Wrap Text
New Acquisition
FAIRVEST PROPERTY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/005011/06)
Share code: FVT ISIN: ZAE00203808
(Approved as a REIT by the JSE)
(“Fairvest”)
NEW ACQUISITION
1. INTRODUCTION
Shareholders are advised that, on 15 December 2017, the Company entered into a subscription agreement,
shareholders agreement, loan agreement and related agreements (“Transaction Agreements”) with
Buffshelfco 17 Proprietary Limited (“Newco”), Baraprop Investments Proprietary Limited (“Baraprop”),
Buffshelfco 40 Proprietary Limited (“Buffshelfco”) and Bara Precinct Proprietary Limited (“Bara Precinct”),
all being members of or affiliates to the Buffet group of entities, in terms of which Fairvest will acquire a
controlling stake in Bara Precinct, which owns several immovable properties and associated rental
enterprises (collectively, the “Properties”), as set out in paragraph 4 below (“Acquisition”).
2. RATIONALE FOR THE ACQUISITION
The Acquisition is in line with Fairvest’s strategy of acquiring assets servicing the lower living standards
measure (LSM) market located in non-metropolitan areas, as well as rural, convenience and community
shopping centres located in high-growth nodes, close to commuter networks, with a view to providing
shareholders with attractive returns and distinctive diversified opportunities.
3. ACQUISITION
3.1. In terms of the subscription agreement –
3.1.1. Fairvest will subscribe for “A” ordinary shares in Bara Precinct (“Fairvest Subscription Shares”), which
will, following their issue and the issue of “B” ordinary shares referred to in paragraph 3.1.2 below,
comprise 50.17% of all Bara Precinct shares in issue; and
3.1.2. Newco will subscribe for “B” ordinary shares in Bara Precinct (“Newco Subscription Shares”), which
will, following their issue and the issue of the “A” ordinary shares referred to in paragraph 3.1.1
above, comprise 49.73% of all Bara Precinct shares in issue,
for an aggregate, combined subscription consideration equal to 99.9% of Bara Precinct’s net equity
value, comprising the Properties valued at R322 434 800, minus the face value Bara Precinct’s debt
funding, adjusted for its net working capital, with –
3.1.3. the subscription consideration due by Fairvest in respect of the Fairvest Subscription Shares
anticipated to amount to approximately R82 537 281 (“Fairvest Subscription Consideration”),
provided that the Fairvest Subscription Consideration shall not exceed R90 300 000; and
3.1.4. the subscription consideration due by Newco in respect of the Newco Subscription Shares anticipated
to amount to approximately R81 988 861 (“Newco Subscription Consideration”), provided that the
Newco Subscription Consideration shall not exceed R89 700 000,
with the remaining 0.10% of Bara Precinct’s issued share capital (“Existing Shares”) continuing to be held
by its existing shareholders, Baraprop and Buffshelfco (“Existing Shareholders”).
3.2. The Fairvest Subscription Consideration and the Newco Subscription Consideration (collectively,
“Subscription Consideration”) will be settled in cash on 18 December 2017, with the Newco Subscription
Consideration being advanced by Fairvest to Newco by way of an interest-bearing loan (“Newco Loan”).
Following receipt of the subscription amounts, Bara Precinct will issue the Fairvest Subscription Shares
and the Newco Subscription Shares to them on 19 December 2017, whereupon ownership of, risk in and
all benefit attaching to those shares will pass to Fairvest and to Newco, respectively.
4. THE PROPERTIES
4.1. Details of the Properties are as follows:
Property description and Location Sector Gross Weighted
title lettable area average
(m2) rental/m2
Erf 24459 Diepkloof Hotel Chris Hani Road Retail 4 082 128.75
("Diepkloof Hotel") and Khambule
Title: Freehold Street, Diepkloof
Erf 24462 Soccer Centre Chris Hani Road Retail 1 385 100.65
("Soccer Centre") and Khambule
Title: Leasehold Street, Diepkloof
Erf 24463 Blackchain Center Chris Hani Road Retail 6 991 119.15
("Blackchain Centre") and Khambule
Title: Freehold Street, Diepkloof
Erf 24464 Bara Square (“Bara Chris Hani Road Retail 3 200 187.78
Square”) and Khambule
Title: Freehold Street, Diepkloof
Erf 24469 JPC Centre ("JPC Chris Hani Road Retail 3 658 143.47
Centre") and Khambule
Title: Leasehold Street, Diepkloof
Erf 24470 Toby Building Chris Hani Road Retail 3 470 69.88
("Toby Centre") and Khambule
Title: Freehold Street, Diepkloof
Pt 52 /Of Erf 25170 Mogai Chris Hani Road Retail 551 119.92
Building ("Mogai Centre") and Khambule
Title: Freehold Street, Diepkloof
Notes:
a) In addition to the Fairvest Subscription Consideration, the costs associated with the Acquisition
are estimated at R4 849 315.
b) The aggregate value of the Properties, amounting to R322 434 800, is considered to be the fair
market value of the Properties, 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.
c) The net asset value of Bara Precinct, in which Fairvest is subscribing for the Fairvest Subscription
Shares, equated to R164 526 142, as disclosed in the management accounts of that company as
at 31 October 2017. Fairvest is satisfied with the quality of such management accounts.
Property name Weighted Average Weighted Average Vacancy % by Gross
Escalation Lease Duration (years) Lettable Area
Diepkloof Hotel 7.2% 3.8 0.0%
Soccer Centre 8.0% 1.5 43.3%
Blackchain Centre 7.2% 1.7 0.0%
Bara Square 7.5% 3.1 0.0%
JPC Centre 7.5% 4.2 0.0%
Toby Centre 8.0% 3.6 0.0%
Mogai Centre 8.0% 2.3 0.0%
5. WARRANTIES AND OTHER SIGNIFICANT TERMS
5.1. The Transaction Agreements contain warranties and indemnities by the Existing Shareholders in favour
of Fairvest and Newco, which are standard for a transaction of this nature.
5.2. The Transaction Agreements are unconditional, with all conditions precedent to the Acquisition having
been fulfilled prior the conclusion of the Transaction Agreements. In this regard, Fairvest confirms that
it undertook and completed a due diligence investigation in respect of Bara Precinct, its business and
the Properties and that the Acquisition has been approved by the competition authorities.
5.3. The Subscription Consideration will be utilised by Bara Precinct to settle shareholder loans due to the
Existing Shareholders.
5.4. The Transaction Agreements contain mechanisms which have the effect of guaranteeing the net
property income for an initial period of 3 years, and certain other items of income for a further 2 years,
subject to an aggregate amount of R20 000 000, and these arrangements are secured by escrow
amounts and/or guarantees from the Existing Shareholders and certain of their affiliates. These escrow
and guarantee undertakings are also given in respect of Newco's repayment obligations under the
Newco Loan, in respect of a further amount of R10 000 000.
5.5. The Existing Shareholders and Newco (“Option Sellers”) have granted a call option to Fairvest ("Call
Option"), in terms of which it is entitled, at its election, to purchase the Existing Shares and the Newco
Subscription Shares from the respective Option Sellers, at a price based on such Option Seller’s
contractually agreed proportion of Bara Precinct’s net asset value at that time, provided that the
aggregate option strike price shall not exceed R170 000 000 ("Option Strike Price"). Fairvest is entitled
to exercise the Call Option at any time during the period of 10 business days ending on the 5th anniversary
of the First Date (“Option Strike Period”), by written notice to the Option Sellers.
5.6. Fairvest has granted a corresponding put option to the Option Sellers (“Put Option”), in terms of which
they may require Fairvest to purchase the Existing Shares and the Newco Subscription Shares, held by
them respectively, at the Option Strike Price. The Option Sellers are entitled to exercise the Put Option
at any time during the Option Strike Period, by joint written notice to Fairvest.
5.7. The Option Strike Price shall be settled, at the election of the Option Sellers, either in cash or by the issue
of shares in Fairvest.
5.8. Given that the number of Fairvest shares that may be issued pursuant to the exercise of the Put Option
or the Call Option is to be calculated with reference to a price or value determined in the future, the
parties agreed that, in the unlikely event of that the number of Fairvest shares to be issued in terms of
paragraph 5.6 together with the Fairvest Subscription Consideration, will result in the applicable
percentage ratio in paragraph 9.6 of the JSE Listings Requirements exceeding 29.99%, the number of
Fairvest shares to be issued to the Option Sellers will be reduced, and the balance of the Option Strike
Price will be paid in cash, to the extent necessary to ensure that the percentage ratio in paragraph 9.6
of the JSE Listings Requirements will be equal to and not exceed 29.99%.
6. FORECAST FINANCIAL INFORMATION OF THE ACQUISITION
The forecast financial information relating to the Acquisition for the financial periods ending 30 June 2018
and 30 June 2019 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 Listings Requirements and is the responsibility
of the Company’s directors. The forecast has been prepared in accordance with the Company’s accounting
policies, which are in compliance with IFRS.
Forecast for the Forecast for the
7-month period 12-month period
ended 30 June 2018 ended 30 June 2019
R’000 R’000
Rental income 24 259 47 591
Straight-line rental accrual 1 289 1 019
Gross income 25 549 48 610
Property expenses (6 939) (13 679)
Net property income 18 610 34 930
Administration expenses (690) (1 315)
Operating profit 17 919 33 615
Finance cost (14 766) (29 532)
Finance income 6 179 12 359
Profit before taxation 9 332 16 442
Taxation - -
Total comprehensive income 9 332 16 442
Total comprehensive income attributable to:
Owners of the parent 3 697 6 278
Non-controlling interest 5 636 10 164
Distributable earnings reconciliation:
Total comprehensive income 9 332 16 442
Straight-line rental accrual (1 289) (1 019)
Non-controlling interest’s share of distribution (4 993) (9 656)
Distributable earnings 3 050 5 767
Notes:
a) The forecast information for the 7-month period ending 30 June 2018 has been calculated from the
Effective Date of 18 December 2017.
b) Revenue includes gross rentals and other recoveries, but excludes any adjustment applicable to the
straight-lining of leases.
c) Property expenses include all utility and council charges applicable to the Properties.
d) Contractual rental revenue constitutes 92.3% of the revenue for the 7-month period ending 30 June
2018 and 80.3% of the revenue for the 12-month period ending 30 June 2019.
e) The revenue forecast presented includes no uncontracted revenue.
f) Near-contracted revenue constitutes 7.7% of the revenue for the 12-month period ending 30 June
2018 and 19.7% of the revenue for the 12-month period ending 30 June 2019.
g) Leases expiring during the forecast period have been assumed to renew at the future value of current
market related rates.
h) The forecasted growth in distribution as communicated to shareholders on 5 September 2017
included the financial effect of Acquisition as negotiations commenced in June 2017.
7. CATEGORISATION
7.1. The Acquisition constitutes a Category 2 transaction in terms of the JSE Listings Requirements.
7.2. Upon implementation of the Acquisition, Bara Precinct will become a subsidiary of the Company.
Fairvest will ensure that the provisions of Bara Precinct’s memorandum of incorporation do not frustrate
the Company in any way from compliance with its obligations in terms of the JSE Listings Requirements.
Nothing contained in the memorandum of incorporation of Bara Precinct will relieve Fairvest from
compliance with the JSE Listings Requirements.
8. PROVISION OF FINANCIAL ASSISTANCE
8.1. Shareholders are notified in terms of section 45(5)(a) of the Companies Act, No. 71 of 2008 (“Companies
Act”) that, pursuant to the authority granted to it by shareholders at the Company’s annual general
meeting on 15 November 2017, the board of directors of the Company (“Board”) approved the provision
of a guarantee of R160 000 000 on behalf of Bara Precinct in respect of bank loans raised.
8.2. Prior to authorising the aforementioned financial assistance, the Board considered and satisfied itself,
in terms of section 45 of the Companies Act, that (i) immediately after providing the financial assistance,
the Company would satisfy the solvency and liquidity test as contemplated in section 4 of the Companies
Act, (ii) there has been due compliance with the Company’s memorandum of incorporation and (iii) the
terms of the financial assistance are fair and reasonable to the Company.
Cape Town
19 December 2017
Sponsor and corporate advisor: PSG Capital
Tax advisor: Java Capital
Legal advisor: Cliffe Dekker Hofmeyr
Date: 19/12/2017 10:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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