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EMIRA PROPERTY FUND LIMITED - Terms Announcement in respect of the disposal of certain of Emiras office assets and associated letting enterprises

Release Date: 09/10/2018 07:05
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Terms Announcement in respect of the disposal of certain of Emira’s office assets and associated letting enterprises

EMIRA PROPERTY FUND LIMITED
Incorporated in the Republic of South Africa
(Registration number 2014/130842/06)
JSE share code: EMI       ISIN: ZAE000203063
JSE Interest Rate Issuer Code: EMII
(Approved as a REIT by the JSE)
(“Emira” or “the Company”)


TERMS ANNOUNCEMENT IN RESPECT OF THE DISPOSAL OF CERTAIN OF EMIRA’S OFFICE ASSETS
AND ASSOCIATED LETTING ENTERPRISES TO A MAJORITY BLACK-OWNED CONSORTIUM LED BY
ZUNGU INVESTMENTS COMPANY PROPRIETARY LIMITED


1.     BACKGROUND AND RATIONALE

       The board of directors of Emira (“the Board”) is pleased to announce that it has agreed the
       terms of a transaction for the disposal of 25 office assets (“the Office Portfolio”) and associated
       letting enterprises, with a view of rebalancing its portfolio (“the Transaction”). The Transaction
       has been entered into in line with Emira’s strategy to accelerate the reduction of its exposure
       to office assets.

       Negotiations have been concluded successfully and the Board has approved the entering into
       of a rental enterprise sale agreement with Shankly Property Investments Proprietary Limited
       (“Shankly”), which has been setup for the Transaction and which will be renamed in due course.
       Pursuant to the fulfilment of the suspensive conditions applicable to the Transaction, Shankly
       shall be 51% owned by Zungu Investment Company Proprietary Limited (“Zico”), a 98% black-
       owned, and Level 1 B-BBEE entity; 29% by Boyno Trade and Invest Proprietary Limited (“BTI”),
       a wholly-owned subsidiary of One Property Holdings Proprietary Limited; and the remaining
       20% will be owned by Emira.

2.     TERMS OF THE TRANSACTION

2.1.   Consideration

       Emira, and in some instances, its wholly-owned subsidiary, Freestone Property Investments
       Proprietary Limited (“Freestone”), will sell the Office Portfolio, on a property by property basis,
       to Shankly for a total sale consideration of R1 802 332 900 (“Total Consideration”), subject to
       the following adjustments:
        - a potential decrease of up to R13.6 million to the extent that the rental income from
            Discovery Health PTA property is lower than anticipated, given the tenant’s option to early
            terminate their 5-year lease (due to expire in March 2021) from July 2019; and
        - a linear increase of 0.3% per month from 1 April 2019 on the purchase price for each
            property not yet transferred to Shankly by that date, up to the final transfer date of the last
            property, with a long stop date of 30 September 2019.

       The Total Consideration represents a disposal yield of 10.47% (which is in line with Emira’s
       prospects as set out in the Integrated Annual Report for 2018), and will be settled through the
       payment of R1 482 530 000 in cash by Shankly (“the Cash Consideration”), with the remaining
       balance of R319 802 900 to be deferred over a period of 5 years (“the Mezzanine Loan”).
                                                                                            
       The Cash Consideration, of which R1 376 635 000 is being provided by a third-party financier on
       a senior secured basis (the “Third-Party Finance”), shall be paid to Emira on a property by
       property basis, corresponding to the transfer date of each individual property, through a pro
       rata draw-down by Shankly on third-party debt and committed equity contributions as
       applicable.

2.2.   The Mezzanine Loan

       The Mezzanine Loan will attract interest at a rate equal to 3-month JIBAR plus a margin of 350
       basis points, which margin will be increased by 50 basis points 15 months subsequent to the
       first property transferring into the name of Shankly, and by a further 50 basis points per annum
       thereafter. Interest on the Mezzanine Loan will be payable quarterly in arrears.

       The Mezzanine Loan is payable at the end of the five-year term, or in proportional amounts on
       any disposal of the properties by Shankly, subject to the terms of the senior loan provided by
       the third-party financiers, which requires that the first R400 000 000 in net disposal proceeds
       be utilised to reduce the third-party loan. In the event that Shankly ceases to be at least 51%
       black-owned, the Mezzanine Loan shall become repayable in full, together with accrued and
       unpaid interest, within 10 days of such change in shareholding. Emira has retained the right to
       pre-approve any change in shareholding of Shankly whilst the Mezzanine Loan remains unpaid.

       Emira has charged a 1% capital raising fee on the Mezzanine Loan (being an amount of
       R3 198 029 exclusive of VAT), which amount shall be capitalised to the aggregate amount of the
       Mezzanine Loan on the individual transfer dates in proportion to the individual sale prices of
       each of the properties.

2.3.   Suspensive conditions

       The Transaction remains conditional upon the fulfilment or, where applicable, waiver, of certain
       suspensive conditions, including inter alia:

2.3.1.       by 31 October 2018, the remaining Transaction documents, which includes, inter alia, the
             agreements pertaining to the Third-Party Finance, having been entered into by the parties
             thereto and all such agreements having become unconditional;
2.3.2.       by 31 January 2019, the Transaction having been unconditionally approved by the
             Competition Commission, Competition Tribunal and/or Competition Appeal Court; and
2.3.3.       in relation to the transfer of the 1059 Francis Baard property and the Tuinhof property, the
             renewal or extension by a period of 3 years of the current lease agreements with the
             respective anchor tenants of those properties, by no later than the date of lodgement of
             the relevant transfer and bond documents with the Deeds Office.

2.4.   Effective Date

       The effective date of the Transaction (being the date upon which the Transaction will become
       unconditional) will be the first business day after the date of fulfilment of the suspensive
       conditions set out in paragraphs 2.3.1 to 2.3.2 above. In respect of the 1059 Francis Baard and
       Tuinhof properties, the effective date will be the first business day after the date of fulfilment
       or waiver of the suspensive conditions set out in paragraph 2.3.3 above.

       The individual properties in the Office Portfolio are expected to transfer to Shankly from
       December 2018, subject to Competition Commission approval, with the individual transfer
       dates being the dates upon which risks and benefits of the properties shall pass to Shankly.
                                                                                                         
2.5.   Other significant terms

2.5.1.       Security for the Mezzanine Loan will be taken by Emira in the form of a subordinated
             guarantee from a special purpose vehicle set up for such purpose, ranking behind the
             financier providing the Third-Party Finance.
2.5.2.       Emira shall provide a rental guarantee of a maximum of R333 333.33 per month for
             9 months from 1 July 2019 to 31 March 2020 for the property known as 7 Naivasha Road,
             and shall contribute R2 000 000.00 towards upgrades to the property.
2.5.3.       Other warranties and terms that are standard for a transaction of this nature were agreed
             amongst the parties to the Transaction.

3.     INFORMATION RELATING TO THE OFFICE PORTFOLIO

       Information relating to the properties comprising in the Office Portfolio is set out below:

     No.     Property name:                Location:          Rentable         Weighted     Purchase price
                                                             area (m2):         average               (R):
                                                                                 rental
                                                                              (per/m2):
     1.      Lake Buena Vista              Centurion             6 196         R 114.54         40 848 000
     2.      1059 Francis Baard            Hatfield              5 993         R 125.72         66 250 350
     3.      Menlyn Square Office          Menlyn                9 852         R 128.77        116 842 300
             Park
     4.      Corobay Corner                Menlyn               13 865         R 165.00        232 067 700
     5.      Menlynwoods Office Park       Faerie Glen           9 852         R 121.61        122 544 000
     6.      Corporate Park 66             Centurion            13 344         R 133.15        167 051 300
     7.      Discovery Health PTA          Highveld              3 863         R 112.20         47 826 200
     8.      Tuinhof                       Centurion             8 816         R 136.28        138 159 850
     9.      Rigel Office Park             Erasmusrand           4 417         R 137.20         65 527 000
     10.     The Gables                    Hatfield              2 851         R 108.36         23 317 400
     11.     267 West                      Centurion             9 390         R 139.32        154 371 400
     12.     Highgrove Office Park         Highveld              8 012          R 97.44         81 866 200
     13.     7 Naivasha Road               Sunninghill           4 673         R 113.60         44 932 800
     14.     Bradenham Hall                Rivonia               4 784         R 100.67         41 188 400
     15.     Amadeus Place                 Bryanston             2 800         R 135.00         41 358 600
     16.     Rentworks                     Bryanston             2 867         R 120.49         40 592 700
     17.     Western Woods Office          Woodmead              8 947          R 92.70         71 143 600
             Park
     18.     Lincoln Wood Office Park      Woodmead             10 560          R 98.51        104 162 400
     19.     East Rand Junction            Boksburg              6 466          R 83.69         39 401 300                                                                                                      
     20.     Strathmore Park               Musgrave              3 835         R 129.33         40 933 100
     21.     5 The Boulevard               Westville             1 256         R 123.12         16 594 500
     22.     Derby Downs                   Westville             2 139         R 112.64         20 764 400
     23.     Westway                       Westville             2 313         R 131.72         31 742 300
     24.     Omni Centrum                  Bloemfontein          5 447          R 86.22         25 870 400
                                           CBD
     25.     Iustitia Building             Bloemfontein          5 502          R 86.88         26 976 700
                                           CBD
             Total                                             158 040                       1 802 332 900

           *No independent valuations have been carried out and the value of the properties above were
           arrived at by the board of directors of Emira.

           The Total Consideration is in line with the 30 June 2018 valuation of the Office Portfolio.

4.     VALUE OF THE NET ASSETS AND PROFIT ATTRIBUTABLE TO THE NET ASSETS ATTRIBUTABLE
       TO THE TRANSACTION

       As at 30 June 2018, the value of Office Portfolio was R1 802 332 900, and the total net income
       attributable to the Office Portfolio was R161 145 980 for the year ended 30 June 2018, as
       contained in the audited annual financial statements of the Company published on
       28 September 2018.

       The audited annual financial statements have been prepared based on accounting policies that
       are in accordance with International Financial Reporting Standards (“IFRS”) and IFRS
       Interpretations Committee, Financial Pronouncements as issued by the Financial Reporting
       Standards Council, the JSE Listings Requirements and the requirements of the Companies Act
       of South Africa.

5.     APPLICATION OF SALE PROCEEDS

       The Company intends to re-invest the majority of the disposal proceeds into properties located
       offshore, with the intention of growing its offshore asset portfolio, as well as settling debt
       facilities as part of its ongoing debt management.

6.     CATEGORISATION

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

Bryanston
9 October 2018

Sponsor and Corporate Advisor to Emira
Questco Corporate Advisory Proprietary Limited
                                                                                                         4
Legal Advisor to Emira
Allen & Overy (South Africa) LLP

Corporate Advisor and Merchant Bank to Zico
Rand Merchant Bank (a division of First Rand Bank Limited)

Legal Advisor to Zico
Cliffe Dekker Hofmeyr

Legal Advisor to Boyno
Kokinis Incorporated




                                                             

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