» Disposal of Auchan Hypermarket in Pitesti, Romania

Disposal of Auchan Hypermarket in Pitesti, Romania

Posted on: 3 August 2012


Introduction

Shareholders are advised that NEPI has, through its subsidiaries NE Property Cooperatief UA ("NEPC") and NEPI Bucharest One SRL (“NEPI One”) (collectively, "the Sellers"), concluded agreements for the disposal of a hypermarket (“the Hypermarket” or “the property”) to Auchan Romania SA (“Auchan” or "the Purchaser") ("the Transaction").

Currently, NEPC and NEPI One jointly own Connect Investment SRL (“Connect”). Connect is the holding company of the Retail Park Auchan situated in Pitesti, Romania which consists of a commercial center with a total gross lettable area of approximately 43 100 square meters.

The Hypermarket has a gross lettable area of approximately 18 264 square metres and mainly consists of sales, storage, administration and office areas, loading and unloading docks adjoining the Hypermarket and includes the related pro rata quota of the land underneath.

Rationale for the Transaction

NEPI considers Auchan’s offer to acquire the Hypermarket to be attractive and that the proceeds from the Transaction could be reinvested in other higher yielding investments.

Salient Terms of the Transaction

The implementation of the Transaction requires the separation of the Hypermarket and related assets and liabilities from Connect by way of dismembering and transfer, in terms of Romanian law, of the Hypermarket and related assets and liabilities into a special purpose vehicle (“Newco”), while the common areas of the commercial centre (driveways, walkways, parking spaces etc.) will continue to be held by Connect. The Purchaser will acquire 100% of the share capital of Newco.

The effective date of the Transaction is any date on or before 31 March 2013 on which all conditions precedent have been satisfied or waived and the parties have performed their respective obligations including the payment of all outstanding debts and amounts and the execution of relevant agreements in order to transfer ownership of the Newco shares to the Purchaser ("the Closing Date").

The purchase price payable in consideration for the Newco shares will be determined formulaically and will be approximately EUR28.7 million. The purchase price will be settled in cash and the cash will be used to settle the portion of the outstanding loans in relation to the Hypermarket.

The agreements for the Transaction contain warranties typical for disposals of this nature.

The Transaction is subject to fulfillment of the following conditions precedent:

  • the Purchaser providing a bank guarantee within 10 (ten) business days from the date of signature of the disposal agreements;
  • the Sellers and the Purchaser obtaining any necessary corporate and board approvals within 15 (fifteen) business days from the date of signature of the disposal agreements;
  • the parties agreeing on the terms and manner of management and maintenance of the common area within the commercial centre by 31 August 2012;
  • the Purchaser paying Connect all outstanding debts;
  • obtaining written approval from the banks of Connect in relation to the Transaction;
  • the Hypermarket remaining in the same physical condition as of the date of signature of the disposal agreements, except for normal wear and tear;
  • finalising the transfer of the Hypermarket to Newco and providing the Purchaser with all the relevant documents in order to legally transfer the Hypermarket to Newco;
  • completing other conditions precedent, if any, which may be required by the banks of Connect;
  • executing addendums to agreements to reflect the technical/operational consequences resulting from the transfer of the Hypermarket;
  • the Sellers delivering to the Purchaser a land book excerpt, attesting that the Hypermarket is exclusively owned by Newco and free of any encumbrances;
  • the Sellers, Connect and Newco delivering to the Purchaser a statement confirming that all warranties of the Sellers and Connect provided are complete, true and accurate in all respects at Closing Date; and
  • the Purchaser delivering to the Sellers a statement that all of the warranties provided are true and accurate as of the Closing Date.

The Property

Details of the property including the valuation, effective as at 31 December 2011 attributed to the property by the Company, are as follows:

Property descriptionRegionSectorWeighted average rental per sqm (EUR)Rentable area (sqm)Purchase price plus capitalised costs (EUR' million)Valuation (EUR' million)
HypermarketRomaniaRetail9.1618 26418.621.7

The directors of the Company 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.

Unaudited Pro Forma Financial Effects

The unaudited pro forma financial effects have been prepared for illustrative purposes only to provide information on how the Transaction may have impacted on the historical financial results of NEPI for the year ended 31 December 2011. Due to their nature, the unaudited pro forma financial effects may not fairly present NEPI's financial position, changes in equity, results of operations or cash flows after the Transaction. The unaudited pro forma financial effects are the responsibility of the directors of NEPI. The unaudited pro forma financial effects have not been reviewed or reported on by NEPI's auditors or reporting accountants.

The unaudited pro forma financial effects have been prepared in accordance with the accounting policies of NEPI that were used in the preparation of the audited results for the year ended 31 December 2011.

 Before the Transaction
(Note 1)
After the TransactionChange after the Transaction
(%)
Basic weighted average earnings per share (EUR cents)23.8632.4235.88
Diluted weighted average earnings per share (EUR cents)22.2830.2635.82
Distributable earnings per share (EUR cents)24.6724.38(1.17)
Headline earnings per share (EUR cents)20.0419.70(1.67)
Diluted headline earnings per share (EUR cents)18.7018.39(1.65)
Net asset value per share (EUR)2.412.482.90
Adjusted net asset value per share (EUR)2.432.502.88
Net tangible asset value per share (EUR)2.272.343.08
Weighted average number of shares in issue78 659 83478 659 834-
Diluted weighted average number of shares in issue84 264 28584 264 285-
Number of shares in issue for net asset value and net tangible asset value per share purposes97 569 45697 569 456-
Number of shares in issue for adjusted net asset value per share purposes102 783 693102 783 693-

Notes and assumptions:

  1. The amounts set out in the “Before the Transaction” column have been extracted, without adjustment, from the audited financial statements of the Company for the year ended 31 December 2011.
  2. The amounts set out in the “After the Transaction” column reflect the impact of the Transaction on the historical financial results of NEPI for the year ended 31 December 2011.
  3. The Transaction is assumed to be implemented on 1 January 2011 for purposes of the statement of comprehensive income effects and on 31 December 2011 for purposes of the statement of financial position effects.
  4. The Hypermarket is assumed to be disposed of to the Purchaser for a consideration of EUR28.7 million which will be settled in cash.
  5. The cash proceeds of EUR28.7 million from the disposal of the Hypermarket is assumed to be used by NEPI to settle interest-bearing borrowings related to the property in full and accordingly, interest on loans of approximately EUR1.5 million, being the historical finance expense for the year ended 31 December 2011, is assumed to be saved.
  6. The disposal of the Hypermarket is assumed to have resulted in a fair value adjustment on disposal of EUR6.9 million. In terms of applicable laws, no tax will be payable as a result of the Transaction.
  7. The Hypermarket earned historical net rental income of EUR1.7 million for the year ended 31 December 2011.
  8. The historical property revenue and expenses were extracted from the underlying books and records of Connect which have not been reviewed or reported on by the Company’s auditors or reporting accountants. However, the directors of NEPI are satisfied with the quality of the information.
  9. Estimated transaction expenses of EUR0.1 million are assumed to be incurred by the Company in respect of the Transaction and have been expensed.

Categorisation of the Transaction

The Transaction has been categorised as a category 2 transaction in terms of the Listings Requirements of the JSE Limited and is not subject to approval by NEPI’s shareholders.