SPEAR REIT LIMITED – Announcement of disposal of category 2 – 15 on Orange – SENS

                            
Category 2 Disposal Announcement – 15 On Orange
SPEAR REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2015/407237/06)
Share Code: SEA
ISIN: ZAE000228995
LEI: 378900F76170CCB33C50
Approved as a REIT by the JSE
(“Spear”)
CATEGORY 2 DISPOSAL ANNOUNCEMENT – 15 ON ORANGE
1.     INTRODUCTION
1.1.     Shareholders are advised that on 24 October 2022 (“Signature Date”), Spear, through
its wholly-owned subsidiary Spear Holdco Proprietary Limited (“Spear Holdco”),
entered into a sale of shares agreement (“Agreement”) with Erf 18 Zimbali Coastal
Resort Proprietary Limited (“Purchaser”) (beneficially owned by Resrev Malta
Limited), in terms of which Agreement, Spear will dispose of 100% of the issued shares
(“Sale Shares”) in its wholly-owned subsidiary Blend Property 15 Proprietary Limited
(“Blend 15”), to the Purchaser for a disposal consideration of R246 000 000, as
adjusted in accordance with paragraph 3 below (“Disposal Consideration”)
(“Disposal”).
1.2.     Blend 15 is the owner of the immovable property comprising –
1.2.1.      Section No 1,000 in the scheme known as 15 on Orange (“Scheme”), which section
is used for purposes of providing serviced business and hospitality premises;
1.2.2.      Section No 2,000 in the Scheme, which section is used mainly for retail purposes;
1.2.3.      Section Nos 201 to 342 (inclusive) in the Scheme, all comprising parking bays,
         together with an undivided share in the common property in the Scheme apportioned
to the said sections and includes the right to certain exclusive use areas in the Scheme
(“Property”). During 2021, Blend 15 concluded a lease agreement in respect of the
Property (“Lease”), with The Capital Apartments and Hotels Proprietary Limited
(“Tenant”), which is an associate of the Purchaser, who leases the Property to conduct
its business, being the provision of hospitality, serviced apartments, restaurant and
conference related services.
1.3.     In addition to the Lease, Blend 15 concluded an option agreement (“Option
Agreement”) with The Capital Apartments and Hotels Group Proprietary Limited
(“Capital Hotels Group”) which is an associate of the Purchaser and the Tenant, in
terms of which Blend 15 granted Capital Hotels Group a call option to purchase the
Property, together with (i) the Lease, (ii) all movable assets owned by Blend 15 and
situated on the Property, and (iii) all of Blend 15’s rights, title and interest in and to the
name “15 on Orange” (“Call Option”), details of which were announced on SENS by
Spear, on 18 March 2021. The Call Option has not been exercised and the parties
have agreed that the Option Agreement will be cancelled upon the implementation of
the Disposal.
2.     RATIONALE FOR THE DISPOSAL
2.1.     The disposal of the Property will be the culmination of Spear’s stated strategy to exit
the hospitality sector, as advised to the market in 2019, following a disciplined
approach by Spear’s management in this regard.
2.2.     Spear’s portfolio composition, following the implementation of the Disposal, will be fully
aligned with managements strategic objectives of owning fixed income producing
Western Cape assets comprising industrial, retail, commercial and mixed use assets.
2.3.     The Disposal Consideration represents a 7% discount to the Call Option price of
R265 000 000, as agreed in terms of the Option Agreement. The discount was
acceptable to the board of directors of Spear, given the fact that the Disposal will be
implemented prior to the expiry of the period within which the Call Option could have
been exercised and taking into account the opportunity cost of not concluding the
Disposal in light of the current macro-economic environment, rising interest rates and
the alternative investment opportunities available to Spear, which align with its
investment strategy.
3.     DISPOSAL CONSIDERATION 
3.1.     The Disposal Consideration is an amount equal to –
3.1.1.      the sum of R246 000 000;
3.1.2.      plus (if the amount is positive) or minus (if the amount is negative) an amount equal
to the net working capital of Blend 15 as at the Closing Date (as defined below),
which amount is estimated to be the (positive) sum of R6 875.82;
         provided that the Disposal Consideration will not exceed a maximum amount of
R247 000 000.
3.2.     The Disposal Consideration will be provisionally determined by Spear prior to the last
business day of the month in which the last of the Conditions Precedent (as defined in
paragraph 5 below) is fulfilled or waived (“Closing Date”), based on pro-forma financial
information of Blend 15 as at the Closing Date (“Provisional Disposal
Consideration”). The Provisional Disposal Consideration shall be paid by the
Purchaser to Spear in cash on the Closing Date.
3.3.     The Disposal Consideration will be finally determined after the Closing Date, based on
the financial statements of Blend 15 as at the Closing Date. If the Disposal
Consideration is determined to be more than the Provisional Disposal Consideration,
the Purchaser shall pay the difference to Spear. If the Disposal Consideration is less
than the Provisional Disposal Consideration, Spear shall pay the difference to the
Purchaser.
4.     APPLICATION OF THE DISPOSAL CONSIDERATION
4.1.     Since the Property is not financed and there is no related debt which needs to be
settled as a result of the Disposal, the full Disposal Consideration will be received by,
and be available to, Spear.
4.2.     The Disposal Consideration will be utilised to grow Spear’s portfolio in a strategy-
aligned manner, following a value investment approach. Whilst such strategic
investment and growth opportunities are being pursued and finalised, a portion of the
Disposal Consideration will be applied to settle certain of the existing debt facilities of
the Spear group permanently and the remaining portion of the Disposal Consideration
will be held in Spear’s existing debt facilities, to reduce interest costs, in line with
Spear’s strategic objective to maintain the Spear group loan to value (“LTV”) ratio
within the target range of between 38% and 43%. The application of the Disposal
Consideration will reduce the group LTV by 298 bps and the forecasted Spear group
LTV, following the implementation of the Disposal, will be 38%.
5.     CONDITIONS PRECEDENT
5.1.     The Disposal is subject to the fulfilment of the following outstanding conditions
precedent (“Conditions Precedent”) that –
5.1.1.      the Purchaser shall have concluded a written loan agreement with a South African
financial institution, in respect of the financing of the Disposal Consideration;
5.1.2.      Nedbank Limited has provided Blend 15 and the Purchaser with a written,
irrevocable undertaking to release Blend 15 from certain guarantees and
suretyships with effect from the Closing Date and to cancel the mortgage bond
registered over the Property in its favour as soon as is reasonably possible after the
Closing Date;
5.1.3.      the Disposal has (to the extent necessary) been unconditionally approved by the
applicable competition authorities in terms of the Competition Act, No. 89 of 1998,
or conditionally approved on conditions which are acceptable to the parties; and
5.1.4.      transfer of ownership of Section 15 in the Scheme, being a residential unit, together
with certain parking bays, a storeroom and a balcony (‘Section 15”), which is
excluded from the Disposal and which was sold by Blend 15 to Spear Holdco prior
to the Signature Date, is registered in the name of Spear Holdco in the Cape Town
Deeds Registry Office.
5.2.     The Conditions Precedent must be fulfilled by not later than 31 January 2023, which
date may be extended by the parties in writing.
6.     EFFECTIVE DATE OF THE DISPOSAL
       The effective date of the Disposal will be the Closing Date, which is anticipated as being
on or about 31 January 2023.
7.     WARRANTIES AND OTHER SIGNIFICANT TERMS OF THE AGREEMENT
7.1.     The Agreement contains representations and warranties by Spear, in respect of
Blend 15 and the Property, in favour of the Purchaser which are standard for a
transaction of this nature.
7.2.     Subject to such warranties, the Sale Shares are sold “voetstoots”.
7.3.     Capital Hotels Group is a signatory to the Agreement and by its signature thereto
agrees that the Option Agreement is cancelled, with effect from the Closing Date.
8.     THE PROPERTY 
       Details of the Property are as follows:
        Property            Geographical      Sector            Gross             Weighted
Name and            Location                            Lettable Area     Average Net
Address                                                 (m2)              Rental / m2
15 on Orange,       Cape    Town, Hospitality           15 946            R104.51
Corner of           Western Cape
Orange Street
& Grey’s Pass,
Gardens
       Details regarding the Property, as at the Signature Date, are set out below:
        Disposal Yield          Weighted Average       Weighted Average       Vacancy % by
Attributable to         Escalation             Lease Duration         Gross Lettable
Shareholders                                   (years)                Area
8.13%                   5.00%                  5.83                   0.00%
       Notes:
       a)    In addition to the Disposal Consideration, the costs associated with the Disposal are
estimated at R250 000. No agents’ commission is payable in respect of the Disposal.
b)    The Disposal Consideration payable in respect of the Sale Shares in Blend 15, which
holds the Property, is considered to be its fair market value, as determined by the
directors of Spear. The directors of Spear 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.
9.     FINANCIAL INFORMATION
9.1.        As at 28 February 2022, being the date of the last published audited consolidated
annual financial statement of the Spear group (including Blend 15), the value of the net
assets attributable to Blend 15, excluding the value of the net assets attributable to
Section 15, was R265 000 000.
9.2.        The audited profit after tax attributable to Blend 15 for the financial year ended
28 February 2022, excluding the profit after tax attributable to Section 15, was
R13 214 966, based on the last published audited consolidated annual financial
statement of the Spear group (including Blend 15), which were prepared in terms of
IFRS.
10. CLASSIFICATION OF THE DISPOSAL
       The Disposal Consideration represents more than 5% but less than 30% of Spear’s
market capitalisation as at the Signature Date and accordingly the Disposal constitutes a
category 2 transaction in terms of the JSE Limited Listings Requirements.
Cape Town
24 October 2022
Sponsor           Legal Advisor
PSG Capital       Cliffe Dekker Hofmeyr 
Date: 24-10-2022 08:45:00
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