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SPEAR REIT LIMITED - Acquisition Of The Liberty Life Building, Century City, Cape Town

Release Date: 01/11/2019 12:05
Code(s): SEA     PDF:  
 
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Acquisition Of The Liberty Life Building, Century City, Cape Town

SPEAR REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2015/407237/06)
Share code: SEA
ISIN: ZAE000228995
(Approved as a REIT by the JSE)
(“Spear” or “the Company”)

ACQUISITION OF THE LIBERTY LIFE BUILDING, CENTURY CITY, CAPE TOWN

1.   INTRODUCTION

     Shareholders are advised that on the 31 October 2019, the Company entered into a sale
     of letting enterprise agreement (“Agreement”) with Liberty Group Limited and 2 Degrees
     Properties Proprietary Limited (together, the “Sellers”), in terms of which the Company
     will acquire the property known as The Liberty Life Building, Century City Boulevard,
     situated at Erf 6281 Montague Gardens, City of Cape Town, Cape Division, Western Cape
     Province and held by the Sellers under Title Deeds T86167/2005, T9011/2019 and
     T9012/2019, with all improvements thereon (“Property”), and the rental enterprise
     conducted by the Sellers on the Property (“Rental Enterprise”), as a going concern
     (“Acquisition”), for a purchase consideration of R370 000 000 (“Purchase
     Consideration”).

2.   RATIONALE FOR THE ACQUISITION

     The Acquisition is in line with Spear’s stated strategy to own high quality assets within
     well-established nodes in Cape Town. Century City stands out positively amongst many
     other factors as a sought-after commercial office precinct attracting high quality corporate
     office users within the highly successful mixed use environment. The Liberty Life Building
     is a AAA grade, green star rated office building with premium grade tenancies in
     occupation for the long term.
     Spear will continue to invest into high quality nodes within the Western Cape that offer
     value and that will be accretive to the fund on a sustainable basis.

3.   PURCHASE CONSIDERATION AND VALUE-ADDED TAX

     The Purchase Consideration is an amount of R370 000 000 and is inclusive of value-
     added tax at a rate of 0%.

     If registration of transfer of ownership in the Property into the name of the Company
     (“Transfer”) does not occur within 90 calendar days of the date on which the Conditions
     Precedent (as defined in paragraph 4 below) are fulfilled or, where permissible, waived
     (“Escalation Date”), due to delays outside of the Company’s or its financiers control, then
     the Purchase Consideration will escalate at a rate of 0.5% per month calculated from the
     Escalation Date up to and including the date of Transfer (“Additional Amount”), provided
     that the Additional Amount shall not exceed R175 000 000.

     The Purchase Consideration will be secured by a bank guarantee and will be paid to the
     Sellers or their nominee in cash on the date of Transfer.
     In terms of the Agreement, the Company may, at any time up to 10 business days after
     the date on which the Conditions Precedent (as defined in paragraph 4 below) are fulfilled
     or, where permissible, waived, undertake an equity capital raise in order to raise or
     refinance an amount of up to 100% of the Purchase Consideration.

4.   CONDITIONS PRECEDENT

     The Acquisition is subject to the fulfilment (or, where permissible, waiver) of the following
     conditions precedent (“Conditions Precedent”):

     -     the parties to the Agreement (“Parties”) obtaining, within 90 business days of the
           date of signature of the Agreement (“Signature Date”), the written and unconditional
           approval for the Acquisition from the relevant competition authorities in accordance
           with the Competition Act, No. 89 of 1998; and

     -     the Sellers ensuring that, within 10 calendar days of the Signature Date, or such
           longer period as the Parties may mutually agree to in writing, an addendum to the
           Liberty Group A and B leases (attached as an annexure to the Agreement), is signed
           by the relevant parties and a copy thereof is transmitted to the Company.

     The Conditions Precedent must be fulfilled by not later than the aforementioned dates,
     which dates may be extended by written agreement amongst the Parties.

5.   EFFECTIVE DATE OF THE ACQUISITION

     The effective date of the Acquisition will be the date of Transfer, which date shall be as
     soon as practically possible after the date on which the Conditions Precedent are fulfilled
     or, where permissible, waived and which date is anticipated as being 1 January 2020.

6.   WARRANTIES, INDEMNITIES AND OTHER SIGNIFICANT TERMS OF THE
     AGREEMENT

     The Agreement contains representations and warranties by the Sellers in favour of the
     Company which are standard for a transaction of this nature.

     Subject to such warranties, the Rental Enterprise and the Property are sold “voetstoots”.

7.   THE PROPERTY

     Details of the Property are as follows:

         Property     Geographical         Sector            Gross         Weighted
         Name and Location                                   Lettable Area Average
         Address                                             (m2)          Gross Rental /
                                                                           m2
         The Liberty Life Century City,    Commercial        18 244        R171
         Building, Cape Town
         Century City
         Boulevard,
         situated at Erf
         6281
         Montague
         Gardens, City
         of Cape Town,
         Cape Division,
         Western Cape
         Province


     Details regarding the Property, as at the anticipated date of Transfer, are set out below:

     Purchase     Yield Weighted Average           Weighted Average       Vacancy % by
     Attributable    to Escalation                 Lease    Duration      Gross   Lettable
     Shareholders                                  (years)                Area
     9.31 %             7%                         4.3                    0%


     Notes:

     a)   The Liberty Group lease will be extended in order to run for a full 5-year period from
          Transfer, with a further renewal option to be negotiated between the parties at the
          time.
     b)   In addition to the Purchase Consideration, the costs associated with the Acquisition
          are estimated at R5 500 000. No agents’ commission is payable in respect of the
          Acquisition.
     c)   The Purchase Consideration payable in respect of the Rental Enterprise (which
          includes the Property) is considered to be its fair market value, as determined by the
          directors of the Company. The directors of the Company 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.


8.   FORECAST FINANCIAL INFORMATION OF THE ACQUISITION

     The forecast financial information relating to the Acquisition for the 2-month period ending
     29 February 2020 and the 12-month period ending 28 February 2021 are set out below.
     The forecast financial information has not been reviewed or reported on by a reporting
     accountant in terms of section 8 of the JSE Limited Listings Requirements and is the
     responsibility of the Company’s directors.

                                            Forecast for the 2-month Forecast for the 12-
                                            period ending 29-Feb-20 month period ending
                                            (R)                      28-Feb-21
                                                                     (R)
      Revenue                               8 543 710                52 288 020
      Straight-line rental accrual          944 040                  5 050 636
      Gross revenue                         9 487 750                57 338 656
      Property expenses                     (2 613 433)              (16 761 306)
      Net property income                   6 874 317                40 577 350
      Administrative expenses               (128 156)                (784 320)
      Operating profit                      6 746 161                39 793 030
      Finance cost                          (5 278 281)              (31 669 688)
      Profit before taxation                1 467 880                8 123 342
      Taxation                              -                        -
      Net profit after taxation             1 467 880                8 123 342
      Adjusted For:
      Straight-line rental accrual          (944 040)                     (5 050 636)
      Distributable profit                 523 840                      3 072 706

     Notes:

     a)   Revenue includes gross rentals and other recoveries but excludes any adjustment
          applicable to the straight-lining of leases.
     b)   Property expenses include all utility and council charges applicable to the Property.
     c)   The forecast information for the 2-month period ended 29 February 2020 has been
          calculated from the anticipated date of Transfer, being on or about 1 January 2020.
     d)   Contractual rental revenue constitutes 100% of the revenue for the 2-month period
          ended 29 February 2020 and 94% of the revenue for the 12-month period ended 28
          February 2021.
     e)   Near-contracted revenue constitutes 0% of the revenue for the 2-month period ended
          29 February 2020 and 6% of the revenue for the 12-month period ended 28 February
          2021.
     f)   There is no uncontracted revenue.

9.   CLASSIFICATION OF THE ACQUISITION

     The Acquisition constitutes a category 2 transaction in terms of the JSE Limited Listings
     Requirements.

Cape Town
1 November 2019

 Corporate Adviser and Sponsor         Legal Advisor           Funder
 PSG Capital                           STBB                    Standard Bank

Date: 01/11/2019 12:05:00
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