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TSOGO SUN HOTELS LIMITED - Abridged Pre-listing Statement of Tsogo Sun Hotels Limited

Release Date: 23/05/2019 08:31
Code(s): TGO     PDF:  
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Abridged Pre-listing Statement of Tsogo Sun Hotels Limited

Tsogo Sun Hotels Limited
(previously known as Southern Sun Hotels Proprietary Limited)
Incorporated in the Republic of South Africa
Registration Number 2002/006356/06
Share code: TGO ISIN: ZAE000272522
(“THL”)

ABRIDGED PRE-LISTING STATEMENT OF THL RELATING TO THE LISTING OF THL ON THE
MAIN BOARD OF THE JSE LIMITED

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO
ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
LAWS OF SUCH JURISDICTION OR REQUIRE FURTHER ACTION FOR SUCH PURPOSE.


1.   INTRODUCTION

     This announcement should be read together with the announcement released by Tsogo Sun
     Holdings Limited (“Tsogo Sun”) on SENS on Thursday, 23 May 2019 in relation to the proposed
     unbundling (“Unbundling”) of Tsogo Sun’s hotel interests under one holding company (being THL)
     and the listing of THL (“Listing”) in the “Hotels” sector on the Main Board of the securities
     exchange operated by the JSE Limited (“JSE”).

     The information contained in this Abridged Pre-listing Statement (“Abridged Pre-listing
     Statement”) has been extracted, in summarised form, from the Pre-listing Statement issued by
     THL on Thursday, 23 May 2019 (“Pre-listing Statement”). This Abridged Pre-listing Statement is
     not a complete Pre-listing Statement and does not contain all the information that investors should
     consider in relation to the Listing and Unbundling.

     This Abridged Pre-listing Statement is not an invitation to subscribe for shares in THL, but is issued
     in compliance with the Listings Requirements of the JSE (“Listings Requirements”) for the
     purpose of providing information to the public with regard to the business and affairs of THL as at
     the time of the Listing.

     Capitalised words and expressions used in this announcement bear the same meaning as the
     capitalised and defined words and expressions used in the Pre-listing Statement.

2.   RATIONALE FOR THE UNBUNDLING AND LISTING OF THL

     The hotels division of Tsogo Sun service a different customer base to the casinos division and are
     subject to different demand and risk profiles, particularly in the regulatory sphere. The Tsogo Sun
     Board is of the view that the separate listing of hotels and the unbundling of the hotel business to
     Tsogo Sun Shareholders should unlock value for Tsogo Sun Shareholders.

3.   OVERVIEW, STRATEGY AND FINANCIAL INFORMATION

     3.1 Overview of THL

        THL owns, leases and manages hotels in South Africa as well as several sub-Saharan
        countries, the Seychelles and Abu Dhabi. The Tsogo Sun Group’s 59.2% interest in Hospitality
        Property Fund Limited (“HPF”) held by THL will remain owned and consolidated by THL. THL
        will also hold the Tsogo Sun Group’s minority investment in RBH Hotels UK Limited (“RBH”)
        and International Hotel Properties Limited (“IHPL”), based in the United Kingdom. The hotels
        that have been developed as part of the various casino complexes owned by the Tsogo Sun
        Group will remain with Tsogo Sun but will be operated under a management agreement by
        THL.

        The THL Group today consists of a portfolio of 110 hotels of which 98 are internally managed
        and 12 properties owned by HPF are leased to and operated by third party operators outside
        of the THL Group, with a combined total of nearly 19,000 rooms.


                                                                                                         
   THL’s key investment highlights include:

       •    a fully integrated business model across the hotels and leisure industries;
       •    a leading position in South Africa and a selective international presence; and
       •    a defined growth trajectory through organic portfolio optimisation and innovation, as
            well as through well thought-out acquisitions in attractive geographies.

3.2 Strategy

   The largest potential growth driver for the hotel business is a recovery of economic growth in
   the economies in which the THL Group operates. This will lead to additional demand for
   accommodation from business and leisure travellers and the opportunity to meaningfully
   increase room rates and consequently, EBITDAR performance.

   In addition, the THL Group seeks to access new hotel opportunities through a variety of
   management contracts, new builds (on its own or via joint ventures), primarily within the
   markets that the THL Group already operates.

3.3 Risks

   Whilst hotels are free of the regulatory risks associated with gaming, there are a number of
   risks prevalent in the industry. The three key risks over and above the economic environment
   are highlighted below:

      •     Management contracts and leases introduce an element of security of tenure risk to the
            THL Group’s portfolio. There is no guarantee that contracts will be renewed on similar
            terms and conditions, if at all. Third-party owners may wish to try alternative operators
            and many of the international branded groups are seeking a representation in South
            Africa at almost any cost. The THL Group nonetheless seeks to defend and expand its
            operations in all relevant markets.
      •     Administered costs have seen a sustained above-inflation increase over the past
            number of years. These include property rates and the cost of heat, light and power.
            Whilst the THL Group has undertaken numerous steps to reduce its electricity and
            water consumption through employing efficient operating methodologies, the price per
            unit of these utilities have increased dramatically and are worsened through the
            requirement to fund generating capacity (diesel generators) during load shedding.
            Municipalities have come under increasing pressure to raise independent funding and
            this has led to substantially higher property rates being imposed on the THL Group’s
            portfolio.
      •     There are low barriers to entry to the hotel market and a number of developers have
            built hotels that the THL Group believes are unviable. Nevertheless, they get built and
            this introduces an over-supply situation in various markets from time to time. Whilst
            these hotels inevitably experience financial distress, the room stock, once built, does
            not exit the market and it can take a substantial period of time for demand to catch up
            to supply.

3.4 Selected financial information

   The summarised information set out in the tables below have been extracted from the Historical
   Financial Information of THL and have been reported on by the Company’s auditors,
   PricewaterhouseCoopers Inc. Please refer to Annexure 1 of the Pre-listing Statement for the
   full information, including a reconciliation of headline earnings and adjusted headline earning.




                                                                                                   
  Summarised statement of profit or loss

(ZAR’m)                                                     Audited          Reviewed           Reviewed
                                                            FY2019             FY2018             FY2017
Revenue                                                        4 389              4 364              4 143
Operating profit                                                 392                                 1 803
                                                                                    898
(Loss)/profit before income tax                                  (10)                                1 437
                                                                                    472
Income tax expense                                               (70)                                  (21)
                                                                                    188
(Loss)/profit for the year                                       (80)                                1 416
                                                                                    661
(Loss)/profit attributable to:
  Equity holders of the company                                  (98)               495                890
  Non-controlling interests                                       18                                   526
                                                                                    166

Headline earnings                                                245                                   390
                                                                                    592
Adjusted headline earnings (1)                                   277                                   369
                                                                                    337
EBITDAR (pre-exceptional items)                                1 491                                 1 465
                                                                                  1 590


      (1)   The pro forma adjusted headline earning for the THL Group is R403 million for the year ended
            31 March 2019 as set out in 3.5 below. The total pro forma adjustments amount to R126 million
            after tax and include a reduction in net finance costs of R134 million, an increase in net
            corporate recharge costs of R2 million and an increase in net IFRS2 share based payment
            costs of R6 million.

  Summarised statement of financial position

(ZAR’m)                                                     Audited          Reviewed           Reviewed
                                                            FY2019             FY2018             FY2017

Property, plant and equipment                                  7 684              7 462              7 621
Investment properties                                          4 881              5 101              4 843
Goodwill and intangible assets                                   404                396                393
Investment in associates and joint ventures                      608                605                572
Non-current assets                                                99                150                175
Total assets                                                  13 676             13 714             13 604


Net working capital                                              295                277                383
Net interest-bearing borrowings                                2 963              2 684              3 665
Other non-current liabilities                                    488              3 343              3 590
Total shareholders’ equity                                     6 990              4 202              3 407
Non-controlling interests                                      2 939              3 209              2 559
Total equity and liabilities                                  13 676             13 714             13 604




                                                                                                       
  The segmental analysis for FY2019, FY2018 and FY 2017

                                 Income                        EBITDAR 1                EBITDAR margin (%)


(ZAR’m)                 2019      2018    2017          2019       2018    2017         2019     2018    2017



Manco                    289       286     209           155        168     115         53.8     58.9     55.1


Rental Income -          347       402     299           347        402     299        100.0    100.0    100.0
HPF

Internally              3 329     3 295   3 084          845        900     944         25.3     27.3     30.6
Managed
Coastal                 1 907     1 902   1 735          497        536     578         26.0     28.2     33.3
Inland                  1 150     1 124   1 090          254        263     268         22.0     23.4     24.6
Other                    272       269     259            94        101      98         34.5     37.5     38.0


Offshore                 605       565     634           144        120     107         23.9     21.2     16.9

Elimination of          (181)     (183)    (83)
internal
management
fees

Total                   4 389     4 364   4 143        1 491      1 590    1 465        33.9     36.4     35.3



  1   Pre long-term incentives


         3.5 Pro Forma Financial Information

             The Pro Forma Financial Information presented below has been prepared for illustrative
             purposes only and because of its nature may not fairly present the THL Group’s consolidated
             financial position and consolidated results of operations.

             The Pro forma Financial Information is based on the audited historical consolidated financial
             information of the THL Group prior to the Listing and Unbundling as at and for the year ended
             31 March 2019 as set out in Annexure 1 of the Pre-listing Statement.

             The Pro forma Financial Information has been prepared using the accounting policies of THL
             Group which comply with IFRS and are consistent with those applied in the Historical Financial
             Information.




                                                                                                         
                                                        Before      Pro Forma After       % Change
                                                                     the Listing and
                                                                        Unbundling
     EBITDAR (ZAR’m) (1)                                  1 491                1 488             (0.2)
     Adjusted headline earnings (ZAR’m)                    277                   403             45.5
     Per THL share
     EPS (cents)                                        (450.4)                   2.6           100.6
     Diluted EPS (cents)                                (450.4)                   2.6           100.6
     HEPS (cents)                                       1 126.1                  34.8          (96.9)
     Diluted HEPS (cents)                               1 126.1                  34.8          (96.9)
     Adjusted HEPS (cents)                              1 273.1                  37.9          (97.0)
     NAV (cents)                                          658.9                662.0              0.5
     TNAV (cents)                                         635.9                639.0              0.5
     Number of THL Shares in issue (m)                  1 060.9              1 060.9
     Weighted number of THL Shares in                      21.8              1 060.9
     issue (m)
     Diluted weighted number of THL                        21.8              1 064.3
     Shares in issue (m)
        (1)   Pre long-term incentives


        Notes:

        1) The “Before” column sets out the EPS, diluted EPS, HEPS, adjusted HEPS, diluted HEPS,
              NAV and TNAV per THL Group share as extracted from the Historical Financial Information
              of the THL Group for the year ended 31 March 2019.
        2) The “After the Listing and Unbundling” column sets out the EPS, diluted HEPS, HEPS,
           adjusted HEPS, diluted EPS, NAV and TNAV per THL Group share assuming that the
              Listing and Unbundling took place with effect from 1 April 2018 for pro forma consolidated
              income statement purposes and 31 March 2019 for pro forma consolidated balance sheet
              purposes.
        3) Detailed notes to the pro forma financial effects are included with the pro forma income
           statement and balance sheet presented in Annexure 3 of the Pre-listing Statement.

4.   LISTING ON THE JSE

     The JSE has agreed to the listing of the entire issued share capital of THL in the “Hotels” sector
     on the Main Board of the JSE under the abbreviated name “THL”, share code “TGO” and ISIN
     ZAE000272522 with effect from the commencement of business on Wednesday, 12 June 2019
     (“Listing Date”).

5.   UNBUNDLING

     In terms of the Unbundling, Tsogo Sun will distribute its entire holding of THL Shares to its
     shareholders as a distribution in specie in the ratio of one THL Share for every Tsogo Sun Share
     held on the Unbundling Record Date, being 14 June 2019.

6.   SHARE CAPITAL

     As at the Listing Date, the authorised share capital of THL, will be 2 000 000 000 ordinary no par
     value shares and as at the date of the Unbundling the issued share capital of THL will be 1 060 895
     712 ordinary no par value shares. THL will have a stated capital of R4.6 billion.
                                                                                                         
     All the ordinary shares in THL rank pari passu in all respects (there being no conversion or
     exchange rights attaching thereto) and have equal rights to participate in capital, dividend and
     profit distributions by THL.

7.   THL DIRECTORS

     The details of the executive directors of THL are provided below:

 Name and                   Age       Position              Business Address            Nationality
 Qualifications
 John Anthony Copelyn       68        Non-Executive         Suite 801, 76 Regent        South African
 BA (Hons), BProc                     Chairman              Road, Sea Point, Cape
                                                            Town, 8005

 Marcel Nikolaus von        45        Chief Executive       Palazzo Towers West,        South African
 Aulock                               Officer               Montecasino Boulevard,
 CA(SA)                                                     Fourways, Gauteng,
                                                            2055
 Laurelle McDonald          36        Chief Financial       Palazzo Towers West,        South African
 CA(SA)                               Officer               Montecasino Boulevard,
                                                            Fourways, Gauteng,
                                                            2055
 Mohamed Haroun             55        Lead Independent      Palazzo Towers West,        South African
 Ahmed                                Non-Executive         Montecasino Boulevard,
 BCom (Accounting)                    Director              Fourways, Gauteng,
                                                            2055
 Sipho Christopher Gina     60        Independent Non-      Palazzo Towers West,        South African
 Bachelor of Arts, MBA                Executive Director    Montecasino Boulevard,
                                                            Fourways, Gauteng,
                                                            2055
 Moretlo Lynette Molefi     50        Independent Non-      Palazzo Towers West,        South African
 B.Sc., MBChB                         Executive Director    Montecasino Boulevard,
                                                            Fourways, Gauteng,
                                                            2055
 Jabulani Geffrey           67        Independent Non-      Palazzo Towers West,        South African
 Ngcobo                               Executive Director    Montecasino Boulevard,
                                                            Fourways, Gauteng,
                                                            2055
 James Robert Nicolella     50        Non-Executive         Suite 801, 76 Regent        South African
 CA(SA), PLD                          Director              Road, Sea Point, Cape
                                                            Town, 8005

8.   THL SHARE INCENTIVE SCHEME

     THL has adopted a share incentive scheme, namely the THL Share Appreciation Rights Plan (“THL
     SAR Plan”), in which selected key senior employees of the THL Group are eligible to participate
     with the goal to incentivise, motivate and retain these high calibre employees and recognise their
     contributions to the THL Group.

     The purpose of the THL SAR Plan is to provide awards of share appreciation rights to receive THL
     Shares (“SARs”) equal to the increase in value of a certain number of THL Shares between the
     award date and the exercise date of the SARs. The exercise price will be adjusted to take account
     of dividends paid, as further explained in the Pre-listing Statement. The vesting of the SARs will
     take place after 3 years, will be subject to continued employment and may be subject to
     performance conditions. The THL SAR Plan makes provision for two types of awards, namely new
     awards to assist in incentivising and retaining employees in the THL Group and replacement
     awards.

     Replacement awards are provided for as a result of the right provided to employees of the THL
     Group on Unbundling to elect to exchange their rights held under the Tsogo Sun Long Term

                                                                                                       
     Incentive Scheme for replacement awards under the THL SAR Plan. Going forward the
     replacement awards will be regulated by the THL SAR Plan. The salient features of the THL SAR
     Plan are set out in the Pre-listing Statement.

9.   RECEIPT OF THL SHARES PURSUANT TO THE UNBUNDLING

     A Tsogo Sun Shareholder holding Certificated Shares should pay special attention to the
     provisions of the following paragraph.

     For the purposes of the Unbundling, Tsogo Sun Shareholders will receive their THL Shares
     pursuant to their respective Unbundling Entitlements in dematerialised form only. Accordingly, all
     Certificated Shareholders must appoint a CSDP under the terms of the Financial Markets Act,
     directly or through a Broker, to receive the dematerialised THL Shares on their behalf. Should a
     Certificated Shareholder not appoint a CSDP under the terms of the Financial Markets Act, directly
     or through a Broker, to receive THL Shares on such shareholder’s behalf, such shareholder will be
     issued with a statement of allocation representing his THL Shares by the Transfer Secretaries.
     Certificated THL Shareholders can instruct the Transfer Secretaries to transfer their THL Shares
     represented by the statement of allocation to their appointed CSDP or can instruct the Transfer
     Secretaries to issue them with a share certificate at any time post Unbundling. There are risks
     associated with holding shares in Certificated form, including the risk of loss of or tainted scrip,
     which is no longer covered by the JSE Guarantee Fund.

     All THL Shareholders who elect to convert their Dematerialised THL Shares into Certificated THL
     Shares will have to Dematerialise their Certificated THL Shares should they wish to trade them in
     accordance with the rules of Strate.

     Further details of the action to be taken in this regard is set out in the Pre-listing Statement.

10. SALIENT DATES RELATING TO THE UNBUNDLING AND LISTING

     The salient dates relating to the Unbundling and the Listing are set out below:

                                                                                                              2019


 Abridged Pre-listing Statement published on SENS, on                                          Thursday, 23 May
 Pre-listing Statement made available to Tsogo Sun Shareholders at                             Thursday, 23 May
 www.tsogosun.com/investors, on
 Pre-listing Statement posted to Tsogo Sun Shareholders, on                                     Monday, 27 May
 Publication of finalisation information, on                                                    Tuesday, 4 June
 Last day for certificated Tsogo Sun Shareholders to appoint a CSDP in                          Monday, 10 June
 order to receive the THL Shares pursuant to the Unbundling on the
 Settlement Date
 Last day to trade for Tsogo Sun Shareholders to be entitled to                                Tuesday, 11 June
 participate in the Unbundling
 Listing of THL Shares on the JSE under the share code TGO and ISIN                         Wednesday, 12 June
 ZAE000272522 expected at commencement of trade, on
 Tsogo Sun Shares commence trading “ex” their entitlement to THL                            Wednesday, 12 June
 Shares, on
 Details of apportionment ratio released on SENS by 11h00, on                                 Thursday, 13 June
 Record Date for the Unbundling and issue of share certificates to                                Friday, 14 June
 Certificated Shareholders
 Accounts at CSDPs / Brokers updated on (Settlement Date)                                      Tuesday, 18 June



Notes:

                                                                                                          
1.      These dates and times are subject to change. Any material changes to the above dates will be
        released on SENS and published in the South African press.
2.      All times shown above are South African times.
3.      Tsogo Sun Shares may not be Dematerialised or rematerialised between Wednesday, 12 June
        2019 and Friday, 14 June 2019, both days inclusive.
4.      Tsogo Sun Shareholders who trade Tsogo Sun Shares from Wednesday, 12 June 2019, trade
        “ex” their entitlement to THL Shares.
5.      All Certificated Shareholders must appoint a CSDP under the terms of the Financial Markets
        Act, directly or through a Broker, by no later than Monday, 10 June 2019 to receive THL Shares
        pursuant to the Unbundling on the Settlement Date.

11. FOREIGN SHAREHOLDERS

     No action has been taken by Tsogo Sun or THL to obtain any approval, authorisation or exemption
     to permit the distribution of the THL Shares or the possession or distribution of the Pre-listing
     Statement (or any other publicity material relating to the THL Shares) in any jurisdictions other than
     South Africa.

     Tsogo Sun Shareholders in terms of the Unbundling who have registered addresses outside South
     Africa and/or who are nationals, citizens or residents of countries other than South Africa (“Foreign
     Shareholders”) or who are persons (including, without limitation, custodians, nominees and
     trustees) who have a contractual or legal obligation to forward the Pre-listing Statement to a
     jurisdiction outside South Africa, or who hold Tsogo Sun Shares for the account or benefit of any
     such Foreign Shareholder and will therefore hold THL Shares in a similar manner and hence may
     have an impact on Tsogo Sun Shareholders.

     Foreign Shareholders are referred to the Pre-listing Statement for further detail regarding treatment
     of Foreign Shareholders in connection with the Listing and Unbundling.


12. COPIES OF THE PRE-LISTING STATEMENT

     Copies of the Pre-listing Statement may be obtained during normal business hours from Friday,
     24 May 2019 from THL’s registered office at Palazzo Towers East, Montecasino Boulevard,
     Fourways, Johannesburg and from the offices of the Financial advisor and sponsor, The Standard
     Bank of South Africa Limited, at 30 Baker Street, Rosebank, Johannesburg. Copies of the Pre-
     listing Statement will furthermore be available on the Tsogo Sun and THL websites at
     www.tsogosun.com/gaming/investors and www.tsogosun.com/investors, respectively from 10:00
     on Thursday, 23 May 2019.


Johannesburg
23 May 2019

Financial advisor and sponsor
The Standard Bank of South Africa Limited

Corporate law advisors
Taback and Associates Proprietary Limited

Independent reporting accountants and auditors
PricewaterhouseCoopers Inc.

Tax advisors
PricewaterhouseCoopers Inc.

Independent property valuer
Excellerate Real Estate Services Proprietary Limited (trading as JHI)




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Date: 23/05/2019 08:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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