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GEMGROW PROPERTIES LIMITED - Disposal of five properties to Columbia Falls Property Proprietary Limited, voluntary update on disposal programme

Release Date: 04/06/2019 17:50
Code(s): GPA GPB     PDF:  
 
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Disposal of five properties to Columbia Falls Property Proprietary Limited, voluntary update on disposal programme

GEMGROW PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2007/032604/06)
JSE share code: GPA ISIN: ZAE0000223269
JSE share code: GPB ISIN: ZAE0000223277
(Granted REIT status with the JSE)
("Gemgrow" or "the company")


DISPOSAL OF FIVE PROPERTIES TO COLUMBIA FALLS PROPERTY PROPRIETARY LIMITED AND VOLUNTARY UPDATE ON DISPOSAL PROGRAMME


1.    INTRODUCTION

      The board of directors of Gemgrow ("the board") is pleased to announce that Gemgrow and Cumulative
      Properties Limited ("Cumulative Properties"), a wholly-owned subsidiary of Gemgrow, have concluded
      3 separate sale of rental enterprise agreements ("the agreements") on 3 June 2019 ("signature date") pursuant
      to which, subject to the fulfilment of various conditions precedent (as summarised in paragraph 3.4 below),
      Gemgrow and Cumulative will dispose to Columbia Falls Property Proprietary Limited ("Columbia Falls"), as
      a going concern, the rental enterprises comprising East London Vincent Office Park, Department of Forestry and
      Water, Citizens Building (Cape Town), FB Motors and Philippi Court (collectively the "properties" or "rental
      enterprises") for an aggregate disposal consideration of circa R195 million (collectively "disposals").

      The rental enterprises include the immoveable properties and the respective rights and obligations in terms of
      existing lease agreements between either Gemgrow or Cumulative and the existing tenants occupying the
      immoveable properties used in the operation of the rental enterprises.

2.    RATIONALE AND PROCEEDS OF THE DISPOSALS

      The disposals are in line with Gemgrow's strategy of defensively repositioning its property portfolio through
      strategic disposals of its non-core assets in accordance with its disposal programme announced at the end of the
      2018 financial year, and reshaping and improving the quality of its core portfolio thereby unlocking value for its
      shareholders. The proceeds of the disposals will be used to reduce debt and strengthen the company's balance
      sheet.

3.    SALIENT TERMS OF THE DISPOSALS

      3.1.    Transfer date

              Columbia Falls will acquire the rental enterprises as a going concern with effect from the date of
              registration of transfer of ownership of the relevant properties into the name of Columbia Falls (the
              "transfer date"), from which date all risk and benefit in the rental enterprises will vest in Columbia Falls.

      3.2.    Disposal consideration

              3.2.1.   The disposal consideration in respect each of the rental enterprises (as more fully detailed in
                       paragraph 4 below) will be payable by Columbia Falls in cash on the transfer date less any
                       upfront deposits held in trust and interest accrued thereon.

              3.2.2.   Within seven days of signature date of each of the agreements, Columbia Falls will pay a deposit
                       into the conveyancer's trust account who will invest the deposit in an interest-bearing account.

              3.2.3.   Should the conditions precedent not be fulfilled in respect of the relevant property, the deposit
                       will be refunded to Columbia Falls together with any interest accrued thereon.

              3.2.4.   If the properties are not transferred to Columbia Falls on or before 31 October 2019, the disposal
                       consideration in respect each of the rental enterprises will be escalated by 0.66% per month
                       compounded monthly in arrears from 1 November 2019 up to and including the transfer date.

      3.3.    General terms

              3.3.1.    Gemgrow and Cumulative shall remain liable for all respective liabilities associated with the
                        rental enterprises up to the transfer date and has provided Columbia Falls with appropriate
                        indemnities in this regard.

              3.3.2.    It is specifically recorded that Cumulative shall pay Columbia Falls the sum of R1 080 150 in
                        respect of the agreed tenant installation contribution between Cumulative and the lessee in
                        respect of the property known as Department of Forestry and Water, the sum of R1 062 684
                        between the Cumulative and the lessee of the property known as FB Motors, and the sum of
                        R386 745 between the Cumulative and the lessee of the property known as Philippi Court.

              3.3.3.    It is specifically recorded that Gemgrow shall pay Columbia Falls the sum of R1 200 000
                        payable over a period of two years in instalments of R600 000 on the anniversary of the transfer
                        date annually in respect of the agreed tenant installation contribution between Gemgrow and
                        the Department of Public Works in respect of the property known as East London Vincent
                        Office Park.

              3.3.4.    The agreements provide for undertakings, warranties and indemnities which are normal for
                        transactions of this nature.

      3.4.    Conditions precedent

              The disposals are subject to the fulfilment or waiver, as the case may be, of the following conditions
              precedent:

              3.4.1.    by no later than 45 days of the signature date, Columbia Falls provides either Gemgrow or
                        Cumulative, as the case may be, with written confirmations that it has conducted the due
                        diligence investigation to its satisfaction;

              3.4.2.    by no later than 30 days of the signature date, Columbia Falls delivers to either Gemgrow or
                        Cumulative, as the case may be, written resolutions of the board of directors of Columbia Falls
                        authorising the Columbia Falls to enter into the respective agreements;

              3.4.3.    by not later than 30 days of the signature date, Columbia Falls provides both Gemgrow and
                        Cumulative, as the case may be, with letters of finance confirming that it has secured funding
                        for the respective disposal considerations; and

              3.4.4.    by no later than 60 days calculated from the date of fulfilment of all of the other conditions
                        precedent contained in this paragraph, the securing of, to the extent necessary, the Competition
                        Authority approvals required to implement the respective disposals.

4.    PROPERTY SPECIFIC INFORMATION

      Details of the properties, including the name, geographical location, sector, gross lettable area ("GLA"), weighted
      average rental per square metre, the net operating profit, the disposal consideration and the valuations, are set out
      in the table below.
                                                                Weighted
                                                                 average           Net
                                                                  rental     operating         Disposal
       Name and geographical                           GLA        per m2     profit(1)    consideration    Valuation(2)
       No location                   Sector           (m2)        (R/m2)         (R'm)            (R'm)           (R'm)
       Properties owned by Gemgrow
       1   East London Vincent       Office          9 040          124          8.093            85.00           95.61
           Office Park, Eastern
           Cape

       Properties owned by Cumulative
       2   Department of Forestry    Office          3 790          107          4.096            35.30           35.20
           and Water, Eastern Cape
       3   Citizens Building,        Retail          1 480          146          2,323            26.00           21.40
           Western Cape
       4   F B Motors, Limpopo       Office          4 217           86          4.261            30.69           28.80
       5   Philippi Court, Western   Office          1 357          127          2.078            18.00           17.91
           Cape

       Total                                         19 884                     20.851           194.99          198.92

      Notes:
      1. Extracted from the unaudited condensed consolidated interim results of Gemgrow for the six months ended
         31 March 2019 which was prepared in terms of International Financial Reporting Standards.
      2. The properties were valued as at 30 September 2018 by the board. The board is not independent, and its
         members are not registered as professional valuers or as professional associate valuers in terms of the Property
         Valuers Profession Act, No 47 of 2000.

5.    CATEGORISATION OF THE DISPOSALS

      Gemgrow has, during the last 12 months, disposed assets to Columbia Falls ("previous disposals") which at the
      time of conclusion of those respective agreements were not categorisable in terms of the JSE Listings
      Requirements. In terms of section 9.11 read with section 9.13 of the JSE Listings Requirements, transactions
      concluded during the 12 months prior to the date of the latest transaction with the same party must be aggregated.
      The aggregate of the consideration receivable from the disposals and the previous disposals represents 11.71% of
      Gemgrow's market capitalisation and is accordingly the disposals are classified as a category 2 transaction in
      terms of the JSE Listings Requirements. Shareholder approval is not required for category 2 transactions.

6.    VOLUNTARY UPDATE ON DISPOSAL PROGRAMME

      In 2018 Gemgrow communicated to the market its intention to dispose of non-core assets to the value of
      R1 billion. At the end of the 2018 financial year, 4 assets were disposed and transferred at a value of R88 million.
      In the current year, the company disposed of 34 assets (including those reported above) at the sales value of
      R632 million, at a 5% discount to the company's latest published book value of the properties. As a large portion
      of these assets are office assets tenanted by government, the company's revenue exposure to Government will
      reduce from 7.4% at 31 March 2019 to under 3.5% post the transfer of the disposals. The proceeds of these sales
      will be used to reduce debt at which point the loan-to-value of the company is expected to reduce from 32% at
      31 March 2019 to below 25%. The company is also in negotiations to dispose of other assets to the value of R200
      million, and is well underway in repositioning its property portfolio to only have assets with strong property
      fundamentals and sustainable income streams.

7.    AFFIRMATON OF GUIDANCE

      Neither the disposals nor the previous disposals will have a material impact on the dividend guidance given by 
      Gemgrow (in its announcement released on 15 May 2019).
 
      The information on which this update has been based has not been reviewed or reported on by the company’s auditors.

4 June 2019


Corporate advisor and sponsor
Java Capital

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