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Proposed acquisition of retail centres from related party, proposed DJV extension, withdrawal of cautionary
MAS P.L.C.
Registered in Malta
Registration number C99355
JSE share code: MSP
ISIN: VGG5884M1041
LEI code: 213800T1TZPGQ7HS4Q13
('MAS', the 'Group' or the 'Company')
PROPOSED ACQUISITION OF SIX COMMERCIAL RETAIL CENTRES IN ROMANIA FROM A RELATED PARTY, PROPOSED DEVELOPMENT JOINT
VENTURE EXTENSION AND WITHDRAWAL OF CAUTIONARY
INTRODUCTION
Shareholders are advised that MAS has entered into agreements in terms of which:
- MAS acquires 100% of the share capital and shareholder loans of six subsidiaries ('SPVs') of PKM
Developments Limited ('PKM Development' or the 'Seller'), owning six commercial retail centres in
Romania (the 'Properties') through two subsidiaries, namely MAS CEE Management Holdings SRL and
MAS Real Estate Finance SRL (the 'Purchaser') (the 'Acquisition'). PKM Development is the development
joint venture established in March 2016 (the 'DJV') by Prime Kapital Limited ('Prime Kapital'), PKM
Development, MAS and MAS CEE Developments Limited; and
- the duration of the relationship with Prime Kapital via the DJV is extended and MAS' funding commitment to
the DJV is increased ('DJV Extension'),
collectively, the 'Transactions'.
RATIONALE
MAS' strategic objectives, as published with the Group's financial results for the period to 30 June 2021, are to
achieve by the end of the 2026 financial year:
- annual like-for-like net rental growth of at least 4% on Central and Eastern Europe ('CEE') retail assets from
a normalised post Covid-19 base, in addition to specific asset management initiatives to improve occupancy
rates for the current CEE retail assets to 99% over this period;
- completion of commercial developments to the cost of approximately €600million at a weighted initial net
yield of more than 9% by the DJV over this period (figures not proportionally consolidated);
- residential sales and deliveries by the DJV of approximately €200million per annum by the 2026 financial
year at net after tax margins of approximately 20% (figures not proportionally consolidated), and
- direct acquisitions of high-quality CEE based commercial assets to the value of at least €150million during
the 2022 financial year and a further €50million by the end of the 2023 financial year.
Achieving these targets should lead to substantial improvements in total returns per share and implies an increase
in scale that will position MAS well for an investment-grade credit rating, which will enable further flexible access
to debt finance at optimal cost.
In line with its investment strategy, MAS has made significant progress with the disposal of the investment
properties previously held by MAS outside of CEE, resulting in MAS holding significant cash balances
(€194.5million on 30 April 2022, not proportionally consolidated). Capital previously invested in Western Europe,
and surplus to capital commitments to the DJV, is reserved for investment in income property in CEE.
MAS has extensive internal knowledge of operating the Properties due to its asset management role in the DJV.
The Properties are new and have low expected capital expenditure requirements. MAS has implemented asset
management initiatives in relation to the Properties, is driving net rental income ('NRI') growth initiatives planned
to the end of the 2026 financial year and is of the view that the Properties benefit from attractive further passing
NRI growth potential.
Due to recent events, medium-term inflation is potentially much higher than anticipated with formulation of
strategic targets and current high cash balances of MAS are negative for real total returns.
The DJV, which provides exclusive access to successful and scaled co-investor and developer Prime Kapital, has
been highly beneficial to MAS, with both MAS and Prime Kapital benefitting from integrated, efficient teams, each
partner providing specialised functions and best-in-class talent pools to the other. Prime Kapital is targeting a
significant further development pipeline (in addition to that secured in the DJV and previously disclosed by MAS).
DJV exclusivity will come to end in less than three years and MAS is at risk of not benefitting from the additional
development pipeline targeted by Prime Kapital, as the DJV's capital base is likely to be exhausted by completion
of the €1.65billion secured development pipeline disclosed in MAS' condensed consolidated interim financial
statements for the six-month period to 31 December 2021 (figure not proportionally consolidated).
The Acquisition provides MAS with the opportunity to substantially outperform its direct acquisition targets via
attractive direct acquisitions, by adding increased scale to MAS' operations in CEE and mitigating the potential
for exacerbated drag on real total returns per share and the deterioration in real value of cash holdings due to
potential higher than expected medium-term inflation. The DJV Extension significantly adds to the benefits
expected to be derived from the DJV via further commercial and residential development pipeline targeted by co-
investor and developer, Prime Kapital, on an exclusive basis.
SALIENT TERMS OF THE ACQUISITION
Subject to the fulfilment or waiver (as applicable) of the conditions precedent set out below, and with effect from
1 July 2022 (the 'Effective Date') the Purchaser will acquire the share capital and shareholder loans of the SPVs
from the Seller as a single, composite, and indivisible transaction.
The purchase price for the Acquisition before adjustments for working capital and bank debt is €319.7million
('Transaction Price') and the cash purchase price, after these adjustments amounts to approximately
€197.3million.
Completion will take place on the first business day following the date on which all conditions precedent are
fulfilled or waived, or such later date as agreed between the parties (the 'Closing Date'), provided that the
Transactions are implemented on or before close of business on 15 August 2022 (the 'Long-Stop Date').
On the Closing Date, all the rights and interests of the Seller in the share capital and shareholder loans of the
SPVs will be assigned and transferred to the Purchaser.
If the Closing Date occurs after the Effective Date, the purchase price will be adjusted in respect of any changes
to the amounts outstanding in terms of working capital balances and bank debt.
The cash proceeds will be applied by the Seller to:
- fund the payment of outstanding accrued but unpaid coupon (if any) in respect of the preferred shares
(comprising 283 050 000 preferred shares issued to date by PKM Development to MAS, and corresponding
to MAS' investment to date of €283.1million from a total commitment to the DJV of €420million, each
preferred share having the right to receive a fixed dividend at a rate of 7.5% per annum of the price at which
the preferred shares were allotted and issued);
- fund the payment of a distribution to the shareholders of B common shares in PKM Development (comprising
20 000 000 B1 common shares held by MAS CEE Developments Limited and 30 000 000 B2 common
shares held by Prime Kapital) for an amount equal to the capital profit realised on the disposal of the
Properties; and
- fund the redemption of the preferred shares for such an amount as PKM Development may determine (which
is currently estimated to be approximately €50million) on the basis that the redemption amount paid in
respect of the preferred shares so redeemed, is reinstated as committed funding by MAS to the DJV.
SALIENT TERMS OF THE DJV EXTENSION
In order to further MAS' investment strategy and meet the long-term commercial interests of the DJV, the following
terms are proposed with respect to the DJV:
- an extension to the exclusivity period by five years (i.e., the end of the drawdown period or the date on which
the funding committed by MAS to the DJV has been fully invested by the DJV, whichever occurs first, in
terms of which the DJV parties agree that (i) neither MAS nor any of its associates will operate a business
in CEE that has commercial or residential real estate development as its principal objective and (ii) Prime
Kapital will not operate or own more than 15% in any CEE commercial or residential real estate development
business);
- an extension to the drawdown period in relation to the funding committed to the DJV by five years to 2030;
- a deferment of five years to the date on which MAS is entitled to give written notice to the DJV parties to
liquidate the assets of, redeem the preferred shares, and voluntarily dissolve the DJV to 2035;
- an increase to MAS' preferred share funding commitments to the DJV by €50million to €470million;
- the reinstatement of the funding commitment available in respect of the preferred share investment
commitment, by a maximum amount of €100million, to the extent that the DJV makes an early redemption,
from time to time in respect of the prefered shares, due to major capital events prior the end of the drawdown
period;
- the provision of a €30million short-term revolving credit facility to the DJV at an interest rate equal to MAS'
weighted cost of short-term debt finance, from time to time (or where MAS has no such financing in place,
at a rate equal to the 3-month EURIBOR plus a margin of 2.75%). The final availability date of the facility will
be the last day of the drawdown period;
- the limitation on any proposed capital distributions to the shareholders of B common shares to the extent
that the total amount of shareholders' equity attributable to shareholders of B common shares at the time
(i.e the tangible net asset value less the preferred share capital) is not equal to at least 20% of the amount
standing to the credit of the preferred share capital from time to time, and to the extent that it may fall below
that amount as a result of any proposed distribution.
The Transactions are subject to limited representations and warranties, consistent with general practice for
transactions of this type.
CONDITIONS PRECEDENT
The Transactions are subject to the fulfilment or waiver (as applicable) of the following conditions precedent by
no later than the Long-Stop Date or such later date as may be agreed in writing between the parties:
- approval of the Transactions by the shareholders of MAS in terms of section 10.4 of the JSE Listings
Requirements;
- the parties obtaining all applicable corporate authorisations, including board and shareholder approval; and
- the parties obtaining all applicable regulatory consents, including merger control approval by any applicable
competition law authority or anti-trust regulatory authority.
The DJV Extension and the implementation of a sale and purchase agreement in respect of the Acquisition ('SPA')
are not cross conditional. The SPA will be concluded between the Purchaser and the Seller following the fulfilment
or waiver (as applicable) of the above-mentioned conditions precedent. Where any of the Properties allow for a
complementary extension of the buildings on those Properties, the SPA will include provisions to deal with the
implementation of any extension project on the basis that Prime Kapital will be granted a right of first refusal to
carry out any extension project in accordance with the design specifications agreed to between the parties.
PROPERTY SPECIFIC AND FINANCIAL INFORMATION
Details of the Properties, including the details of each subsidiary to be acquired, the name of each property,
geographical location, gross lettable area ('GLA'), weighted average rental per square metre, the net operating
profit, the value attributed to the Properties and the acquisition value, passing net rental income ('Passing NRI'),
and Passing NRI yield to cost, are set out in the table below. The Properties are all classified as retail.
Prahova Zalau Sepsi Barlad Total
Dambovita DN1 Value Value Value Value Value
Property name Mall Centre Centre Centre Centre Centre
PK
Developme
PK Grizzly nt One PK Green PK Denim PK Bronze PK Vanilla
SPV S.R.L. S.R.L. S.R.L. S.R.L. S.R.L. S.R.L..
Sfantu
Location (Romania) Targoviste Balotesti Ploiesti Zalau Gheorghe Barlad
GLA (m2) 31 100 27 400 21 700 19 300 16 900 16 400 132 800
Weighted average
rental per m2 per
month (€) 14.7 15.3 13.2 13.5 11.5 10.3 13.5
Valuation1
(€ million) 81.5 74.1 51.3 45.6 34.2 29.4 316.1
Transaction Price
(€ million)2 83.4 76.1 50.7 44.8 34.5 30.2 319.7
Passing NRI (€
million)3 5.5 5.0 3.4 3.1 2.4 2.0 21.4
Passing NRI / Cost
(%)4 8.6 8.5 8.2 9.4 8.8 7.9 8.5
Notes:
1. Valuation is based on preliminary valuation reports for the Properties, as at 31 May 2022, by independent,
external, registered professional, Echinox Evaluari SRL, a third-party non-owned affiliate of Cushman &
Wakefield, a Royal Institution of Chartered Surveyors regulated company and a corporate member of the
Romanian National Association of Authorised Valuers, a recognised property valuers' regulatory body.
2. Transaction price is the price agreed between the parties, before adjustments.
3. Passing NRI is the annualised forward-looking net rental income estimated on 31 May 2022.
4. Passing NRI / Cost is the Passing NRI divided by cost (the latter calculated as Transaction Price net of
MAS' (i) coupon on preferred equity invested, and (ii) proportion of realised capital gains).
The aggregated net operating income of the SPVs for the six-month period to 31 December 2021 was
€6.16million. MAS is satisfied with the quality of the financial information, which has been extracted, for purposes
of this announcement, from the reviewed interim financial results of the DJV, prepared in accordance with
International Financial Reporting Standards and the DJV's accounting policies. The financial information
contained in this announcement has not been reviewed or reported on by the Company's auditors.
The SPVs will retain their existing secured external debt facilities of approximately €122.4million, and equivalent
interest rate caps at amortised cost on transfer from the Seller, at an attractive weighted average interest of 3-
month EURIBOR plus a margin of approximately 3.25%. The fully hedged secured debt facility is provided by a
consortium of four domestic and international banks and was raised on a project finance basis for five of the six
retail properties (Zalau Value Centre, Dambovita Mall, Sepsi Value Centre, Barlad Value Centre, Prahova Value
Centre).
RELATED PARTY CONSIDERATIONS
The Transactions are classified as related party transactions given that:
- Martin Slabbert (a current Non-Executive Director of MAS and former CEO of MAS) and Victor Semionov (a
former Executive Director of MAS) are founders of and partners in Prime Kapital. Martin and Victor have
indirect beneficial interests in Prime Kapital; and
- PKM Development is an associate of Martin Slabbert and Victor Semionov via Prime Kapital which holds
60% of the common shares in the DJV. PKM Development holds 70 998 476 shares in MAS and Prime
Kapital holds 60 650 000 shares in MAS. Prime Kapital and associates (including shareholdings of DJV,
Martin Slabbert, Victor Semionov and other associates) hold 153 628 167 MAS shares, representing 21.5%
of MAS' issued shares.
CATEGORISATION
In terms of the JSE Listings Requirements, the Transactions constitute, in aggregate, a category 1 transaction
with a related party. The Transactions will therefore require shareholder approval (excluding related parties and
their associates). As the Transactions are not cross conditional shareholders could approve one, the other, or
both, the Transactions. A circular to shareholders, including full details of the Transactions, the pro forma financial
effects of the Transactions, a report prepared by an independent expert as to the fairness of the Transactions and
a notice of general meeting will be distributed in due course.
WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the cautionary announcement released by MAS on 22 April 2022 and are advised
that following the release of this announcement, the cautionary is hereby withdrawn, and shareholders are no
longer required to exercise caution when dealing in their MAS shares.
4 May 2022
For further information please contact:
Leon Allison, MAS P.L.C. + 27 82 307 3667
Dan Petrisor, MAS P.L.C. + 356 77 186 791
Java Capital, JSE Sponsor + 27 11 722 3050
Date: 04-05-2022 07:50:00
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