants and external independent
valuer), to be incurred by Spear, are estimated at R6 000 000. Introductory agent's commission is payable by the Sellers in
respect of the Acquisition; however, no agent's commission is due by Spear in respect of the Acquisition.
4. The Purchase Consideration payable in respect of each of the Rental Enterprises comprising the Target Property Portfolio is
considered to be its fair market value, as determined by the directors of Spear. The directors of Spear 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 ("PVP Act"). The Target Property Portfolio is currently being valued by an external independent property
valuer, registered as a professional valuer in terms of the PVP Act, and the independent valuation amounts and reports will
be disclosed in the circular to shareholders containing the full details of the Acquisition.
5. CONDITIONS PRECEDENT
The Acquisition is subject to the fulfilment of the following outstanding conditions precedent ("Conditions
Precedent"), that:
- Spear has complied with all JSE Listings Requirements in respect of the Acquisition and has, to the extent
required, obtained the necessary approvals of its shareholders as may be required in terms of the JSE
Listings Requirements;
- the Acquisition is approved by the applicable competition authorities in terms of the Competition Act, No. 89
of 1998 either unconditionally or, in the event of a conditional approval, on terms acceptable to the parties;
- the owner of the Freeway Business Park consents in writing to the assignment of the notarial lease in respect
thereof to Spear; and
- Spear receives final confirmation of the approval of funding in respect of not less than 50% of the Purchase
Consideration against security of a first mortgage bonds over the Properties (or some of them), on such
terms upon which financial institutions or banks ordinarily grant loans to purchasers entering into transactions
similar to the Acquisition, which approval has already been granted in principle.
The Conditions Precedent must be fulfilled by not later than 120 days following the Signature Date, which date
may be extended by the parties in writing, provided that the longstop date for the fulfilment of the Conditions
Precedent is 31 March 2025.
6. EFFECTIVE DATE OF THE ACQUISITION
The effective date of the Acquisition will be the Transfer Date, which date shall be as soon as practically possible
after the date on which the Conditions Precedent are fulfilled, and which date is anticipated as being on or about
31 December 2024.
7. WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE AGREEMENT
The Agreement contains representations and warranties by the Sellers in favour of Spear which are standard for
a transaction of this nature.
Emira has agreed to pay the Once-off Amount to Spear, as part of the overall transaction structure. Emira will, on
the effective date of the Acquisition (being the Transfer Date of the Target Property Portfolio) pay the Once-off
Amount to Spear, equal to R22 500 000. Spear will utilise the Once-off Amount at its discretion to achieve an
initial Target Property Portfolio yield of 10,1%.
Emira has agreed to pay certain guaranteed rentals to Spear, with effect from the Transfer Date of the Property
known as 9 Long Street, to the extent that such Property is vacant or in the event of such Property becoming let,
to top up the rentals contracted in respect thereof to the extent that there is any shortfall between the rentals
contracted by Spear and the guaranteed rentals, during the period of 24 months commencing on the Transfer
Date of such Property.
8. CLASSIFICATION OF THE ACQUISITION AND CIRCULAR
The aggregate Purchase Consideration represents more than 30% of Spear's market capitalisation as at the
Signature Date and accordingly the Acquisition constitutes a category 1 transaction as contemplated in section 9
of the JSE Limited Listings Requirements.
As a result, the Acquisition is required to be approved by an ordinary resolution of the Spear shareholders and
accordingly a general meeting of the Spear shareholders will be convened.
A circular containing the full details of the Acquisition, incorporating a notice convening the required general
meeting of Spear shareholders, will be distributed to shareholders in due course, at which time the salient dates
and times of the Acquisition, including the date of the general meeting, will be announced on SENS.
9. FINANCIAL INFORMATION AND CAUTIONARY ANNOUNCEMENT
A further announcement incorporating the forecast financial information relating to the Acquisition will be released
on SENS in due course. Shareholders are advised to exercise caution when dealing in the Spear's securities until
a further announcement is made.
Cape Town
2 April 2024
Sponsor and Corporate Adviser Legal Adviser
PSG Capital Cliffe Dekker Hofmeyr
Date: 02-04-2024 08:30:00
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