Acquisition of Modatim Investment S.A. (MTI), Modatim Properties S.A. (MTP) and Modatim Business Facility S.A. (MTBF)

Introduction

Shareholders are advised that NEPI through its subsidiaries NEPI FOUR TOWER BUILDING S.R.L. (“NEPI FOUR”), NEPI FIVE OFFICE TOWER S.R.L. (“NEPI FIVE “) and NEPI BUCHAREST TWO S.R.L. (“NEPI TWO”) (collectively, “the Purchasers”) has concluded agreements for the acquisition of all the issued shares in and shareholders’ claims against MTI and MTP from MTInv Holding BV and Mr. Ovidiu Sandor (collectively, “the Sellers”) (“the Transaction”).
Shareholders are further advised that NEPI has through another subsidiary, NE Property Cooperatief UA. (“NEPI Coop”), concluded an agreement for the forward acquisition of all the issued shares in and shareholders’ claims against MTBF from the Sellers (“the Forward Transaction”).
MTP and MTI own three adjoining office buildings (collectively, “the properties” or “City Business Centre”) of some 27,150 square metres located in the centre of Timisoara, Romania, while MTBF owns land on which two further adjoining office blocks of some 20,000 square metres are in the process of being developed (collectively, “the development properties”), also located in Timisoara.

Rationale For The Transaction And The Forward Transaction

Timisoara is the fourth largest city in Romania with a population in excess of 315,000 and is home to a growing back-office activities-andservices market that offers a skilled labour force, low costs and proximity to Western Europe. Tenants in the properties include Alcatel, Deloitte, IBM, Microsoft, PWC, Raiffeisen Bank and Unicredit. A number of international tenants, including Autoliv and SAP, have indicated interest in the development properties.
As indicated in the financial effects set out below, it is expected that the acquisition of the properties and the development properties will contribute to the growth in distributable earnings for NEPI shareholders.

Salient Terms Of The Transaction And The Forward Transaction

The effective date of the Transaction is 1 January 2012 (“the Effective Date”).
The acquisition agreement in respect of the Forward Transaction is binding on the date of transfer of the shares in MTI and MTP. However, delivery of the shares in MTBF only occurs on a date six months after the last development building has been completed (“Completion Date”), expected to be no later than 30 September 2014, subject to fulfilment of the conditions precedent set out below.
The aggregate purchase price for the shares in and shareholders’ claims against MTI and MTP is an amount of approximately EUR16.55 million (“the Estimated Transaction Purchase Price”), which will be funded through the proceeds of a vendor consideration placing in terms of which 5,518,057 new ordinary NEPI shares will be issued and placed at EUR3.00 per share (“the Vendor Placing”).
The acquisition agreement for MTI and the acquisition agreement for MTP are inter-conditional.
The final purchase price in relation to the Transaction (“the Transaction Price”) will be determined formulaically in terms of the acquisition agreements taking into account the current net operating incomes of the properties, the outstanding loan balances with third party financiers, the present values of the rent free periods and tenant installations, the financial statements of MTI and MTP as at the Effective Date and the additional incomes to be contracted within the 24 month period from the Effective Date. In so far as there is a difference between the Transaction Price and the Estimated Transaction Purchase Price, adjustment amounts will be paid between the Purchasers and the Sellers, in four semiannual installments over the course of the above mentioned 24 month period.
The final purchase price in relation to the Forward Transaction (“the Forward Transaction Price”) will be determined formulaically in terms of the acquisition agreement taking into account the net operating incomes of the development properties as at the Completion Date and the financial statements of MTBF as at the Completion Date, as well as the additional net operating incomes to be contracted within the development properties in the 12 months following the Completion Date, subject to a maximum Forward Transaction Price of EUR46 million.
The acquisition agreements for the Transaction and the Forward Transaction contain warranties typical for acquisitions of this nature.
The Transaction is not subject to any outstanding conditions precedent and is expected to complete before 1 March 2012.
The Forward Transaction is subject to fulfilment of the following conditions precedent:

• the development buildings being constructed and completed in accordance with Romanian regulations and the development properties being constructed and completed in compliance with technical specifications set out in the Forward Transaction acquisition agreement, including all utilities serving the development properties being in place and operational as attested to by a technical advisor;
• all approvals such as permits, authorities, consents, licenses and the like, being obtained;
• MTBF obtaining confirmation from all the contractors having contracts exceeding EUR500,000 (per development property), that there are no outstanding amounts owed to them by MTBF, or MTBF providing proof of full payments of the amounts due under such contracts;
• the contractors having delivered financial guarantees in relation to quality and defects of works, for at least 5% of contract value;
• the loans received by MTBF from its shareholders and the project finance for the development of the development properties meet the requirements specified in the Forward Transaction acquisition agreement;
• the Banca Comerciala Romana S.A. letter of guarantee having been terminated; and
• the Sellers notifying the Purchasers that the completion warranties relating to the shareholders’ title of the shares in MTBF and MTBF’s title over the development properties are valid, correct, true and accurate.

The Properties

Details of the properties including the valuation, effective as at 1 January 2012 attributed to the properties by the Company, are as follows:

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 six months ended 30 June 2011, adjusted for the effects of the NEPI rights offer which was concluded in December 2011. Due to their nature, the unaudited pro forma financial effects may not fairly present NEPI’ 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.
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 unaudited interim results for the six months ended 30 June 2011.
No pro forma financial effects have been presented in respect of the Forward Transaction as the construction of the development properties has not been completed and accordingly there is no factually supportable information regarding the letting of the development properties.

Notes and assumptions:

1. The amounts set out in the “Before the Transaction” column have been extracted from the “After the rights offer” column which was set out in the rights offer declaration announcement published on SENS, RNS and the Bucharest Stock Exchange on 21 October 2011.
2. The Transaction is assumed to have been implemented on 1 January 2011 for basic weighted average earnings, diluted weighted average earnings, distributable earnings, headline earnings and diluted headline earnings per share purposes and on 30 June 2011 for net asset value, adjusted net asset value and net tangible asset value per share purposes.
3. The amounts set out in the “After the Transaction” column were calculated by consolidating the results of NEPI for the six months ended 30 June 2011 (after taking into account adjustments for the rights offer concluded in December 2011) and the management accounts of MTI and MTP for the six months ended 31 December 2011, subject to the assumptions and adjustments set out below. The management accounts of MTI and MTP have not been reviewed or reported on by reporting accountants. However, the directors of NEPI are satisfied with the quality of the information:
   1. MTI and MTP were acquired at the Estimated Transaction Purchase Price of approximately EUR16.55 million, financed through the Vendor Placing.
   2. For the six months to 31 December 2011, MTI and MTP earned consolidated historical net rental income of approximately EUR1.75 million, incurred non-property related expenditure of approximately EUR9,000 and incurred interest on external bank debt of approximately EUR0.59 million. MTI and MTP earned a consolidated profit before tax for the six month period to 31 December 2011 of EUR1.153 million.
   3. The additional distributable income which results from the Transaction is assumed to be earned evenly throughout the six months ended 30 June 2011.
   4. Estimated transaction costs of EUR450 000 were expensed in accordance with IFRS 3 (Business Combinations) 2008.
   5. The value of the combined net assets of MTI and MTP as at 31 December 2011 are EUR13.87 million.
   6. The acquisition of MTI and MTP has been accounted for under IFRS 3 (Business Combinations) Revised whereby accounts and other receivables, trade and other payables, deferred taxation and goodwill have been recognised.
   7. An amount of EUR3.26 million was recognised in goodwill.
   8. An amount of EUR3.26 million was recognised as a deferred taxation liability.
   9. NEPI assumed external bank debt of EUR29.29 million which existed in MTI and MTP at 31 December 2011.

Categorisation Of The Transaction And The Forward Transaction

Due to the fact that MTI, MTP and MTBF are being acquired from the same Sellers, the Transaction and the Forward Transaction have been aggregated in terms of the Listings Requirements of the JSE Limited and are accordingly a category 2 transaction in terms of section 9.5(a) of the Listings Requirements of the JSE Limited and are not subject to approval by NEPI’s shareholders.

Issue Of Shares

Application will be made for the 5,518,057 new ordinary NEPI shares to be issued pursuant to the Vendor Placing to be admitted to trading on the JSE, AIM and the BVB, with dealings expected to commence on 10 February 2012.