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NEW EUROPE PROPERTY INVESTMENTS PLC. - ISLE OF MAN - NEP

Merger of NEPI and Rockcastle and withdrawal of joint cautionary announcement

Release Date: 12/14/2016 10:18:40 AM

IRIS Code: B89D9


NEW EUROPE PROPERTY INVESTMENTS PLC

Incorporated and registered in the Isle of Man with registered number 001211V

Registered as an external company with limited liability under the laws of South Africa, registration number 2009/000025/10

JSE share code: NEP BVB share code: NEP

ISIN: IM00B23XCH02

(“NEPI”)

ROCKCASTLE GLOBAL REAL ESTATE COMPANY LIMITED

Incorporated in the Republic of Mauritius

Registration number: 108869 C1/GBL

JSE share code: ROC

SEM share code: ROCK.N0000

ISIN: MU0364N00003

(“Rockcastle”)

MERGER OF NEPI AND ROCKCASTLE AND WITHDRAWAL OF JOINT CAUTIONARY ANNOUNCEMENT

INTRODUCTION
NEPI and Rockcastle shareholders are referred to the joint cautionary announcement released on the Stock Exchange News Service (“SENS”) of the JSE Limited (the “JSE”) and the websites of the Bucharest Stock Exchange (the “BVB”) and the Stock Exchange of Mauritius Ltd (the “SEM”) on 20 October 2016, as well as the joint renewal of cautionary announcement released on SENS and the websites of the SEM and the BVB on 2 December 2016, wherein they were advised that NEPI and Rockcastle (the “Parties”) were in advanced negotiations in respect of an all-share transaction.
NEPI and Rockcastle are pleased to announce the conclusion on 13 December 2016 of a framework agreement (the “Framework Agreement”), pursuant to which their respective businesses will effectively be merged in an entity newly-incorporated in the Isle of Man, NEPI Rockcastle PLC (“NewCo”) (the “Transactions”), to be implemented with reference to an effective share swap ratio of 4.5 existing Rockcastle shares for every 1 existing NEPI share (the “Swap Ratio”).
RATIONALE FOR THE TRANSACTIONS
NEPI is a commercial property investor and developer that owns, develops and manages dominant retail assets and A-grade offices in Central and Eastern Europe (“CEE”). Rockcastle is a commercial property investor and developer that owns, develops and manages dominant retail assets in the CEE region and invests in global real estate listed securities. The market capitalisation of NEPI is circa R49.0 billion (€3.4 billion) and of Rockcastle is circa R32.3 billion (€2.2 billion).
NewCo is expected to have a substantially enlarged market capitalisation, with all NEPI and Rockcastle shareholders benefitting from enhanced liquidity. The merged entity is expected to become the largest listed real estate player in CEE. Exposure to high-quality listed and liquid global real estate securities will lead to a diversified risk profile. The Transactions will also see the integration of two complementary management teams, positioned to unlock strategic synergies and create further value for both NEPI and Rockcastle shareholders.
Management’s assessment of the envisaged Transactions indicates a strong operational and capital markets rationale, driven by the following factors:
Portfolios are complementary
NEPI investors will gain immediate exposure to a significant portfolio in Poland, the most liquid and largest real estate market in the CEE region, with a positive economic outlook. Rockcastle shareholders will gain exposure to the largest retail real estate portfolio in Romania (which is the second real estate market in CEE by size and the fastest growing economy in Europe in 2016 and 2017, according to IMF forecasts), and the second largest retail real estate portfolio in Slovakia.
NewCo will benefit from NEPI’s operational expertise and both companies’ strong track-record of completing value–enhancing acquisitions and developments, as well as from Rockcastle’s highly-liquid listed securities portfolio, which provides growth resources in the medium-term.
Scale
NewCo is expected to become the largest CEE retail real estate company, and one of the top retail real estate companies in Europe.
Geographically diverse management skills will allow NewCo to pursue CEE property opportunities more efficiently, giving it a strategic advantage in the acquisition, development and management of properties.
Value creation
NewCo is expected to benefit from a lower cost of capital, resulting from an anticipated improvement of the business and financial risk profile, driven by a larger scale, further geographical diversification, increased liquidity and access to capital.
Material financial synergies are envisaged from a lower cost of debt, triggered by a better risk profile and a potential credit rating upgrade.
Excellent performance is anticipated, driven by the growth of NEPI’s best-in-class operating platform through gradually reducing the exposure to listed securities and increasing direct property investments.
While there is limited operating synergy potential due to geographically complementary portfolios and existing efficient platforms, long-term synergies are expected to be achieved through knowledge and platform sharing.
Liquidity and access to capital markets
NewCo is anticipated to be highly liquid.
NewCo is expected to be included in stock exchange indices, leading to enhanced visibility and liquidity of its shares, with exposure to a broader base of international investors.
SALIENT TERMS OF THE TRANSACTIONS
The Transactions are conditional on the conditions precedent summarised below being satisfied or waived on or before 30 June 2017:
the Transactions being approved by all relevant competition authorities, either unconditionally or subject to conditions acceptable to both NEPI and Rockcastle, or the Transactions being deemed to be so approved or deemed not to require approval, such that the Transactions may be implemented;
all other necessary regulatory consents in relation to the Transactions in any jurisdiction whatsoever having been obtained;
all shareholder and board approvals of the Transactions being obtained, whether in terms of any governing law, the rules of any recognised securities exchange or otherwise;
all necessary consents, waivers and releases pursuant to the NEPI and Rockcastle funding facilities having been received, as may be required to complete the Transactions;
no appraisal rights being exercised or other actions taken which could impede the completion of the Transactions;
all third party consents in all relevant jurisdictions having been received, as may be required to complete the Transactions;
the listing of the NewCo Shares on the JSE and Euronext Amsterdam having been formally approved by the relevant authorities; and
either NEPI or Rockcastle not having given written notice to the other that it does not wish to proceed with the Transactions, where any matter, fact or circumstance has arisen which has or is likely to have a material adverse effect on the financial, legal or business condition of NewCo, the NEPI group or the Rockcastle group.
As soon as reasonably practicable following the Effective Date:
NEPI will effect a repurchase of the entire shareholding of Fortress Income Fund Limited (“Fortress”) in NEPI, in consideration for the distribution to Fortress of their pro rata entitlement to the NewCo Shares held by NEPI (the “Fortress Share Repurchase”);
NEPI and Rockcastle will initiate a distribution in specie to their respective shareholders, whether by way of a dividend from retained earnings, a return of capital or in consideration for the buyback of shares, such that the shareholders of NEPI and Rockcastle as at the record date for participation in such distribution will receive, pro rata, a number of NewCo Shares determined with reference to the Swap Ratio; and
following such distribution in specie, the NewCo Shares will be listed on the Main Board of the JSE and, to the extent not yet effected, on Euronext Amsterdam and any other stock exchange as agreed between the Parties.
It is intended that the implementation of the Transactions and those post-implementation corporate actions contemplated above be effected concurrently, or as close to concurrently as possible, having regard to the rules and requirements of the JSE, Euronext Amsterdam, the BVB and the SEM. NEPI and Rockcastle will each declare and distribute dividends for the period ending 31 December 2016 in the ordinary course.
Alexandru Morar and Spiro Noussis, the current chief executive officers of NEPI and Rockcastle, respectively, will be appointed as joint chief executive officers of NewCo, with Dan Pascariu appointed as independent non-executive chairman, on and with effect from the Effective Date. The remainder of the board of directors of NewCo will be constituted in due course in accordance with applicable corporate governance principles.

The total dividends per share declared and paid for the six months ended 30 June 2016 is 18.68 cents for NEPI and 4.782 US$ cents for Rockcastle.

The Framework Agreement contemplates warranties, standstill arrangements and other provisions that are typical for transactions of this nature.

NEPI PROPERTY PORTFOLIO

As at 30 September 2016, NEPI owned and operated 34 income producing properties, with 6 developments under construction (of which 4 are extensions of existing properties) and 7 developments under permitting and pre-leasing (of which 4 are extensions of existing properties). NEPI’s total investment property portfolio (including investment properties at fair value, investment properties under development, and investment properties held for sale, each restated to include property held through joint ventures, on a pro rata basis) was valued at approximately €2.2 billion as at 30 September 2016.

Since 30 September 2016, NEPI has acquired Arena Centar in Zagreb, Croatia, together with 4.4ha of adjacent land, as well as concluded the acquisition of Aupark Shopping Centre in Piestany, Slovakia. In addition, Shopping City Piatra Neamt opened on 1 December 2016. The value of the investment property portfolio as at 30 November 2016 was approximately €2.5 billion.

All properties are managed internally by NEPI. Full details of the property portfolio as at 30 September 2016, weighted by ownership, are set out below.

Investment properties in use

Property name

Location

Weighted average rental

Gross lettable area

Valuation1

(€/m2/month)

(m2)

(€m)

1

Mega Mall

Bucharest, Romania

19.9

75,500

252.2

2

City Park

Constanta, Romania

18.4

52,000

130.4

3

Promenada Mall

Bucharest, Romania

21.6

40,400

160.2

4

Aupark Kosice Mall

Kosice, Slovakia

23.4

33,800

145.1

5

Shopping City Sibiu

Sibiu, Romania

8.9

79,100

100.6

6

Shopping City Timisoara

Timisoara, Romania

11.4

57,700

98.6

7

Aupark Zilina

Zilina, Slovakia

24.9

25,100

105.4

8

Iris Titan Shopping Center

Bucharest, Romania

13.9

45,000

91.2

9

Shopping City Deva

Deva, Romania

9.6

52,300

68.2

10

Braila Mall

Braila, Romania

8.6

54,400

73.1

11

Forum Usti nad Labem

Usti nad Labem, Czech Republic

16.5

27,800

82.6

12

Vulcan Value Centre

Bucharest, Romania

13.2

24,600

48.5

13

Pitesti Retail Park

Pitesti, Romania

12.4

24,800

42.7

14

Shopping City Galati

Galati, Romania

11.3

27,200

51.4

15

Ploiesti Shopping City2

Ploiesti, Romania

12.3

23,200

44.0

16

Kragujevac Plaza

Kragujevac, Serbia

12.9

21,900

40.0

17

Shopping City Targu Jiu

Targu Jiu, Romania

9.6

26,900

39.3

18

Korzo Shopping Centrum

Prievidza, Slovakia

12.9

16,500

29.5

19

Severin Shopping Center

Drobeta Turnu-Severin, Romania

8.7

20,900

27.8

20

Aurora Shopping Mall

Buzau, Romania

7.4

18,000

8.8

21

Regional strip centres

Romania

8.2

24,900

30.7

Total retail

13.8

772,000

1,670.3

22

City Business Centre

Timisoara, Romania

13.8

47,100

88.7

23

Floreasca Business Park

Bucharest, Romania

17.4

36,200

102.4

24

The Lakeview

Bucharest, Romania

16.8

25,600

66.8

25

The Office2 – Phase I and Phase II

Cluj-Napoca, Romania

13.5

20,350

38.8

26

Aupark Kosice Tower

Kosice, Slovakia

11.7

12,800

20.3

Total office

15.0

142,050

317.0

27

Rasnov Industrial Facility

Rasnov, Romania

4.6

23,000

11.8

28

Otopeni Warehouse

Otopeni, Romania

9.3

4,900

4.6

Total industrial

5.5

27,900

16.4

TOTAL INCOME-PRODUCING PROPERTIES

941,950

2,003.7

NON-CORE PROPERTIES HELD FOR SALE

35,400

21.2

Investment property under development

Property name

Location

Sector

Gross lettable area

Valuation/

Cost to date1

(m2)

(€m)

1

Shopping City Piatra Neamt3

Piatra Neamt, Romania

Retail

27,900

20.8

2

Victoriei Office4

Bucharest, Romania

Office

7,600

34.9

3

The Office2 – Phase III

Cluj-Napoca, Romania

Office

9,250

5.6

4

Braila Mall extension

Braila, Romania

Retail

2,400

4.6

5

Severin Shopping Center extension – Phase II

Drobeta-Turnu Severin, Romania

Retail

1,500

1.6

6

Regional strip centre extension (Sfantu Gheorghe)

Sfantu Gheorghe, Romania

Retail

1,000

0.2

Total developments under construction

49,650

67.7

7

Promenada Mall extension

Bucharest, Romania

Retail

60,000

34.0

8

Novi Sad Mall

Novi Sad, Serbia

Retail

56,000

31.3

9

Ramnicu Valcea Mall

Ramnicu Valcea, Romania

Retail

27,900

9.6

10

Shopping City Galati extension

Galati, Romania

Retail

21,000

8.6

11

Shopping City Satu Mare

Satu Mare, Romania

Retail

17,400

6.7

12

Shopping City Sibiu extension

Sibiu, Romania

Retail

11,000

-

13

Regional strip centre extension (Vaslui)

Vaslui, Romania

Retail

2,800

-

Total developments under permitting

and pre-leasing

196,1005

90.2

Land bank

23.8

TOTAL INVESTMENT PROPERTY UNDER DEVELOPMENT

181.7

Notes:

1. The valuation of investment properties in use and of the land bank reflects the value attributed to each of the properties by the directors of NEPI as at 30 September 2016, having regard to the valuation performed semi-annually by DTZ and Jones Lang LaSalle, being external independent property valuers and members of the Royal Institute of Chartered Surveyors. Buildings under development are valued at cost. The directors of NEPI are not independent and are not registered as professional valuers or as professional associate valuers in terms of the South African Property Valuers Profession Act, No 47 of 2000.

2. The NEPI group holds a 50% interest in Ploiesti Shopping City (in partnership with Carrefour Property) and The Office, Cluj-Napoca (in partnership with Ovidiu Sandor, an experienced Romanian office developer).

3. Shopping City Piatra Neamt was opened on 1 December 2016.

4. Development of Victoriei Office is largely completed as at the date of this announcement. The project awaits permitting for fit out works.

5. The gross lettable area (“GLA”) of developments under permitting and pre-leasing depends on permitting.

6. NEPI acquired Aupark Shopping Center Piestany (Slovakia), valued at €39.5 million, with an effective date of 31 August 2016. The transfer of shares was finalised on 5 October 2016 and as a result, the transaction was reflected as “Advance for investment property” as at 30 September 2016, with the consideration paid of €18.9 million. The weighted average rental of the property is €22.6/m2/month.

7. In November 2016, NEPI acquired the largest shopping mall in Zagreb, Arena Centar, for €218.5 million, as well as 4.4ha of adjacent land, for €19 million. The weighted average rental of Arena Centar is €20.5/m2/month.

8. As the properties are effectively being acquired by NewCo through its acquisition of NEPI’s Sale Assets, no purchase price per property has been ascribed.

ROCKCASTLE ASSET PORTFOLIO

Listed security portfolio

Rockcastle’s listed security portfolio is focused on large, liquid companies that dominate their markets and consistently outperform their competitors. As at 30 September 2016, the market value of Rockcastle’s listed security portfolio was US$1,832.9 million, with the group’s top ten investment holdings by market value as at that date set out below.

Company

Share code

Sector

Jurisdiction

Market Value

(US$m)

% of total listed security portfolio

Hammerson

HMSO

Retail

UK

436.5

24

Simon Property

SPG

Retail

USA

353.0

19

Unibail

UL

Retail

Europe

262.4

14

Prologis Inc

PLD

Industrial

USA

198.2

11

Ventas Inc

VTR

Healthcare

USA

131.4

7

Avalonbay Communities Inc

AVB

Residential

USA

117.4

6

Host Hotels & Resorts Inc

HST

Hotel

USA

101.3

6

KIMCO

KIM

Retail

USA

84.1

5

Westfield Group

WFD

Retail

Australia

38.4

2

Land Securities Group

LAND

Other/Diversified

UK

37.5

2

Total

1,760.2

96

Since 30 September 2016 and as previously disclosed, Rockcastle has continued to implement its strategy of selling listed investments and re-investing the proceeds in direct properties and developments. In particular, a reduction of its holdings in its listed portfolio has funded the acquisition of the Focus Shopping Centres detailed below, as well as the soon to be concluded acquisition of Galeria Warminska in Poland, resulting in an increase in Rockcastle’s direct property asset investments closer to management’s short-term target of 50% of its total investment assets.

As at the date of this announcement, the constituents of the group’s top ten investment holdings remain largely as is set out above.

Investment properties

As at 30 September 2016, Rockcastle’s portfolio of investment properties comprised 7 income producing properties, 2 developments under construction and 3 properties under permitting and pre-leasing, together valued at €878.6 million.

Since 30 September 2016, 2 development properties, Galeria Wolomin and Galeria Tomaszow, have opened. In addition, Rockcastle acquired the Focus Shopping Centres in Poland, together valued at over €160 million.

All properties are in the retail sector. Full details of the property portfolio as at 30 September 2016, weighted by ownership, are set out below.

Income producing properties

Property name

Location

Weighted average rental

Gross lettable area

Valuation1

(€/m2/month)

(m2)

(€m)

Bonarka City Centre

Krakow, Poland

20.56

71,714

372.3

Karolinka Shopping Centre

Opole, Poland

10.69

69,994

145.5

Forum Liberec Shopping Centre

Liberec, Czech Republic

10.48

46,800

82.1

Pogoria Shopping Centre

Dabrowa Gornicza, Poland

11.23

36,706

76.7

Cosmopolitan Mall

Lusaka, Zambia

16.56

13,076

28.2

Platan Shopping Centre

Zabrze, Poland

11.09

25,300

55.6

Solaris Shopping Centre

Opole, Poland

18.59

17,700

58.0

Total

281,290

818.4

Developments under construction

Property name

Location

Weighted average rental

Gross lettable area

Valuation/Cost to date1

(€/m2/month)

(m2)

(€m)

Galeria Wolomin2

Wolomin, Poland

11.67

25,000

33.3

Galeria Tomaszow3

Tomaszow Mazowiecki, Poland

11.20

18,500

21.1

Total

43,500

54.4

Developments under permitting and pre-leasing

Property name

Location

Sector

Gross lettable area

Valuation1

(m2)

(€m)

Platan Shopping Centre extension

Zabrze, Poland

Retail

16,400

4.8

Solaris Shopping Centre extension

Opole, Poland

Retail

8,500

0.1

Wolomin Retail Park

Wolomin, Poland

Retail

6,548

0.9

Total

31,448

5.8

Notes:

1. The valuation of income producing properties reflects the value attributed to each of the properties by the directors of Rockcastle as at 30 September 2016. The valuation of developments under construction and under permitting and pre-leasing are reflected as costs capitalised to 30 September 2016. The directors of Rockcastle are not independent and are not registered as professional valuers or as professional associate valuers in terms of the South African Property Valuers Profession Act, No 47 of 2000.

2. Galeria Wolomin (in which the Rockcastle group holds a 90% interest) opened on 6 October 2016.

3. Galeria Tomaszow (in which the Rockcastle group holds an 85% interest) opened on 27 October 2016.

4. Focus Mall Piotrkow Trybunalski in Piotrkow Trybunalski, Poland was acquired on 30 November 2016. The property has a monthly weighted average rental of €11.58/m2, a GLA of 35,168 m2 and is valued at €49.0 million.

5. Focus Park Zielona Gora in Zielona Gora, Poland was acquired on 30 November 2016. The property has a monthly weighted average rental of €20.44/m2, a GLA of 28,800 m2 and is valued at €111.6 million.

6. As the properties are effectively being acquired by NewCo through its acquisition of Rockcastle’s Sale Assets, no purchase price per property has been ascribed.

CATEGORISATION OF THE TRANSACTIONS

For both NEPI and Rockcastle, the Transactions are classified as category 1 disposals in terms of paragraph 9.5(a) of the JSE Listings Requirements and accordingly require the approval of shareholders of NEPI and Rockcastle, respectively. The Transactions (including those post-implementation corporate actions detailed in this announcement) may also require additional NEPI and Rockcastle shareholder approvals in terms of relevant laws, the JSE Listings Requirements and the rules and regulations of other relevant securities exchanges.

The Fortress Share Repurchase will constitute a specific repurchase of shares by NEPI from a related party, in terms of paragraph 5.69 of the JSE Listings Requirements, requiring approval of NEPI shareholders, excluding the votes of Fortress and its associates.

WITHDRAWAL OF JOINT CAUTIONARY ANNOUNCEMENT AND FURTHER PROCESS

Following the release of this announcement, the joint cautionary announcements published on SENS and on the websites of the BVB and the SEM on 20 October 2016 and 2 December 2016 are withdrawn and caution is no longer required to be exercised by shareholders when dealing in their NEPI and Rockcastle shares.

Circulars providing further information on the Transactions, including a listing document for NewCo and containing notices of general meetings of shareholders to be convened in order to consider and, if deemed fit, passing, with or without modification, the resolutions necessary to implement the Transactions, will be distributed to both NEPI and Rockcastle shareholders in due course

NEPI has its primary listings on the JSE and the BVB. Rockcastle has its primary listings on the JSE and the SEM.

If you are a NEPI shareholder, for further information please contact:

JSE sponsor

Java Capital

Andrew Brooking

+27 11 722 3052

BVB advisor

SSIF Intercapital Invest SA

Razvan Pasol

+40 21 222 8731

If you are a Rockcastle shareholder, for further information please contact:

JSE sponsor

Java Capital

Andrew Brooking

+27 11 722 3052

SEM authorised representative and sponsor

Perigeum Capital Ltd

Shamin A. Sookia

+230 402 0890

14 December 2016

This notice is issued pursuant to the JSE Listings Requirements, the SEM Listing Rule 11.3, the Mauritian Securities Act 2005 and the Listing Rules of the Bucharest Stock Exchange.

The boards of directors of NEPI and Rockcastle accept full responsibility for the accuracy of the information contained in this announcement.

Corporate advisor to NEPI and JSE sponsor to NEPI Legal advisor to NEPI

and Rockcastle


Independent JSE transaction sponsor to Rockcastle Independent advisor to NEPI

Legal advisor to Rockcastle Bucharest Stock Exchange advisor to NEPI

SEM authorised representative and sponsor to Rockcastle South African legal advisor to NEPI

Euronext Amsterdam listing agent of NewCo



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