MADISON PROPERTY FUND PROSPECTUS€¦ · MADISON PROPERTY FUND PROSPECTUS M A M C ed 2 MADISON UNIT...

MADISON PROPERTY FUNDPROSPECTUS

Prepared By:

Madison Asset Management Company Limited316 Independence AvenueP.O. Box 37013LUSAKA

First publication date: 29th March 2019

www.madisonassets.co.zm

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MADISON PROPERTY FUND PROSPECTUS

Madison Asset Management Company Limited

FUND MANAGERMadison Asset Management Company LimitedPlot 316 Independence AvenueP.O Box 37013Lusaka Zambia Contact Person: Mercedes [email protected]

AUDITORSDeloitte & TouchéThabo Mbeki RoadContact Person: A TemboD: 260 211 [email protected] www.deloitte.com

TRUSTEESAMG GlobalNo 6 Lagos RoadP.O. Box 37893Contact Person: Friday [email protected]

CUSTODIANSStanbic Bank PlcHead Office, Plot 2375Addis Ababa DriveLusaka, [email protected]

DISCLAIMERApproval for the establishment of the Madison Property Fund Trust was granted by the Securities and Exchange

Commission (“SEC”). The Directors of Madison Asset Management Company Limited collectively and individually accept

full responsibility of the accuracy of the information given and certify that to the best of their knowledge and belief that there

are no other facts or omissions of which would make any statement false or misleading, that they have made all necessary

enquiries to ascertain such facts and that the Issue Memorandum contains all information required by law.

Investors should be aware that the price of units are subject to market risk and may rise and fall owing to changing market

conditions. Investors are advised to consult their financial advisors before investing if they are in doubt about the contents

of this offering document.

Any dispute arising between the fund manager and the investor will be under the jurisdiction of SEC of the Republic of

Zambia.

The SEC takes no responsibility for the contents of the prospectus, makes no representation as to the accuracy or

completeness of any information and expressly disclaims any liability for loss arising from or in reliance upon the whole or

any part of the prospectus.

CONTENTS

INTRODUCTION 3

MADISON UNIT TRUST 4

DESCRIPTION OF PROPERTY UNDER THE FUND 5

INVESTMENT CASE – FUNCTIONALITY 7

YIELDS 7

RISK FACTOR 8

CONFLICT OF INTEREST 9

FEES 9

LEGAL FRAMEWORK 10

ABOUT THE FUND MANAGER 10

SUBSCRIPTION 10

REPORTING STANDARDS 11

FUTURE OUTLOOK 11

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This Programme Memorandum outlines the terms for participation in the Madison Property Fund Trust (“MPF” or “the Fund”). The Directors of the management company, Madison Asset Management Company Limited (“MAMCo”) accept responsibility for the information contained in the offering document.

The Programme further outlines the details of the initial property and the newly added property to the Fund. Madison Property Fund Trust is a Collective Investment Scheme that primarily invests in the real estate market. The current Fund size is K15,236,961 and this is based on the NAV (K1.8161) of the existing property as at 22nd March, 2019. The Madison Property Fund Trust operates as a closed Fund under the approved Madison Unit Trust Funds i.e., units are being offered to investors at unit market value to the extent of the valuation of the property in the Fund and no new units will be issued. However, new units may be issued from time to time as additional properties are introduced into the Fund (in this case the new property which has been added). Investors will also be able to buy units after the initial issue from other investors looking to exit the Fund.

The property in MPF has been unitised based on an appropriate factor determined by the fund managers taking into account the property value. The initial unit price offering was K1 per unit.

Rental income to investors is distributed on a quarterly basis net of fees and management expenses. Valuation of the properties in the fund will be done on a quarterly basis and the unit prices adjusted in accordance with revaluation.

Currently Madison Asset Management Company

manages the Madison Property Fund Trust, which is under the umbrella of the Madison Unit Trust. The existing asset on this Fund is a property located along Enock Kavu Road dubbed “Enock Kavu” and is currently tenanted by a reputable international company. As at December 2018, the building was valued at K 15,645,337.53.

The establishment of MPF is in line with the need to provide a suitable investment vehicle for institutional and retail investors that seek exposure to quality properties in the sector without engaging in direct development or complete ownership of property. The benefits of gaining exposure to real estate in this manner include among other things; investors not having to dedicate resources towards property management; exposure in the Fund is scalable based on the investor’s needs; construction risk is eliminated and liquidity of holdings is enhanced as investors can make piecemeal disposals.

We are pleased to inform you that we have now added a new property under the Fund. This property is MAMCo House (Plot 316B Independence Avenue, Lusaka) currently valued at K45,810,000. The property was purchased from a related party of the LSA group of companies.

The main driver for adding a new property to the Fund is due to the fact that all the available units in the fund have been purchased by clients and as this is a closed ended fund, no more units can be issued unless new holdings are added to the Fund.

The property which has been added (MAMCO House) includes Lusaka Securities Exchange (LuSE) as the anchor tenant with various other tenants occupying the building.

INTRODUCTION1

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MADISON UNIT TRUST2

2.1 OWNERSHIP

Madison Unit Trust (“MUT”) is a Collective Investment Scheme (“CIS”) regulated by the Securities and Exchange Commission (“SEC”) of Zambia that derives its authority from the Securities Act of 2016 (“the Act”).

The Act requires that a CIS is governed by approved Trustees and that the assets of the Fund are held by an approved Custodian. In addition, the Act requires the separation of the Fund from the management company.

MUT was created on 1st September, 2008 in Lusaka, Zambia and operates as an independent legal entity with its assets and liabilities separate from those of the management company. The Trustees of the Fund are AMG Global Trust Company Limited and Custodians are Stanbic Nominees. MUT is managed by Madison Asset Management Company Limited.

The registered address of Madison Unit Trust is as follows:

MLife BuildingDar-es-Salaam Place, Cairo RoadP.O. Box 33384LUSAKA, ZAMBIA

The Trust Deed, Securities Act and other constitutive documents of MUT can be inspected free of any charges from the aforementioned address.

2.2 MUT FUNDS

In addition to the Property Fund, the MUT has several funds which have been set-up to meet specific needs of diverse groups of investors. These funds include the following:

Madison Money Market FundMadison Microfinance FundMadison Equity FundMadison Education Investment FundMadison Gratuity Investment FundMadison Gratuity Investment Fund

(USD)Madison Global Fund (USD)

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DESCRIPTION OF PROPERTY UNDER THE FUND3

MPF has the initial property which is Enock Kavu and the new addition MAMCo House. Other high yielding properties will be introduced into the Fund based on market demand and as opportunities arise. A description of the 2 buildings is presented below.

3.1 Enock Kavu Building

a) DescriptionThe building is located on stand No. 1321, about six (6) kilometres east of the Central Business District of the city of Lusaka, off Addis Ababa Road, along Enock Kavu Road in Rhodespark area. The commercial property comprises a double storey office block constructed property with modern office building, modern finishes and fittings. The building has a gross lettable area of 357.08 square meters for the ground floor and 414.80 square meters for the first floor.

b) Tenant ProfileOwing to its location and quality of office accommodation the office block currently houses the internationally known company FedEx.

c) Current Value of PropertyThe property is valued at K15,645,337.53 as per latest valuation carried out in December 2018.

The properties in the Fund will be valued every quarter by an independent valuer as approved by the Trustee.

d) Land ExtentThe land exterior on which the building has been built is approximately 0.2452 hectares (0.6059) acres.

ENOCK KAVU BUILDING

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MAMCO HOUSE

3.2 MAMCo House

a) DescriptionThe building is located on Plot No. 316, along Independence Avenue. This is a three storey modern office block recently built and was completed in 2015. The commercial office block provides the gross lettable space of approximately 1739 sq/m which is mainly open plan concept giving the tenant flexibility to arrange furniture and partition office space according to their office space requirements. The office block has sanitary facilities (toilets and a kitchen) on each floor and provides paved driveways and car park areas.

b) Tenant ProfileDue to its location and quality of office accommodation the office block currently houses Lusaka

Securities Exchange (LUSE), AB & David- Lawyers for Africa, American Health International Alliance (AHIA), Association of Consulting Engineers, Becton Dickinson Zambia (BD) Limited and Madison Asset Management Company.

c) Current Value of PropertyThe property is valued at K45,810,000 as per latest valuation carried out in December 2018.

d) Land ExtentThe building has been built on land approximately 0.2136 hectares (0.5278 acres) in extent.

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The new property being added to the Madison Property Fund Trust will be unitised on the basis on amount of K1.8161 per unit. The 25,224,382 units under issue are based on the value of the new property being introduced against the current price per share (K45,810,000/ 1.8161)

100% of MAMCo House will be unitised in addition to the Enock Kavu Building which is already unitised.

This will translate into total units of 33,614,452 of which 8,390,070 have already been issued, therefore they shall be an issue of 25,224,382 units.

Investors will in turn receive benefits in the form of distributions of rental income from the property. Distributions will be paid quarterly in arrears.

4.1 Asset Allocation

In addition to the properties stated above, the fund can also invest in money market instruments as per SEC guidelines for the purpose of day to day management of the fund:

Asset Allocation Caps

Instruments % Allocation Caps

Property 80% ≤ 100%

Money Market Instruments

0% ≥ 20%

INVESTMENT CASE - FUNCTIONALITY4

5.1 Current Trends and Projections

Prime corporate tenants in Lusaka appear to generally have office space requirements in the range of 250 - 2000 square meters. It is expected that the office market will in the next few years begin developing into a more clearly defined two-tier market including prime and secondary accommodation.

Opportunities for property development have remained restricted by the lack of prime land in the city centre and suburban areas. As a result of the limited supply of prime offices and development land, rental levels are relatively high for offices occupied by prime tenants in the city, particularly outside the CBD.

The net rental yield, after taking into account of management fees, trustee fees and custody fees is expected to be around 7.49% per annum. Annual

capital appreciation has been estimated at a conservative 6.50%, bringing the expected annual yield to 13.99%. Valuations on the properties shall be done on a quarterly basis. The lease agreements with the current tenants stipulate that rentals shall be revised on an annual basis and increased by the national inflation rate (this is capped at 10% maximum increment per annum).

The above stated yield is more favourable and more stable than yields in other investments, for example; equities and fixed income placements as they are more volatile to market fluctuations. The yield is also more favourable because both the Enock Kavu and MAMCo House properties have secured 100% occupancy rate from November 2015 to date, thus guaranteed maximum rental income is attained.

YIELDS5

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SummaryCurrent

Valuation/Yield Year 2 Year 3 Year 4 Year 5

MAMCo House 45,810,000.00 48,787,650.00 51,958,847.25 55,336,172.32 58,933,023.52

Enock Kavu Building 15,645,337.52 16,662,284.46 17,745,332.95 18,898,779.59 20,127,200.26

Total value of Assets 61,455,337.52 65,449,934.46 69,704,180.20 74,234,951.91 79,060,223.79

Total Rentals 6,459,973.83 6,976,771.73 7,534,913.47 8,137,706.55 8,788,723.07

Yield 10.51% 10.66% 10.81% 10.96% 11.11%

Management Fee 1.75% 1.75% 1.75% 1.75% 1.75%

Custodial Fees 0.18% 0.18% 0.18% 0.18% 0.18%

Trustee Fees (Est) 0.01% 0.01% 0.01% 0.01% 0.01%

Audit Fees 0.35% 0.35% 0.35% 0.35% 0.35%

Maintainance Fees 0.61% 0.61% 0.61% 0.61% 0.61%

SEC Levy 0.13% 0.13% 0.13% 0.13% 0.13%

Net Rental Yield 7.49% 7.64% 7.79% 7.94% 8.10%

Net Yield (including capital appreciation) 13.99% 14.14% 14.29% 14.44% 14.60%

Presented below is a projection of the expected yields;

Assumptions � The value of the property appreciates by a conservative 6.50% per annum

� Rental income appreciates at 8.00% per annum

1. Pricing - Investors are advised that unit prices may rise or fall depending on the market conditions.

2. Evaluation risk - Property assets are inherently difficult to value as there is no liquid market or pricing mechanism therefore the valuation may not show the actual sells price of the property to be sold on the open market.

3. Occupancy risk - The property may not have tenants and therefore the fund may lose rental income.

4. Liquidity of property portfolio - Investors should note that the property fund is closed ended therefore before units can be sold there has to be a willing buyer.

5. Possible adverse economic conditions.6. Tenancy default risk – The distributions

payable by the fund are dependent on the

income from the underlying property owned. The possibility of tenants defaulting on their obligations causes a risk on the rental income available for distribution to the unit holders.

7. Disposal – Disposal by the fund of the property may be difficult because ofa. Market conditionsb. Size, value and specialised nature of the

property.8. Insurance risk – There is no guarantee that

the insurer will pay all claims that may arise on the insurance policies as a result of an insured cover. Therefore this risk may fall on the fund.

9. Redemptions, Demands, Deferrals and Suspensions - Property funds may be subject to redemption demands at times when performance is comparatively

RISK FACTORS6

Valuation for the two properties will be done every quarter by an independent valuer approved by the Trustee.

In order to mitigate the various risks associated with the fund a number of imperatives have been identified together with the measures that can be put in place to mitigate them:

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MAMCo engages in a wide range of activities in its normal course of business. Its interests in such activities may conflict with the interests of the Fund and the unit holders. The following paragraphs set out certain potential conflicts of interest of which unit holders in the Company should be aware.

Other investments and business activities - MAMCo employees who are involved in providing the services in the capacity as Investment Managers are also involved in other business activities for MAMCo, including the management and administration of other funds and investments

for clients which might follow similar investment objectives to those of the Fund. These individuals will allocate part of their time to other duties in respect of MAMCo`s normal course of business.

Other property investment funds and direct investments- MAMCo is engaged in other property investment and fund management activities. It is possible that MAMCO will invest directly for other clients in the same type of assets or organise, sponsor or invest in other property funds, including property funds that will invest in the same regions or sectors as the Fund.

CONFLICT OF INTEREST

FEES

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weak. At such times, performance may be adversely affected by the sale of properties to meet redemption demands. Investors should note that, in exceptional circumstances the fund manager may suspend the issue, cancellation, sale and redemption of shares in the fund.

10. Tax – the returns from the fund could be affected by changes in the tax treatment or interpretation of the fund and or changes in law relating to the taxation of the property transactions.

11. Inflation - inflation may over time reduce the value of the property in real terms.

8.1 Management FeesAnnual management fees of 1.75% will be charged to the fund.

8.2 Custodian FeesAnnual custodian fees of 0.18% will be charged to the fund and paid to the Custodian.

8.3 Trustees FeesAnnual Trustee’s fees to be agreed with the trustees will be charged to the fund. A provisional figure of 0.1% of the fund size has been taken into account in the yield computation.

8.4 Audit FeesAnnual audit fees projected at 3.3% of the total rental income will be charged to the fund.

8.5. Regulatory Fees (SEC)Annual regulatory fees of 0.125% will be charged to the fund.

8.6. Property Maintenance FeesAnnual maintenance fees will be charged at the rate of 0.61% of the fund size.

8.7. TaxesThe Fund is exempt from Income Tax under the Second Schedule of the Income Tax Act. It is entitled to Withholding Tax Exemption upon application to ZRA, the Withholding Tax Certificate exempts The Fund from taxes on revenue earned from Rental Income, Dividend Income and Interest earned on savings and deposit accounts. However, the Fund is not exempted from interest earned on Corporate Bonds, Government Bonds and Treasury Bills. The Fund is also not exempt from VAT.

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Subscriptions to the property fund will be based on the minimum notional amounts indicated in section 4. Investors will be granted certificates of investment once subscriptions are made. Certificates will be transferrable at the consent of the investor and the administrator will be informed accordingly in order to ensure that the registry is up to date and that distribution payments are made to the legal owner of the property units. Investors should note that unit prices may rise and fall depending on the value of the underlying assets and must consult their investment advisors for further advice. An investor shall be refunded in the event of oversubscription.

Presented below is a summary of terms:

Item Details

Fund Description Property Units in Madison Property Fund Trust

Denomination Zambian Kwacha

Offer Size 25,224,382 Units

Offer Value K45,810,000.00

Current Unit Price K 1.8161 (as the fund accumulates rental income the unit price rises. The unit price shall drop once rental income for the quarter is distributed).

Minimum Subscription K2,000.00

Issue Price K1.8161

Redemption Based on NAV and subject to the agreement of value between willing seller and willing buyer.

Distribution Net rent distributed every three months in arrears.

Selling Restrictions The units are only transferable with the written consent of the issuer.

Taxation Withholding tax is applicable on rental income and all other relevant taxes unless otherwise exempted.

Governing Law Republic of Zambia

Arranger and Placing Agent Madison Asset Management Company Limited

Paying Account Madison Unit Trust – Property Fund

Issue open date 29th March 2019

Issue close date 30th April 2019

LEGAL FRAMEWORK

ABOUT THE FUND MANAGER

SUBSCRIPTION

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The Madison Property Fund Trust will operate as a closed ended fund under the Madison Unit Trust which is regulated by the Securities and Exchange Commission.

MUT has a twelve (12) month financial year

which runs from 1 January to 31 December each year. Members of MPF will receive statements on a quarterly basis in accordance with statutory provisions. In addition, members will be entitled to attend (in person or by proxy) and vote at the Annual General Meetings of MUT.

Madison asset Management Company Limited is a member of the LSA Group of Companies, which is Zambia’s leading private sector diversified financial services group. MAMCo is regulated by the Securities and Exchange Commission of Zambia and is a member of the Lusaka Securities

Exchange (LUSE). MAMCo is also licensed by the Pensions and Insurance Authority to provide pension fund management services.

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REPORTING STANDARDS

FUTURE OUTLOOK

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Reporting of NAV will be weekly basis which is every Friday by 5 PM. It will be uploaded on our website (www.madisonassets.co.zm) and sent via e-mail to SEC.

The Fund financials can be inspected at the Funds registered office at LSA House Plot 316 Independence avenue P.O. Box 37013 LUSAKA, ZAMBIA.

Given the existing opportunities in the property market in Zambia, the management company plans to expand the property portfolio by bringing on board other properties as and when opportunities arise. In addition the management

company shall be looking at listing the Fund on the Lusaka Securities Exchange (“LUSE”). This is expected to enhance liquidity of the fund as the exchange will provide an appropriate media for investors willing to exit to realise liquidity.

Appendix I – Subscription Form

MADISON PROPERTY FUND TRUST SUBSCRIPTION FORM

Individual Investor Details:

Surname: Title:

First Name: Gender: Male Female

Postal Address:

Residential Address:

Tel(w): Tel(h): Mobile:

Email:

Date of birth: ID/Passport Number:

Preferred communication: sms email post

Next of Kin

Surname: Title:

First Name: Gender: Male Female

Relationship:

Postal Address:

Residential Address:

Tel(w): Tel(h): Mobile:

Email:

Date of birth: Id/Passport Number:

Investment Amount

Amount: ZMK

Amount in words:

Investor Banking DetailsPlease provide this information for remittance of income distribution

Name: Bank:

Branch: Account Number:

Swift Code:

Madison Property Fund Bank Account Details

Name: Bank:


Swift Code:

Investor Declaration I/We acknowledge that I/We have read the prospectus relating to investing in this fund and we agree to the term and condition of the prospectus. I/We further declare that the information provided herein is accurate and has not been altered in any way.

Investors Signature: Date:

Name of Entity:

Latest copy of Certificate of Incorporation & Memorandum of Association

Name of Authorized person & ID/ Passport number:

Registered Address:

Tel(w): Mobile: ID/Passport Number:

Email:

Preferred communication: sms email post

Investment Amount

Amount: ZMK:

Amount in words:

Investor Banking DetailsPlease provide this information for remittance of income distribution

Name: Bank:


Swift Code:

Madison Property Fund Bank Account Details

Name: Bank:


Swift Code:

Investor DeclarationI/We acknowledge that I/We have read the prospectus relating to investing in this fund and we agree to the term and condition of the prospectus. I/We further declare that the information provided herein is accurate and has not been altered in any way.

Entity seal and Authorised person Signature: Date:

MADISON PROPERTY FUND TRUST SUBSCRIPTION FORM

Institutional Investor Details:

Madison Asset Management Company LimitedPlot 316 Independence AvenueP.O Box 37013Lusaka Zambia Contact Person: Mercedes MwansaEmail: [email protected] www.madisonassets.co.zm

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