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Acquisition of a 50% interest in a property portfolio located in Zambia
SA CORPORATE REAL ESTATE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2015/015578/06)
(Approved as a REIT by the JSE Limited (“JSE”))
JSE share code: SAC ISIN: ZAE000203238
(“SA Corporate” or “the Company”)
ACQUISITION OF A 50% INTEREST IN A PROPERTY PORTFOLIO LOCATED IN ZAMBIA
1. INTRODUCTION
SA Corporate is pleased to inform its shareholders that it has entered into agreements with the
individuals referred to in paragraph 4.1 as the sellers ("Sellers" or the "Casilli Group") to acquire
50% of the shares and claims in Graduare Mauritius Limited (“Graduare Mauritius”), Ancona
Mauritius Limited (“Ancona Mauritius”) and Premier LM&C Mauritius Limited (“LM&C
Mauritius”) collectively (the “Mauritian Entities”), in order to indirectly acquire a 50% interest in a
portfolio of three properties located in Zambia, for an aggregate acquisition value of USD46.7
million equivalent to approximately R635.1 million (“Purchase Consideration”) at a blended
property yield of 8.73% (“Proposed Transaction”).
The Proposed Transaction will be implemented as follows:
- the purchase of 50% of the shares of, and loan claims in, Graduare Mauritius, to acquire an
interest in the property referred to as East Park Mall, Lusaka, described in more detail in
paragraphs 4.1 and 4.1.1 below ("East Park Mall");
- the purchase of 50% of the shares of, and loan claims in, LM&C Mauritius, to acquire an
interest in the property referred to as Acacia Office Park, Lusaka, described in more detail in
paragraphs 4.1 and 4.1.2 below (“Acacia Park”); and
- the purchase of 50% of the shares of Ancona Mauritius, to acquire an interest in the property
referred to as Jacaranda Mall, Ndola, described in more detail in paragraphs 4.1 and 4.1.3
below ("Jacaranda Mall").
The acquisitions of the 50% of the shares and (where applicable) claims in the Mauritian Entities
by SA Corporate from the Sellers are inter-conditional. As a preliminary step to the Proposed
Transaction, Michael Pasquini ("Pasquini"), a minority shareholder in LM&C Mauritius and
Ancona Mauritius, will dispose of his shares and claims in respect of LM&C Mauritius (50%) and
Ancona Mauritius (40%) to Gillian Casilli ("Casilli"), who will in turn dispose of 50% of such
shares and claims acquired from Pasquini to SA Corporate at the price she has acquired same
from Pasquini ("Pasquini Shares"). As the purchase consideration for the Pasquini Shares is at a
discount of approximately 16% to the purchase consideration payable by SA Corporate to the
Sellers for their shares in LM&C Mauritius and Ancona Mauritius, the price adjustment and yield
guarantees referred to in clause 5.3 will not apply to the Pasquini Shares (i.e. the minority
shares). The Pasquini Shares will, however, attract the purchase consideration top-up referred to
in point 2 of paragraph 5.3.3.
SA Corporate will enter into shareholders agreements with each of the Mauritian Entities and the
respective Sellers, which agreements provide, amongst other things, for pre-emptive rights.
The property portfolio comprising East Park Mall, Acacia Park and Jacaranda Mall (the “Property
Portfolio”) was developed by the Casilli Group (led by Diego Casilli, a Zambian based
entrepreneur) in partnership with several other local entrepreneurs.
2. EFFECTIVE DATE
Subject the suspensive conditions as set out in paragraph 7 below being timeously fulfilled or
waived, the effective date of the Proposed Transaction ("Effective Date"), being the date on
which risk and benefit will pass in the shares and claims acquired by SA Corporate and on which
payment must be made, is anticipated to be on or about 1 November 2015.
3. RATIONALE FOR THE PROPOSED TRANSACTION
The Proposed Transaction is consistent with SA Corporate’s strategy of investing in a diversified
portfolio that generates stable and growing income and capital gains and represents SA
Corporate’s first acquisition beyond the borders of South Africa.
SA Corporate has identified Zambia as a leading market for growth in African real estate. The
retail sector in Zambia is expected to see strong growth given large current and potential
investments in malls and the expansion of retailers. Zambia is also facing a housing shortage
particularly in the urban areas and in growing towns in the Copper Belt and North Western
Province, providing potential for SA Corporate to expand its Afhco residential portfolio.
The Proposed Transaction will provide SA Corporate with geographical diversification as well as a
platform for further investment opportunities into Africa. The investments in the Mauritian Entities
are intended to lay the platform for a joint venture partnership with the Casilli Group, with the aim
of expanding the Mauritian Entities’ Property Portfolio in Zambia over time.
The Proposed Transaction has been structured so as to have exposure to the long term growth
associated with an emerging market yet to have downside protection for 4 years in respect of any
unforeseen impairment of the initial US dollar purchase consideration.
4. OVERVIEW OF THE PROPERTY PORTFOLIO
SA Corporate has agreed the terms with the Sellers to acquire an effective 50% of the Property
Portfolio, the details of which are set out below.
4.1 Property Portfolio and transaction details
East Park Mall Acacia Park Jacaranda Mall
Gillian Casilli, Peter Campbell,
Gillian Casilli and Peter
Sellers Kabwe Katayi and Collins Gillian Casilli
Campbell
Sitali;
Mauritian Entity Graduare Mauritius LM&C Mauritius Ancona Mauritius
Graduare Property
LM&C Properties Limited Ancona Properties Limited
Zambian Entity Development Limited
("LM&C Zambia") ("Ancona Zambia")
("Graduare Zambia")
Property value
31 261 260 13 319 877 9 310 704
(USD) (50%)
Net Income to SA
1 2 657 207 1 215 916 829 773
Corporate (USD)
Cnr Thabo Mbeki and Great Cnr Thabo Mbeki and Great Cnr Kabwe and Mushili Road,
Physical address
East Road, Lusaka East Road, Lusaka Ndola
Sector Retail Office Retail
GLA (m²) 22 364 12 700 14 020
Tenancy Multi-tenanted Multi-tenanted Multi-tenanted
First National Bank Zambia,
Ecobank Zambia, United Bank
Pick 'n Pay, Edgars, Food Pick 'n Pay, Carnival
for Africa, Huawei
Major tenants Lovers Market, Carnival, I- Furniture, FurnMart, Jet, Pep,
Technologies, Cargill,
Store, MTN, Toys R Us, Pep MTN
Emirates, Zambia National
Commercial Bank Plc
Lease expiry by 6.14 2.88 2.86
revenue (years)
Vacancy by GLA
0% 4.6% 3.8%
(%)
Weighted average
gross rental/ m² 24.96 18.83 11.83
(USD)
Weighted average
escalation (USD) 3.27% 4.91% 3.83%
(%)
1. Net property income for the period 1 November 2015 to 31 October 2016 (“Forecast Net Income”)
4.1.1 East Park Mall
East Park Mall is a well located multi-tenanted lifestyle shopping centre, located
on the corner of Thabo Mbeki and Great East Road in Lusaka, featuring
approximately 80 retailers (with the major tenants including Pick 'n Pay, MTN,
Edgars, Food Lovers Market, Carnival, i-Store, Toys R Us and Pep) and 1 500
parking bays. The first phase of the East Park Mall development was completed 2
in December 2014 and comprises approximately 22,364m of gross lettable area
(GLA). A Builders Warehouse ("Phase 2 of the East Park Mall development"),
comprising approximately 6,400m², is scheduled to be completed by the end of
November 2015. East Park Mall is held in terms of a lease between the University
of Zambia and Graduare Zambia, which lease expires on 1 January 2038 with a
renewal period of 25 years. The shares and claims in Graduare Zambia are held
by Graduare Mauritius.
4.1.2 Acacia Park
Acacia Park is a well located multi-tenanted office park located on the corner of
Thabo Mbeki Road and Great East Road in Lusaka, adjacent to the East Park
Mall. The total GLA is 12,700m² and the third phase development to the building
was completed in June 2011. Its major tenants comprise of First National Bank
Zambia, Cargill, Emirates, Zambia National Commercial Bank Plc, Ecobank
Zambia, United Bank for Africa and Huawei Technologies. Acacia Park is held by
LM&C Zambia in terms of a 99 year lease agreement. The shares and claims in
LM&C Zambia are held by LM&C Mauritius.
4.1.3 Jacaranda Mall
Jacaranda Mall is a well located multi-tenanted shopping centre located on the
corner of Kabwe Road and Mushili Road, in Ndola. The total GLA is 2
approximately 14,020m and the third phase of the shopping centre was
completed in May 2013. Its major tenants include Pick ‘n Pay, Pep, Carnival
Furniture, FurnMart, MTN and Jet. Jacaranda Mall is held by Ancona Zambia in
terms of a 99 year lease agreement. The shares and claims in Ancona Zambia
are held by Ancona Mauritius.
4.1.4 Development portfolio and pipeline
The Mauritian Entities, the Sellers and developers nominated by the Sellers are
to enter into development agreements for the development of phases 2, 3 and 4
of the unutilised bulk of East Park Mall which will include:
- Phase 2 of the East Park Mall development;
- mall extensions of approximately 9,600m² (Phase 3); and
- a new office complex earmarked for a financial institution’s head office
(Phase 4), comprising approximately 8,900m²,
collectively referred to as "the Developments".
SA Corporate will have an option to acquire a 50% interest in the Developments
on completion (at a capitalisation rate of 8.5% for Builders Warehouse and 9.0%
for Phases 3 and 4), by purchasing additional shares in Graduare Mauritius,
which shares will be issued by Graduare Mauritius to the developers as
settlement of the consideration payable to the developers for the Developments.
Further development of the unutilised bulk of East Park Mall beyond phase 4 will
be undertaken by Graduare Zambia in which the interest of SA Corporate will be
equal to the Casilli Group.
5. PURCHASE CONSIDERATION AND KEY TERMS
5.1 Purchase consideration
The aggregate Purchase Consideration for the Proposed Transaction is approximately
USD46.7 million (approximately R635.1 million) comprising 50% of the net asset value and
shareholder loans/claims of the Mauritian Entities, and determined on the following basis:
- 50% of the combined property values of East Park Mall, Acacia Park and Jacaranda
Mall of USD53.9 million calculated by capitalising 50% of the Forecast Net Income of
USD4.7 million at approximately 8.73%;
- less 50% of the outstanding debt (“Existing Debt”) in the Mauritian Entities as at 1
September 2015 of USD7.2 million.
5.2 Settlement of the Purchase Consideration
SA Corporate will pay the Purchase Consideration in cash on the Effective Date.
SA Corporate, at its election, will raise the amount to settle the Purchase Consideration and
refinance the Existing Debt through a combination of a fully funded USD debt package and
new equity by way of a renounceable rights offer or either one of these methods.
5.3 Yield guarantee and price adjustment
SA Corporate is cognisant of the market volatility in respect of emerging markets such as
Zambia and has attempted to mitigate this by securing a two year yield guarantee and a
price adjustment after four years from the Effective Date. Further detail regarding these
mechanisms is set out below. As noted in paragraph 1, the yield guarantee and price
adjustments will not apply to the Pasquini Shares which represent approximately 17.9% of
the Forecast Net Income, other than as set out in point 2 of paragraph 5.3.3.
5.3.1 Two year yield guarantee
To the extent that there is a shortfall in the Forecast Net Income during the 24
months from the Effective Date for each of the Mauritian Entities, the amount
distributed to SA Corporate from dividends of the Mauritian Entity shall be
increased in such a way that SA Corporate receives the return it would have
received had the Forecast Net Income been achieved in the 24 month period and
the distribution to the Sellers reduced accordingly. The yield guarantee applies to
approximately 82.1% of the Forecast Net Income (i.e. excluding the Pasquini
Shares).
5.3.2 Five year tax indemnity
- The Purchase Consideration has been determined on the basis that the tax
incentives applicable to the three Zambian companies - Graduare Zambia,
LM&C Zambia and Ancona Zambia (“Zambian Companies”) will apply for a
period of five years from the Effective Date (i.e. on the basis that during the first
five years from the Effective Date there will be no tax on income or dividends
payable in Zambia by the Zambian Company, notwithstanding that in fact the
phasing out of such tax incentives may have commenced during such five year
period). To the extent that there is a shortfall in the amounts that would be
available for distribution to SA Corporate from the dividends of the Mauritian
Entities during such period due to any such phasing out of the tax incentives
applicable to the Zambian Companies at the Effective Date or the suspension
or cancellation or non-renewal of any investment licence of the Zambian
Companies or any change in the tax laws of Zambia ("Tax Change"), the
dividends from the Mauritian Entities distributable to SA Corporate shall be
increased in order to ensure that SA Corporate receives the return it would
have received had the Tax Change not occurred and the amount distributable
to the Sellers from the dividends of the Mauritian Entities shall be reduced
accordingly in the distribution period in which such Tax Change occurs until the
expiry of such five year period.
- The tax indemnity is also in respect of approximately 82.1% of the Forecast Net
Income.
5.3.3 Purchase Consideration adjustment on fourth anniversary of Effective Date
- In respect of the 82.1% of the Forecast Net Income, to the extent that the value
of the Mauritian Entities after 48 months from the Effective Date, calculated by
capitalising the actual net property income for months 37 to 48 from the
Effective Date by 8.50% (“Future Value”), is less than the Forecast Net Income
(for the purpose of determining the Purchase Consideration) capitalised at
8.5% (“Initial Value”) (“Shortfall”), the Sellers shall either transfer to SA
Corporate such number of their ordinary shares in the respective Mauritian
Entity to cover the Shortfall in respect of such Mauritian Entity, or settle the
Shortfall by the payment of cash in USD.
- In respect of the Pasquini Shares (i.e.17.9% of the Forecast Net Income), to
the extent the Future Value is greater than the Initial Value (“Surplus”), SA
Corporate shall settle:
- 25% of such Surplus by the payment of cash in USD to Casilli subject to a
maximum payment of USD342 806 for purposes of LM&C Mauritius only;
and
- 20% of such Surplus by the payment of cash in USD to Casilli subject to a
maximum payment of USD157 194 for purposes of Ancona Mauritius only.
6. FINANCIAL EFFECTS
The financial forecasts of the Proposed Transaction, including the assumptions on which they are
based, and the financial information from which they are prepared are the responsibility of the SA
Corporate board of directors and have not been reviewed or reported on by a reporting
accountant.
The forecast financial information presented in the table below has been prepared in accordance
with SA Corporate’s accounting policies and in compliance with IFRS. The financial forecasts for
the Proposed Transaction for the years ending 31 December 2016 and 31 December 2017 have
been prepared based on the assumption that the Proposed Transaction is implemented on 1
January 2016.
12 months to 31 December 12 months to 31 December
2016 2017
(USD) (USD)
Gross income 6 042 044 6 271 503
Operating costs (1 310 116) (1 360 645)
Net property income1 4 731 928 4 910 858
Funding cost3,4 (1 318 368) (1 318 368)
Earnings available for distribution2,6 3 413 561 3 592 490
Number of new shares issued3,5 (shares) 76 841 903 76 841 903
Distribution per new share2,6 (USD cents) 4.44 4.68
Assumptions:
1. Calculated based on contractual rental agreements and forecasted net income for the period 1 January 2016 to 31
December 2017
2. Transaction costs have been excluded
3. The Purchase Consideration is settled 42% through new USD debt facilities (at a rate of 3.75% per annum) and 58%
through a rights offer, and the Existing Debt is assumed at 8.00% per annum
4. Weighted average cost of funding assumed at 4.88% per annum on total debt of approximately USD27 million
5. Indicative number of new shares calculated based on an issue price at a 5% discount to the 30 day volume weighted
average price of SA Corporate’s share of R4.76 (converted to USD at R13.60/$) and a quantum of USD26.89 million
-7-
6. Excludes net property income, funding costs or new shares issued for the Developments
7. SUSPENSIVE CONDITIONS
The Proposed Transaction is subject to the fulfilment of inter alia the following suspensive
conditions that by no later than 16 October 2015 (or such later date as the parties may agree):
- Graduare Mauritius and Graduare Zambia and Ancona Mauritius and Ancona Zambia
and the developers nominated by the Sellers enter into a development agreement for
the Developments, in a form acceptable to SA Corporate; and
- the Zambian Companies and a property management company nominated by the
Sellers enter into a property management agreement (for the purposes of managing the
Property Portfolio), in a form acceptable to SA Corporate.
8. INDEPENDENT VALUATION OF THE PROPERTY PORTFOLIO
The SA Corporate Board is satisfied that the value of the Property Portfolio is in line with the
Purchase Consideration. The SA Corporate Board is not registered as professional valuers or as
professional associate valuers in terms of the Property Valuers Profession Act, No 47 of 2000.
9. CLASSIFICATION OF PROPOSED TRANSACTION
The Proposed Transaction constitutes a category 2 transaction in terms of the Listings
Requirements.
Sandton
9 October 2015
South African Corporate Advisor and Transaction Sponsor
Investec Bank Limited
South African Legal Advisors
Cliffe Dekker Hofmeyr Inc.
Zambian Attorneys and Competition Law Advisors
Chibesakunda & Co.
Mauritian Legal and Tax Advisors
Eversheds Mauritius
Tax Advisors
EY
Due Diligence and Tax Advisors
Phoenix Wealth Management (Pty) Ltd
Sponsor
Nedbank CIB
Date: 09/10/2015 01:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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