Vukile Property Fund Limited (JSE:VKE) News - Acquisition by Castellana of a significant minority shareholding in Lar Espana and withdrawal of cautionary

VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE share code: VKE NSX share code: VKN
ISIN: ZAE000180865
Bond company code: VKEI
(Granted REIT status with the JSE)
(“Vukile” or “the Company”)


ACQUISITION BY CASTELLANA PROPERTIES SOCIMI OF A SIGNIFICANT MINORITY SHAREHOLDING IN LAR ESPANA REAL ESTATE SOCIMI 
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT


1.   Introduction

     Shareholders are advised that Vukile’s 88% held subsidiary Castellana Properties SOCIMI, S.A.
     (“Castellana”), has concluded an unconditional share purchase agreement (“share purchase agreement”)
     pursuant to which Castellana will acquire a 21.7% shareholding in Lar Espana Real Estate SOCIMI, S.A
     (“Lar Espana”), from LVS II LUX XII S.À R.L. (the “seller”) (the “transaction”).

2.   Rationale

     The views of Vukile and Castellana are set out more fully in the presentation that may be accessed at
     www.vukile.co.za/cmsAdmin/uploads/investor-presentation-2022.pdf and summarised as follows:

     2.1. Lar Espana is a leading, Madrid-stock exchange-listed, 100% retail-focused Spanish SOCIMI which
          owns a portfolio of 14 retail assets run by an experienced management team. Tenants in the Lar
          Espana portfolio are weighted toward large international and national tenants including the most
          recognizable brands in Spain. The portfolio has an occupancy rate of 95% of its 551 405m² total
          GLA.1

     2.2. Lar Espana has a high-quality, low-risk retail real estate portfolio offering predictable cash flows and
          has maintained prudent gearing through the pandemic with a current LTV of c.41%. After a recent
          debt restructure via corporate bonds, 100% of Lar Espana´s assets are now unencumbered.

     2.3. Lar Espana’s properties are of similar nature and quality to Castellana’s properties and are
          complementary from a geographic perspective. Both portfolios comprise established shopping
          centres and retail parks that are well-located, dominant in their respective catchments with strong
          footfall and sales performance. As such, Castellana is particularly well placed to evaluate Lar
          Espana’s portfolio fundamentals, operating performance and earnings potential.

     2.4. It is Castellana’s view, based on its current operational performance and barring further pandemic
          related disruptions, that both their and Lar Espana’s retail assets will resume generating earnings
          similar to pre-pandemic levels in the short-term. Further earnings tailwinds, specific to Lar Espana,
          are expected in the form of reduced finance costs off the back of a recently concluded debt restructure
          and the implementation of a new asset management agreement which will reduce corporate costs.
          Additionally, Lar Espana has significant cash on its balance sheet of c. €200 million1, which
          Castellana believes provides further impetus to its investment into Lar Espana.

     2.5. Castellana anticipates a forward acquisition FFO yield, in excess of market expectations, of between
          9% to 11% as a consequence of the points listed in 2.4 above. This exceeds yields of direct real estate
          opportunities in the Spanish market.

     2.6. Lar Espana’s asset valuations are in line with Castellana’s on a €/m2 basis and the acquisition price
          per share represents an attractive 48% discount to EPRA NTA (net tangible assets) as per Lar
          Espana’s reviewed results for the six months ended 30 June 2021.

     2.7. The pandemic has negatively affected the perception of retail real estate stocks in Spain and globally.
          Based on actual trading evidence in Spain of both Castellana and Lar Espana and others, Vukile
          believes the retail recovery is well underway and expects a rerating of retail share prices towards pre-
          pandemic levels once the recovery becomes visible to the market.

3.   Salient terms of the transaction

     3.1. Sale and purchase

           Castellana will purchase 18 157 459 Lar Espana shares (the “subject shares”) from the seller at a
           purchase price of €5.35 per share. The closing date of the sale and purchase of the subject shares will
           be 26 January 2022 (the “closing date”).

     3.2. Purchase consideration

           The aggregate purchase consideration of €97 142 406 will be settled by Castellana in cash and will
           be discharged on the closing date.

     3.3. Other terms of the share purchase agreement

           The subject shares are acquired by Castellana cum dividend and any other rights (without limitation)
           that should arise before closing date.

           Other terms and warranties are usual for an agreement of the nature contemplated.

4.   Funding

     4.1. Castellana will fund the purchase out of €15 million of available cash and the balance through a
          shareholder loan of €75 million from Vukile, which will be capitalised before the end of the current
          financial year ending 31 March 2022 at a price equal to the NAV per share of Castellana.

     4.2. Vukile has secured a new facility of R1 129 million (equating to €65 million) to fund the shareholder
          loan to Castellana and will repay the new loan with:

           4.2.1. proceeds from the placement of Fairvest shares concluded on 26 January 2022 of R400
                  million; and

           4.2.2. proceeds of R840 million from the sale of its Namibian assets as well as other non-core
                  properties in South Africa, all of which are due to transfer before the end of the current
                  financial year, being 31 March 2022.

     4.3. Additionally, Vukile is providing a further €10 million shareholder loan to Castellana which will be
          repaid by 21 January 2023 from free cash resources.

     The transaction will result in a reduction in Castellana’s LTV to c.45% and will be LTV neutral for Vukile.

5.       Forecast financial effects

         Vukile forecasts a positive impact on FFO per Vukile share for FY2022 as a result of the transaction and a
         material positive total return impact in the medium to long-term.2

6.       Financial information

         Lar Espana’s last reported net asset value and its net profit after tax, as disclosed in its reviewed results for
         the six months ended 30 June 2021, prepared in terms of IFRS-EU, were €838.5 million and €7.7 million
         respectively.

7.       Categorisation of the transaction

         The transaction is classified as a Category 2 transaction in terms of paragraph 9.5(a) of the JSE Listings
         Requirements and accordingly does not require the approval of Vukile shareholders.

8.       Withdrawal of cautionary announcement

         Following the release of this announcement, Vukile shareholders are advised that caution is no longer
         required to be exercised in their dealings in Vukile shares.

9.       Investor teleconference

         Vukile management will provide further information during a videoconference scheduled for
         Thursday, 27 January 2022 at 11:00. Investors can access the videoconference at:

         Zoom Meeting
         https://us02web.zoom.us/j/86834848485?pwd=WHhGZHNZUjY5b2xqa0QrM25TeVdBZz09
         Meeting ID: 868 3484 8485
         Passcode: 458535

27 January 2022

Corporate advisor and transaction sponsor                         NSX sponsor
Java Capital                                                      IJG Securities (Pty) Ltd



1 Source: Lar Espana business update, December 2021
2 The forecast financial effects above have not been reviewed or reported on by Vukile’s auditors

Date: 27-01-2022 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.