Afine has made its first acquisition post listing.

When Afine listed on the JSE, it had a goal to operate as a specialist REIT with a focus on the acquisition of petrol stations. It has now made its first acquisition post listing.

This article will look into;

1. Afine's acqusition of Glomor 3 and
2. A recap of Afine's listing on the JSE.

13 June 2022, Afine concluded an agreement with Petroland Group (Pty) Ltd and Terra Optimus (Pty) Ltd in terms of which Afine will acquire 100% of the shares in Glomor. Glomor 3 owns two properties

The purchase consideration will be settled with a combination Afine shares and cash as follows:

• issue of 4 512 195 Afine shares to Petroland and
• issue of 4 024 390 Afine shares, plus R2 000 000 in cash, to Terra Optimus.

Following the completion of the acquisition, Petroland and Terra Optimus will hold an interest of 6.22% and 5.55% in Afine respectively. The acquisition of Glomor is the first acquisition of two properties in line with the expansion strategy.

A recap of Afine's listing.

Afine Investments (owned 7 petrol service station properties Engen + Sasol) listed on the JSE’s Alternative Exchange’s Real Estate Investment Trusts sector (offers investors exposure to real estate properties). Shares were listed at R3.67/share, giving it a market cap of R235m.

Afine was incorporated as a private shelf company in 2020 under the name “Domanolor”, which was acquired by Peter Todd (Founder) and name was changed to “Afine Investments (Pty) Ltd” on 10 March 2021. Afine was converted to a public company on 11 May 2021.

Afine was founded by Peter Todd, with strategic input from Mike Watters, both are notable investors and operators in the REIT space, with the purpose of creating a holding company for a REIT focussing on the acquisition of properties that operate in the petroleum sector in South Africa.

Afine's major and controlling shareholders were;

• KSP Offshore - 90%
• Black Gold Trust - 10%.

KSP Offshore is incorporated and registered in Mauritius. KSP Offshore is a family investment vehicle of the Sea View Trust, of which Peter Todd and his family are beneficiaries. KSP Offshore has been active for over a decade in the UK and Europe in real estate. KSP disposed of all its investments in 2019 as its directors considered them to be mature and is now moving its investment focus to emerging markets. Its initial investment under new focus was Afine

KSP Offshore provided a firm undertaking to the JSE that it will make an +5% of its shareholding in Afine available on the open market to public shareholders immediately after listing in order to improve share liquidity, such that its stake in Afine will be retained at 85%.

Black Gold Trust (based in Mauritius) is not related to any director or shareholder of Afine. Shareholding was acquired from KSP Offshore ahead of the listing of Afine in order to assist with achieving the minimum required shareholder spread for companies listing on the AltX.

Why Mauritius? It has one of the lowest tax platforms in the world. Both corporate and individual income taxes are at 15%. Offshore businesses located in Mauritius (Tax Haven) that do not do business with Mauritians nor use Mauritian currency are exempt from Mauritian taxes.

Tax havens are countries/jurisdictions offering certain tax benefits such as low tax rates, credit mechanisms or deductions resulting in limited or no tax being levied on certain profits. They offer businesses less red tape, complicated exchange controls and equity requirements.

Tax havens are popular in Europe. G7 countries are proposing a law which will see companies taxed in any country where they make more than 10% profit on sales. Companies can choose to put their headquarters in a country with a lower tax rate and take their profits there.

The main objectives of the Afine listing were to:

• provide investors with an opportunity to participate over the long term in the income streams,
• enhance the liquidity and tradability of the shares and
• provide Afine with a platform to raise equity funding to pursue growth and investment.

Afine intends declaring a distribution to shareholders at least every 6 months. An interim gross distribution of R16 000 000 has been declared on 14 October 2021 ahead of the intended listing.

The nature of the revenue of Afine is as follows; land rental and development rental as well as contracted with oil majors:

Contracting with other parties: Other rental (income from alternative profit opportunities, which is immaterial, such as ATM rentals, food offerings, E-Toll Offices and car washes). All of the above rental is fully contracted, with 99% being contracted with Engen and Sasol.

Nov 2021, Afine entered into the Petroland Administration Agreement in terms of which Petroland will provide administration services to Afine, also providing Afine with CEO and CFO, who will manage Afine on a part-time basis.

Afine’s lease expiry profiles, based on existing leases are set out in the attached table and totalling a monthly revenue of R1 816 773 over a rentable area of 85 675m2, have a lease expiry profile of between November 2023 to December 2029. Leases are in the petroleum sector.

Afine’s objective is to consolidate ownership through a REIT structure, with an acquisition strategy to grow the business substantially over the next five to 10 years from a solid base and with deep industry knowledge, experience and networks.

Afine was forecasting that the following for 28 Feb 2022;

• Rental Income of R37 609 010
• Finance costs R4 879 500
• Profit for the year R217 112 933

For the 6 months ended 31 Aug 2021, Afine had;

• Revenue R21,834,984
• Finance costs R2,183,940
• Net Profit R175,669,054

This included a Gain on bargain purchase in a business combination of R55 627 004 and Fair Value adjustment of R131 854 000.

Afine's only non-current asset was the Investment property valued at R307m. Current assets of R15,276,672 against current liabilities of R51,992,455 (bulk of that was loans from related parties of R41,471,985)

Afine's borrowings were from;

• Rand Merchant Bank R39m
• KSP Offshore R41m

Afine's first investments involved the acquisition of an interest in five Petrol Filling Station (PFS) properties from the PFS Vendors in February 2021, namely Sasol Piet Retief, Sasol Somerset West, Sasol Grassnyers, Sasol Protea Park and Sasol Parkdene.

Afine acquired an additional 50% interest in Lizalor Investments (holds leasehold rights in Engen Platinum One Stop) thereby changing the Investment from a JV to a wholly-owned subsidiary of the group. The group obtained the additional 50% at a consideration of R17 189 688.

Afine also acquired a 50% interest in Coral Lagoon (holds leasehold rights in Engen Riverside) on 1 March 2021 for R7m. 4 Petrol Filling Station vendors are Investment Facility Company Three Three Six, Katherine Street Properties, Lyndham Trust and Petroland. Petroland will continue to assist Afine with the administration of the various properties.

All the properties acquired by Afine are established petrol filling stations with various licences and rights in place. The responsibility for licencing rests with both the operator of the filling station as well as the property owner.

According to the South African Petroleum Industry Association there are 4 600 service stations in South Africa of which 75% are under the effective control of Oil Companies. Afine is well positioned to target more than a thousand service stations to add to its current network.