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Proposed internalisation of asset management function and renewal of cautionary announcement
FAIRVEST PROPERTY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/005011/06)
JSE share code: FVT ISIN: ZAE 000203808
(Approved as a REIT by the JSE Limited)
(“Fairvest” or the “Company”)
PROPOSED INTERNALISATION OF ASSET MANAGEMENT FUNCTION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the announcement released on 18 May 2021, wherein the Company advised that it
intends proposing to shareholders that they approve the internalisation of Fairvest’s asset management function
(“Fairvest Manco internalisation”). The same announcement detailed that Fairvest had concluded agreements
(the “share swap agreements”) to acquire, after fulfilment of conditions, a majority of B ordinary shares (“AHB
shares”) in Arrowhead Properties Limited (“Arrowhead”) in exchange for Fairvest shares (“FVT shares”),
based on a swap ratio of 1.85 FVT shares per AHB share (the “transaction”). In addition, Fairvest shareholders
are referred to the Arrowhead announcement published on 28 July 2021 and are advised that Fairvest and
Arrowhead continue to engage constructively on the terms of a possible merger (“single-step merger”).
The asset management of Fairvest is outsourced to New Star Asset Management Proprietary Limited (“asset
manager” or the “Fairvest Manco”) in terms of an asset management agreement approved by Fairvest
shareholders in 2011.
The appointment of the asset manager is for a fixed period of 10 years, which will terminate on 30 November
2021. The asset management agreement provides that it may be renewed for subsequent periods of 5 years on the
same terms and conditions, subject to Fairvest shareholder approval. The asset management agreement provides
that, if it is not renewed, Fairvest will become obliged to acquire the business conducted by the asset manager.
Fairvest constituted an independent committee of the board of directors comprising Louis Andrag, Khegu Nkuna,
Ndabezinhle Mkhize, Jacob Wiese and Trevor Cohen (the “independent board”) to consider how best to deal
with the asset manager in the context of the transaction, the impending expiry of the initial ten-year term of the
asset management agreement and the prospects, which Fairvest considers likely, of a single-step merger being
conditional on the internalisation of Fairvest’s asset management. No member of the independent board has any
conflicting interest regarding the asset manager.
The independent board proposes and recommends that shareholders approve the internalisation of the asset
manager (at a distributable earnings neutral cash price that an independent expert has confirmed is fair).
Alternatively, the independent board proposes that shareholders approve that the asset management agreement be
renewed for five years on the same terms in order to ensure continuity of asset management, albeit that this would
then be continued on an outsourced basis.
Accordingly, the independent board has resolved, subject to shareholder approval, that Fairvest acquire the issued
shares of the asset manager (“share purchase agreement”) or, failing that, approve the renewal of the asset
management agreement for a period of 5 years.
2. RATIONALE FOR THE PROPOSED INTERNALISATION
The proposed internalisation will better align the interests of the Company’s management and shareholders.
On implementation of the share swap agreements, Fairvest will issue new Fairvest shares. An increase in
Fairvest’s market capitalisation will increase the asset management fees payable in terms of the asset management
agreement and would be likely to increase the cash consideration that will ultimately become payable on
internalisation either as agreed or alternatively as provided for in the asset management agreement.
3. TERMS AND CONDITIONS OF THE FAIRVEST MANCO INTERNALISATION
In terms of the share purchase agreement, Fairvest proposes to acquire all of the issued share capital of the asset
manager from the Fairvest Manco shareholders (comprising Hilton Datnow, the trustees for the time being of the
Marcus Family Trust, the trustees for the time being of the Wilder Family Trust, the trustees for the time being of
the Labora Trust, the trustees for the time being of the Gelz Trust and the trustees for the time being of the
Universal Long Term Investment Trust, none of whom constitute a controlling shareholder of the asset manager)
for an aggregate cash consideration of R133 000 000 (the “purchase price”).
On implementation of the Fairvest Manco internalisation, the asset manager will become a wholly-owned
subsidiary of Fairvest and the services currently performed by the asset manager will be undertaken internally.
The purchase price will be settled against delivery of shares on the first day of the calendar month following the
month in which the share purchase agreement becomes unconditional (the “internalisation date”).
From the internalisation date, Darren Wilder, the Chief Executive Officer of Fairvest, will be employed directly
by Fairvest in terms of a service agreement under which he is committed to remain in Fairvest’s employ for not
less than 24 months. The chief financial officer (“CFO”) of Fairvest, Jacques Kriel, will continue to be employed
directly by Fairvest.
The Fairvest Manco internalisation contains warranties standard for a transaction of its nature and is subject to
the suspensive condition that Fairvest shareholders approve the resolutions required to give effect to the
transaction and the share purchase agreement.
The JSE requires Fairvest to confirm, as it does, that the provisions of the memorandum of incorporation of the
asset manager will not frustrate Fairvest in any way from compliance with its obligations as a REIT in terms of
the JSE Listings Requirements and nothing contained in the memorandum of incorporation of the asset manager
will relieve Fairvest from compliance with JSE Listings Requirements.
4. RENEWAL OF THE ASSET MANAGEMENT AGREEMENT AS AN ALTERNATIVE TO THE FAIRVEST MANCO INTERNALISATION
If Fairvest shareholders do not approve the Fairvest Manco internalisation, the asset management agreement will
terminate unless renewed.
To avoid the termination, which will trigger the acquisition of the asset manager at a formulaic price provided for
in the asset management agreement, the independent board proposes that, if Fairvest shareholders do not approve
the Fairvest Manco internalisation, they then approve the renewal of the asset management agreement on the same
terms and conditions for five years from 1 December 2021. The monthly asset management fee is equivalent to
1/12th of 0.5% of the aggregate market capitalisation and borrowings of Fairvest.
5. FINANCIAL INFORMATION
The asset manager’s last reported net asset value and its net profit after tax for the year ended 28 February 2021
were R1 586 595 and R97 180, respectively.
Income received by the asset manager in excess of its operating costs is recovered through fee arrangements
agreed between the Fairvest Manco shareholders. The purchase price is forecast to be neutral to the forward
distributable earnings of Fairvest with reference to Fairvest’s enterprise value prior to announcement of the
transaction. An evaluation of the neutrality of the forward distributable income has been included in the scope of
the independent expert’s procedures underpinning their fairness opinion and has been confirmed by this appraisal.
The above information has been extracted from the reviewed annual financial statements of the asset manager for
the year ended 28 February 2021. Fairvest is satisfied with the quality of these financial statements.
6. RELATED PARTY TRANSACTION
The conclusion of the share purchase agreement with the asset manager and the alternative of a five year renewal
of the asset management agreement are both related party transactions in terms of the JSE Listings Requirements,
requiring Fairvest shareholder approval by way of an ordinary resolution.
Darren Wilder, Adam Marcus and Jacques du Toit are directors of both the asset manager and Fairvest and hold
an indirect beneficial interest in the asset manager and accordingly, their votes and the votes of their associates
will be excluded from voting on the resolutions to conclude the share purchase agreement with the asset manager
and the resolution to approve the renewal of the asset management agreement as an alternative.
7. FAIRNESS OPINION BY INDEPENDENT EXPERT
The independent board has appointed Mazars Corporate Finance Proprietary Limited (“Mazars”) to provide a
fairness opinion on the Fairvest Manco internalisation and the renewal of the asset management agreement.
Mazars is of the opinion that the terms of the Fairvest Manco internalisation are fair to shareholders, while the
terms of the renewal of the asset management agreement are unfair to shareholders. The fairness opinion will be
included in the circular issued to Fairvest shareholders in respect of the transaction and Fairvest Manco
internalisation (or alternatively the renewal of the asset management agreement), which is expected to be
distributed to shareholders by no later than 10 August 2021.
8. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the announcement released on 18 May 2021 and to the cautionary announcements
published in relation to engagements regarding a single-step merger by both Fairvest and Arrowhead, the last of
which were published on 30 June 2021 and 28 July 2021 respectively and are advised to continue to exercise
caution in their dealings in Fairvest shares until a further announcement is made.
2 August 2021
Corporate advisor and transaction sponsor to Fairvest
Java Capital
Legal advisor to Fairvest
Werksmans
Sponsor to Fairvest
PSG Capital
Independent expert
Mazars
Date: 02-08-2021 08:52:00
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