| Thu 15 Jul 2010, 7:05 | | EMI - Emira Property Fund - Proposed amendments to the trust deed and notice of |
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EMI
EMI
EMI - Emira Property Fund - Proposed amendments to the trust deed and notice of
ballot
EMIRA PROPERTY FUND
(Incorporated in the Republic of South Africa)
ISIN: ZAE000050712
Share Code: EMI
("Emira" or "the Fund")
PROPOSED AMENDMENTS TO THE TRUST DEED AND NOTICE OF BALLOT
1. INTRODUCTION
On 25 August 2003, the manager of the Fund, Strategic Real Estate Managers
(Pty) Ltd, ("the Manager") and the trustee of the Fund, Absa Bank Limited,
("the Trustee") signed and executed a deed, ("the Deed"), establishing the
Emira Property Scheme ("the Scheme"). The Trustee and the Manager also
signed and executed the first supplemental deed ("the First Supplemental
Deed") in order to establish the Fund. On 15 September 2003, the Registrar
of Collective Investment Schemes ("the Registrar") approved the Deed and
the First Supplemental Deed.
The Manager and the Trustee have now agreed to enter into supplemental
deeds in order to effect the following amendments ("the Amendments"):
1. Extend the ambit of the Manager`s investment policy so that the Fund
can invest in a broader class of assets;
2. Increase the limit of borrowing by the Scheme, from the current limit
of 30% to 40% of the value of its underlying assets comprising the
relevant portfolio;
3. Amend the existing service charge arrangement in respect of the Fund,
from a monthly charge based on enterprise value, to a monthly charge
equal to the actual operating costs incurred by the Manager in
administering the Fund and the payment of a once-off cancellation
payment of R197.4m ("the Cancellation Payment") to the Manager.
This announcement sets out the salient details of a detailed memorandum
("the Memorandum") that was mailed to Emira participatory interest holders
("PI holders") on Wednesday 14 July 2010 and requires PI holder approval as
outlined in 5 below.
2. RATIONALE FOR THE AMENDMENTS
Proposed amendment no. 1 - Extension of investment policy to enable
investment in a broader class of assets
Previously, a South African Collective Scheme in Property ("CISP") could
only invest in immovable property, securities of fixed property companies
owning or developing immovable property and listed property funds and CISPs
in other countries in the world. CISP`s were prevented from investing in
other South African CISPs, property loan stock vehicles and companies which
derived their income solely from property-related investments.
Subsequently, however, the Registrar has issued a notice determining that
these assets may now be included in a portfolio of a CISP.
The Manager is of the view that improved portfolio diversification and
returns can be provided to PI holders if the investment policy of the Fund
is broadened to include all assets permitted by the Registrar.
Proposed amendment no. 2 - Increase to the borrowing limit
As an asset class, property is conducive to debt financing. The permanent
nature of the physical asset, as well as the long-term escalating leases
are ideal for long-term debt financing, especially where the debt costs can
be fixed for extended periods. Through such prudent financing, returns to
investors can be significantly enhanced without incurring unnecessary risk.
The increase in the Fund`s borrowing limit from 30% to 40% will also
provide greater flexibility to the Manager in raising finance, improve the
potential growth in distributions and yet still keep the Fund`s gearing
within prudent limits.
Proposed amendment no. 3 - Change to the Service Charge
Currently, the annual service charge paid by the Fund to the Manager is
0.5% of the enterprise value of the Fund ("the Existing Service Charge
Arrangement"). This market related service charge has historically been
justified because of the relatively small enterprise value of the
portfolios created under CISPs.
As the market capitalisation of a portfolio increases incrementally through
the acquisition of properties, however, the profitability of the manager
also grows sharply, such that once the portfolio has increased beyond a
certain size, the fee payable to the manager is well beyond the actual cost
of administering the portfolio.
It is therefore in the best interests of PI holders to sterilise the
service charge before the portfolio becomes sizeable, through the once-off
payment of a cancellation fee, as proposed in the Memorandum.
In terms of amendment no.3, the Trustee shall pay to the Manager a monthly
service charge, plus VAT thereon, that is equal to the actual operating
costs incurred by the Manager in administering the Fund ("the New Service
Charge Arrangement") Consequently, the Manager will no longer be capable of
making a profit from administering the Fund, but will merely recover its
actual costs and expenses incurred in doing so. In return for agreeing to
the amendment of the Existing Service Charge Arrangement with the New
Service Charge Arrangement, the Fund will pay the Manager a cancellation
payment as set out below.
The New Service Charge Arrangement will remove the perceived conflict of
interest between the manager of a CISP and the investors in a portfolio
created in terms of a CISP and will effectively align the Manager`s
objectives with those of PI holders of creating long-term sustainable
growth in the Fund.
3. TERMS AND CONSIDERATION OF THE AMENDMENTS
There are no terms or consideration payable in respect of proposed
amendments no. 1 and 2.
In respect of proposed amendment no. 3, the Cancellation Payment of R 197
400 000, plus VAT, will be payable by the Fund to the Manager, in two
tranches:
1. A first tranche payment of R 129 150 000, plus VAT ("the First Tranche
Payment"), payable on the first business day after the date on which
the last of the conditions precedent has been fulfilled or waived (as
the case may be) ("the Implementation Date");
2. A second tranche payment payable on 1 October 2011, of R 68 250 000,
plus VAT, subject to the following:
If prior to 1 October 2011, an event occurs which, in terms of the Act, has
the effect of changing or restricting the continued duration of the
management relationship or the Fund being wound up ("the Material Event"),
the second tranche payment will be adjusted on a pro-rata basis in
accordance with the following formula:
A = ((B + C + D) / E) x F
where:
A = the Adjusted Cancellation Payment;
B = the number of months (or part thereof) between 1 January
2009 (being the original effective date of the Amendments
agreed to by the Fund and the Manager in December 2008) and
the Implementation Date;
C = the number of months (or part thereof) between the
Implementation Date and the effective date of the Material
Event;
D = the number of months (or part thereof) that the existing
relationship between the Fund and the Manager in terms of
which the Manager carries on the business of administering
the Fund in exchange for a service charge is allowed to
endure after the date of the Material Event (which number,
for purposes of this formula, may not be less than 60
months, that is, 5 years);
E = 120 months (that is, 10 years);
F = the Cancellation Payment, and
For the purposes of this formula, (B + C + D) cannot exceed 120 months.
An amount equal to the Adjusted Cancellation Payment ("A" in the above
formula) less an amount equal to the First Tranche Payment, plus all
interest accrued on such amount, shall be paid to the Manager within 5
business days after the effective date of the Material Event. The balance
of the monies which are to be held in a trust account (if any) (plus all
interest accrued thereon) shall be released to the Fund.
4. PRO FORMA FINANCIAL EFFECTS OF THE AMENDMENTS
There are no pro forma financial effects with respect to proposed
amendments no. 1 and 2.
With respect to proposed amendment no. 3, the table below illustrates the
estimated impact on distributions and net asset value of the Fund for the
six months ended 31 December 2009, had the New Service Charge Arrangement
been effective from 1 July 2009:
Existing New Service % Change
Service Charge Charge
Arrangement Arrangement
Distributions per PI (cents) 51.84 52.10 0.5
for the six months ended 31
December 2009
Net Asset Value per PI 1117 1079 (3.4)
(cents) as at 31 December
2009
PIs in Issue as at 31 487,827,654 504,992,871 3.5
December 2009
Notes and assumptions:
- It is assumed that amendment no.3 was effective on 1 July 2009.
- It is assumed that the capital needed to pay the Cancellation Payment
of R197,400,000.00 was raised by the issue of new PIs issued at the
closing PI price, as at 31 December 2009, being 1150 cents per PI.
- It is assumed that the asset service charge expense for the period
(being R17.5m) was not paid to the Manager, with the Fund instead
reimbursing the expenses of the Manager for the period, which expenses
amounted to R7.25m.
The unaudited pro forma financial effects are the responsibility of the
directors and have been prepared for illustrative purposes only to provide
information about how amendment no.3 may impact PI holders on the relevant
reporting date and because of its nature may not give a fair reflection of
the Fund`s financial position, changes in equity, results of operations or
cashflows after implementation of the amendments or of the Fund`s future
earnings.
5. CONDITIONS PRECEDENT
The implementation of the Amendments is subject to the fulfillment of the
following conditions precedent, amongst others, by not later than 30
September 2010, or such later date as agreed between the parties:
(i) The consent of PI holders holding a majority in value of the total
number of PIs, excluding the Manager, who reply to a ballot, in which
ballot the replies of PI holders holding not less than 25% in value of the
total number of PIs in issue, have been received in writing.
(ii) The Fund raising finance in the sum of R 197 400 000.00 in order to
fund the payment of the Cancellation Payment, which shall be done by way of
issuing further PIs to investors.
6. INDEPENDENT OPINION
The Manager appointed KPMG Services (Proprietary) Limited, as an
independent adviser, to consider the terms of the proposed amendments. KPMG
has advised the board that it has considered the terms and conditions and
is of the opinion that they are fair and reasonable to PI holders.
7. RECOMMENDATION
The Manager recommends, and has been authorised by the Trustee to state
that the Trustee supports such recommendation, that PI Holders vote in
favour of the Amendments.
8. NOTICE OF BALLOT
PI holders are advised that the Memorandum containing ballot papers has
been posted to all PI holders, which incorporates the salient features of
the Amendments. PI holders are requested to complete the ballot in the
manner indicated and to return the ballot to Emira`s auditors,
PricewaterhouseCoopers Inc, at Private Bag X36, Sunninghill, 2157, to be
received by them, by no later than 26 August 2010.
Sandton
14 July 2010
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Trustee of the Scheme
ABSA BANK LIMITED
Attorneys
EDWARD NATHAN SONNENBERGS INC.
Auditors of the Fund
PRICEWATERHOUSECOOPERS INC.
Independent financial adviser to the Fund
KPMG SERVICES (PROPRIETARY) LIMITED
Date: 15/07/2010 07:05:02 Produced by the JSE SENS Department.
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