Southern Sun Limited · JSE:SSU
Southern Sun — Tsogo Sun Holdings — Merger or Acquisition (October 2018)
26 slides from Southern Sun's merger presentation, October 2018
Slide 1: Sale of Casino Precincts to HPF
Sale of Casino Precincts to HPF Investor Presentation October 2018
Slide 2: Disclaimer
Disclaimer Certain statements in this document may constitute ‘forward looking statements’. Such forward looking statements reflect the company’s beliefs and expectations and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance o
Slide 3: Proposed Sale of Casino Precincts
Proposed Sale of Casino Precincts
Slide 4: Transaction Overview
Transaction Overview Overview Tsogo will dispose of 7 premium casino precincts (Montecasino; Gold Reef City; Silverstar; Suncoast; Blackrock; Emnotweni and The Ridge) to Hospitality Hospitality will lease the casino precincts to Tsogo under triple-net leases • 20 year minimum lease period • Annu
Slide 5: Transaction Rationale
Transaction Rationale Tsogo Sun Holdings ● Casino regulatory risks including increased taxes and smoking regulations, etc. have been applied to both casino and hotel trading resulting in an undervaluation of the group ● By restructuring the group into a Propco (HPF) and Opco (Gaming & Hotel) struc
Slide 6: Transaction Risks
Transaction Risks Tsogo Sun Holdings ● Fixed leases significantly increase the proportion of fixed costs in relation to variable costs in the Gaming Opco ● Opcos will become more heavily geared towards the economic environment and become significantly more volatile ● Opcos will not have the balanc
Slide 7: Transaction Mechanics
Transaction Mechanics Tsogo undertakes an internal restructuring 1 The casino precincts are packaged into two wholly-owned subsidiaries - Listed Investments and Cassava Hospitality subscribes for shares worth R23 billion in Merway 2 Hospitality uses an intra-day bridge loan and R8.1 billion
Slide 8: Lease Terms
Lease Terms Lease type and Each casino precinct will be let to Tsogo in terms of a triple net lease duration Each head lease is for an initial period enduring to 31 Mar 2023, whereafter the lease may be terminated by either party on 15 years’ written notice Rent Initial aggregate base rental p
Slide 9: Casino Precincts Overview
Casino Precincts Overview Gold Reef Montecasino Suncoast Silverstar Emnotweni The Ridge Blackrock City Description Mixed-use The premier Mixed-use The precinct is a Dedicated Prime Mixed-use entertainment entertainment entertainment comprehensive gaming complex, entertainment precinct which is desti
Slide 10: US Net Lease REITS
US Net Lease REITS In the US market, there are at least 3 REITS that focus on triple net leases within the gaming, hospitality and entertainment sector • VICI Properties Inc (IPO date – February 2018) • MGM Growth Properties LLC (IPO date – 2015) • Gaming & Leisure Properties Inc (IPO date – 2013)
Slide 11: Financials
© TSOGO SUN Financials
Slide 12: Tsogo Post Sale and Unbundling (Rm)
Tsogo Post Sale and Unbundling (Rm) HPF Gaming F’18 Deconsoli- leases and F’18 Exceptional F’18 Reported dation debt Illustrative Items Normalised Income 13 975 (402) - 13 573 13 573 Net gaming win 7 940 - - 7 940 Revenue - - Rooms 3 160 - - 3 160 F&B 1 561 - - 1 561 Rental income 549 (402) - 147 Ot
Slide 13: Tsogo Post Sale and Unbundling (Rm)
Tsogo Post Sale and Unbundling (Rm) Goodwill Deferred tax HPF The sale, derecognition & F’18 Deconsoli- subscription & transaction F’18 Reported dation & debt impairments costs Illustrative Assets Property, plant and equipment 16 038 (3 558) (4 867) - - 7 613 Investment properties 5 255 (5 101) - -
Slide 14: Funding Covenants Post Sale and Unbundling (Rm)
Funding Covenants Post Sale and Unbundling (Rm) HPF The sale, F’18 Deconsoli- subscription Transaction F’18 Reported dation & debt costs Illustrative Tsogo Sun Net debt 12 537 (1 545) (8 052) (13) 2 927 Ebitda 4 989 (826) (1 842) 2 321 Debt : Ebitda 2.5 1.3 Funding covenant 3.0 3.0 HPF Gross debt 1
Slide 15: Financial Impact of the Transaction on Tsogo Shareholders
Financial Impact of the Transaction on Tsogo Shareholders Following the transaction and unbundling shareholders will receive taxable distributions from a REIT rather than dividends out of post tax profits for approximately 45% of the group distributions ● The impact on shareholders depends on thei
Slide 16: Appendix A Casino Precincts
Appendix A ©YTsOGO SUN Casino Precincts
Slide 17: Montecasino
Montecasino Precinct Overview ● The Montecasino precinct is a premier mixed-use entertainment destination which includes gaming, leisure, retail, restaurant and hotel facilities ● The Privé, in the main casino area, offers various slots and tables that cater to the more discerning gamer with priva
Slide 18: Suncoast
Suncoast Precinct Overview ● Suncoast Casino and Entertainment World enjoys an attractive location close to the Moses Mabhida and Kings Park stadiums ● The precinct is currently undergoing a redevelopment which started in 2016 and is expected to be completed at the end of 2018 ● The redevelopment
Slide 19: Gold Reef City
Gold Reef City Precinct Overview ● Gold Reef City is located in an old, established suburb 10km south of the Johannesburg CBD ● Also located on the premises is the well-known Apartheid Museum, which is independently managed from the casino itself ● The precinct provides a full entertainment offeri
Slide 20: Silverstar
Silverstar Precinct Overview ● The Silverstar Casino precinct is located in the mature and established suburb of Muldersdrift ● The Privé in the main casino area offers a mix of slots and tables, with a semi-private area that includes tables and slots ● The casino targets the West Rand area, with
Slide 21: Emnotweni
Emnotweni Precinct Overview ● The Emnotweni Precinct forms part of an expanding commercial node in Mbombela (formerly Nelspruit) which has seen much new development in recent years ● The precinct adjoins the popular Riverside Mall, and therefore the food and beverage offerings within the actual ca
Slide 22: The Ridge
The Ridge Precinct Overview ● The Ridge Precinct is located in an area of eMalahleni (formerly Witbank) which has seen a large amount of development in recent years ● The precinct is adjacent to The Highveld Mall and therefore the food and beverage offerings within the actual casino complex is lim
Slide 23: Blackrock
Blackrock Precinct Overview ● Blackrock Casino is located in Newcastle which is the largest town in KwaZulu-Natal ● A portion of the precinct has recently been renovated ● The property also has four corporate event venues ● Newcastle has limited hotel supply, and the Garden Court is one of the few
Slide 24: Appendix B Rental Reset Example
Appendix B Rental Reset Example
Slide 25: Rental Reset Example
Rental Reset Example 3 1 Apr 2025: First rent review date 4 1 Apr 2026: Upward reset test FY25 casino EBITDAR x 70% x (1 + inflation) < base rent and FY26 casino EBITDAR x 70% x (1 + inflation) > prior year the difference is > 2.5% of the base rent rent x (1 + Δ in CPI) but < the base rent ∴ Rent is
Slide 26: Thank you
© tTsOGO SUN Thank you
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