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Acquisition of an interest in a company owning 26 properties and voluntary trading update
GEMGROW PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/032604/06)
JSE share code: GPA ISIN: ZAE000223269
JSE share code: GPB ISIN: ZAE000223277
(Granted REIT status with the JSE)
("Gemgrow" or "the company")
ACQUISITION OF AN INTEREST IN A COMPANY OWNING 26 PROPERTIES AND VOLUNTARY TRADING UPDATE
1. Introduction
The board of directors of Gemgrow is pleased to announce that Gemgrow and Cumulative
Properties Limited ("Cumulative Properties"), a wholly-owned subsidiary of Gemgrow, have,
subject to the fulfilment of certain conditions precedent, entered into a subscription agreement
("subscription agreement") with entities in the Moolman Group of companies, being Luvon
Investments Proprietary Limited ("Luvon"), East and West Investments Proprietary Limited
("East and West"), Louis Trichardt Bousentrum Proprietary Limited ("Louis Trichardt") and
Moolgem Proprietary Limited ("Moolgem") in terms of which Cumulative Properties will
subscribe for 31 010 A ordinary shares in Moolgem ("subscription shares"), valued at
R628 565 200 ("the transaction"). Post the implementation of the transaction, Cumulative
Properties will own 75.62% of the total issued share capital in Moolgem by virtue of its holding
of the subscription shares which subscription shares will have the rights and preferences as set
out in paragraphs 3.5 to 3.7 below giving Cumulative Properties direct control of Moolgem,
which will own the 26 properties detailed in paragraph 5 below, and the rental enterprises
conducted thereon ("properties"). Luvon and East and West will constitute the other co-
shareholders in Moolgem.
2. Rationale
The transaction is in line with the company's stated objective of growing the value of its portfolio
of high-yielding, niche properties by concluding transactions that are earnings-enhancing.
3. Terms of the transaction
3.1. The effective date of the transaction is 1 November 2018.
3.2. The consideration payable by Cumulative Properties for the subscription shares will be
equal to 95% of the agreed value of the properties as at the effective date ("subscription
consideration"). The subscription consideration will be settled as follows:
3.2.1. by way of the allotment and issue by Gemgrow of 10 264 434 fully paid
up Gemgrow A shares at an issue price of R9.74 to Moolgem ("Gemgrow
consideration shares"); and
3.2.2. the balance in the amount of R528 565 200, in cash.
3.3. Cumulative Properties may, at its election, pay the entire subscription consideration in
cash, in which case, the Gemgrow consideration shares will not be issued.
3.4. Upon ultimate completion of the transaction, Cumulative Properties will own 100% of
the issued A ordinary shares of Moolgem, with 100% of the issued ordinary shares in
Moolgem held by Luvon and East and West.
3.5. The A ordinary shares and ordinary shares rank pari passu in all respects, save for their
entitlement to distributions and upon liquidation which shall entitle the shareholders
thereof to 95% of the distributions and a preferential dividend in the circumstances
contemplated in paragraph 3.6 below.
3.6. In the event that there is a net property income shortfall for the 12-month period from
the effective date ("preferential period") against the projected net property income for
the preferential period resulting in the distribution actually made in respect of the
A ordinary shares being less than 95% of R76 418 482 (being R72 597 557)
("A distribution shortfall amount") then Luvon and East and West will pay to
Cumulative Properties an amount equal to the A distribution shortfall amount limited to
95% of R76 418 482.
3.7. Upon liquidation, 95% of the net assets will be distributed to the A ordinary shareholders
and the remainder will be distributed to the ordinary shareholders.
3.8. The transaction will be implemented as follows:
3.8.1. Pursuant to the conclusion and implementation of various agreements
("various transaction agreements"), Moolgem will acquire the properties
from the vendors, in consideration for which Moolgem will issue 10 000
ordinary shares ("existing shares") to the vendors.
3.8.2. Moolgem will declare and capitalise a distribution (which will remain
outstanding) to the vendors, the sole shareholders of Moolgem, in respect
of the existing shares held by the vendors, in an amount equal to the
subscription consideration ("distribution loans").
3.8.3. Cumulative Properties will subscribe for the subscription shares for the
subscription consideration.
3.8.4. The subscription consideration and the distribution loans will be increased
by an amount equal to R6 367 726 compounded monthly at an interest rate
of 5.5% per month calculated from the effective date up to 3 days before
the date on which the subscription shares are issued and allotted to
Cumulative Properties ("applicable date"). In the event that the
unconditional date, being the date on which the subscription agreement
becomes unconditional and of full force and effect, occurs after
1 December 2018, the subscription consideration and the distribution loan
will be escalated at a rate of 6% per annum compounded annually from
1 January 2019, until the applicable date.
3.8.5. Upon receipt, Moolgem will use the subscription consideration to settle the
distribution loans owing to the vendors in full.
3.9. With respect to the Gemgrow consideration shares, the vendors will refund Gemgrow a
pro rata portion of any distributions received in respect of the period from the
commencement of the relevant distribution period of Gemgrow until the date of receipt
by the vendors of the Gemgrow consideration shares.
3.10. Until such time as the subscription shares are issued to Cumulative Properties, the
existing shares, the Gemgrow consideration shares and the distribution loans will be
ceded to Cumulative Properties as security for the due and proper performance of the
obligations of Luvon, East and West and Louis Trichardt in terms of the subscription
agreement.
3.11. The subscription agreement provides for undertakings, warranties and indemnities which
are normal for transactions of this nature.
4. CONDITIONS PRECEDENT
The transaction is subject to the fulfilment or waiver, as the case may be, of the following
conditions precedent:
4.1. by not later than 31 August 2018, Gemgrow has, to the extent required, obtained the
requisite regulatory approvals for the implementation of the transaction;
4.2. by not later than 3 September 2018, the boards of directors of the companies that are
party to the subscription agreement have authorised the entering into of the subscription
agreement and all other agreements and transactions contemplated therein;
4.3. by not later than 3 September 2018, –
4.3.1. the board of directors of Moolgem has resolved (i) to issue the subscription
shares for the subscription consideration and (ii) that the subscription
consideration constitutes adequate consideration for the issue of the
subscription shares, as contemplated in section 40(1)(a) of the Companies
Act, No. 71 of 2008 ("Companies Act"); and
4.3.2. the shareholders of Moolgem have, to the extent required, adopted a
resolution as contemplated in section 41(3) of the Companies Act,
authorising the issue of the subscription shares;
4.4. by not later than 3 September 2018, each of the various transaction agreements have been
concluded in the agreed form;
4.5. by not later than 1 October 2018, Cumulative Properties has informed East and West,
Louis Trichardt and Luvon, in writing, that it has secured such equity funding and/or
debt funding as it may require in order to fund the payment by Cumulative Properties of
that portion of the subscription consideration which is payable in cash;
4.6. by not later than 1 October 2018, any third-party consents or waivers, to the extent
required, have been provided in writing;
4.7. by not later than 1 October 2018, (and only if applicable) the Takeover Regulation Panel
has granted an exemption in terms of the provisions of section 119(6) of the Companies
Act from compliance with Parts B and C of Chapter 5 of the Companies Act and the
Takeover Regulations of the Companies Act in respect of the subscription and the
transactions contemplated in terms of the subscription agreement;
4.8. by not later than 1 October 2018, certain transaction agreements specifically detailed in
the subscription agreement have become unconditional and of full force and effect in
accordance with its terms or have been implemented in accordance with its terms, save
for any condition that the subscription agreement must become unconditional;
4.9. by not later than 14 days after various transaction agreements have become
unconditional, the shareholders of Moolgem have passed such special resolution/s as
may be necessary to adopt the new memorandum of incorporation of Moolgem;
4.10. by not later than 3 December 2018, the registration of transfer of ownership of such
number of properties that have a value of not less than R530 000 000 into the name of
Moolgem has taken place; and
4.11. by no later than 3 December 2018, the subscription and various transaction agreements
have been approved by the Competition Authorities in terms of the Competition Act, No
89 of 1998.
5. PROPERTY SPECIFIC INFORMATION
Details of the properties, including the property name, geographical location, sector, GLA,
weighted average rental per square metre, the agreed value and the valuation, are set out in the
table below:
Weighted
average Valuation as
rental Agreed at
Property name and GLA per m2 value 1 July 2018
No geographical location Sector (m2) (R/m2) (R) (R)
Property owned by Orion
1 Jane Furse Crossing, Retail 10 766 150.04 153 200 000 158 200 000
Limpopo
Property owned by Luvon
2 Game Centre, Retail 7 934 155.32 122 100 000 122 100 000
Thohoyandou, Limpopo
Properties owned by East and West
3 Trador, Limpopo Industrial 15 001 36.99 43 200 000 45 100 000
4 Thohoyandou CBD, Retail 2 723 150.14 38 990 000 39 500 000
Limpopo
5 Thompsons Building, Retail 3 727 97.72 32 800 000 31 500 000
Makhado, Limpopo
6 20 Trichardt, Makhado, Retail 2 017 152.91 27 900 000 28 900 000
Limpopo
7 FNB Building, Limpopo Retail 2 370 128.31 27 700 000 31 400 000
8 68 Hans van Rensburg, Retail/ 2 697 93.34 17 000 000 23 500 000
Polokwane, Limpopo Office
9 70 Landdros Mare, Retail 2 232 87.73 15 000 000 20 500 000
Polokwane, Limpopo
10 79 Market, Polokwane, Retail 1 322 146.29 18 200 000 18 800 000
Limpopo
11 The Crossing, Retail 1 393 140.30 18 000 000 18 720 000
Polokwane
12 Geen & Richards, Retail 1 776 103.21 16 626 000 16 600 000
Tzaneen, Limpopo
13 31 Nikkel, Polokwane, Industrial 2 100 53.80 8 500 000 9 800 000
Limpopo
14 79 Hans van Rensburg, Offices 875 109.07 8 400 000 8 400 000
Polokwane, Limpopo
15 41 Emerald, Polokwane, Industrial 1 362 63.11 7 200 000 7 500 000
Limpopo
Weighted
average Valuation as
rental Agreed at
Property name and GLA per m2 value 1 July 2018
No geographical location Sector (m2) (R/m2) (R) (R)
16 85 Kruger, Makhado, Retail 715 109.19 6 400 000 6 600 000
Limpopo
17 99 Agatha, Tzaneen, Retail 1 417 60.59 5 900 000 7 700 000
Limpopo
18 71 Biccard, Polokwane, Retail 877 79.02 5 900 000 5 950 000
Limpopo
19 54 Jones, Kimberly, Retail 469 129.15 5 600 000 5 500 000
Northern Cape
20 65 Silikon, Polokwane, Industrial 1 040 53.08 4 500 000 4 500 000
Limpopo
21 5 Sapphire, Polokwane Industrial 1 840 32.85 3 800 000 4 090 000
Limpopo
Properties owned by Louis Trichardt
22 18 Thabo Mbeki, Retail/ 4 288 113.49 34 900 000 39 980 000
Polokwane, Limpopo Offices
23 55 Voortrekker, Retail 1 408 123.32 21 800 000 21 000 000
Mokopane, Limpopo
24 54 Schoeman, Retail/ 2 001 77.92 11 400 000 14 560 000
Polokwane, Limpopo Offices
25 54 Agatha, Tzaneen, Retail 1 405 72.34 7 600 000 7 830 000
Limpopo
26 908 Hoofweg, Marble Retail 2 027 27.56 3 000 000 6 390 000
Hall, Limpopo
Total 75 782 98.54 665 616 000 704 620 000
Notes:
The properties were valued as at 1 July 2018, by Theuns Behrens and Johan Liebenberg of Real
Insight Proprietary Limited, who are independent professional valuers, registered in accordance
with the Property Valuers Profession Act, No. 47 of 2000.
6. FINANCIAL INFORMATION
Set out below is the forecast for the properties (the "forecast"), for the 11 months ending
30 September 2019 and the year ending 30 September 2020 (the "forecast period").
The forecast has been prepared on the assumption that the transaction will be implemented on
1 November 2018 and on the basis that the forecast includes forecast results for the duration of
the forecast period. The forecast, including the assumptions on which it is based and the financial
information from which it has been prepared, is the responsibility of the directors of the company.
The forecast has not been reviewed or reported on by independent reporting accountants.
The forecast presented in the table below has been prepared in accordance with the company's
accounting policies, which are in compliance with International Financial Reporting Standards
and in accordance with the Listings Requirements.
Forecast for the 11 Forecast for the year
months ending ending
30 September 2019 30 September 2020
(R) (R)
Revenue 96 992 472 112 411 663
Property operating expenses (27 090 649) (30 870 313)
Net operating income 69 901 823 81 541 350
Finance costs (49 663 105) (54 177 933)
Net profit after tax 20 238 718 27 363 417
Net profit attributable to:
Non-controlling interests 3 495 091 4 077 068
Equity holders of Gemgrow 16 743 627 23 286 349
Notes:
The forecast incorporates the following material assumptions in respect of revenue and expenses:
1. The forecast is based on information derived from the management accounts, budgets, and
rental contracts provided by the vendors.
2. Rental revenue is derived from the forecasts provided to the company by the vendors.
3. Contracted revenue is based on existing lease agreements including stipulated increases,
all of which are valid and enforceable.
4. Leases expiring during the forecast period have been forecast on a lease-by-lease basis and
have been assumed to renew at current market rates unless the lessee has indicated its
intention to terminate the lease. For the 11 months ending 30 September 2019, 85% of
rental revenue is contracted, 12% is near contracted and 3% uncontracted. For the year
ending 30 September 2020, 69% of rental revenue is contracted rental, 27% is near
contracted and 4% is uncontracted.
5. Property operating expenditure has been forecast by the property manager on a line-by-
line basis for each property based on management's review of historical expenditure,
where available, and discussion with the property manager.
6 Transaction costs of R7 000 000 are incurred in relation to loan initiation costs, property
transfer and bond registration costs, regulatory and advisory costs. Acquisition related
costs are capitalised to investment property in accordance with IAS 40 Investment
Property, while loan initiation costs are capitalised and amortised over the period of the
loan.
7. A finance cost has been recognised for additional interest-bearing liabilities raised of
R535 565 200 (R528 565 200 being the cash portion of the subscription consideration and
R7 000 000 of transaction costs), based on the current cost of debt of the company of
10.25%.
8. The balance of the subscription consideration is settled by issuing 10 264 434 Gemgrow
A shares at an issue price of R9.74. The dividend on the 10 264 434 Gemgrow A shares is
estimated at R10 590 000 in respect of the 11 months ending 30 September 2019 and
R12 110 000 in respect of the year ending 30 September 2020. This is based on the
Gemgrow A share dividend of 101.87c for the year ending 30 September 2017, assuming
escalations of 5% per annum.
9. No fair value adjustment is assumed in the forecast period.
10. There will be no unforeseen economic factors that will affect the lessee's ability to meet
their commitments in terms of existing lease agreements.
11. Forecast net property income of the A ordinary shares in respect of the 12 months ending
31 October 2019, being the preferential period, approximates R72 597 557 and it is
assumed that the A distribution shortfall amount equates to zero.
7. CATEGORISATION OF THE TRANSACTION
The transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements
and accordingly is not subject to the approval of Gemgrow's shareholders.
8. VOLUNTARY TRADING UPDATE
The company reaffirms its guidance as contained in its results announcement released on
15 November 2017, namely that it is positioned to deliver on its guidance of 7% to 9% growth
on its B shares for the year ended 30 September 2018 while the A shares will grow at the lower
of 5% and the consumer price index. The assumptions on which this guidance has been based
remain as set out in the results announcement released on 15 November 2017.
27 August 2018
Corporate advisor and sponsor
Java Capital
Date: 27/08/2018 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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