Lodestone REIT Limited - ShareData

Lodestone REIT Limited(previously Lodestone Properties Limited)

(Incorporated in the Republic of South Africa)(Registration number 2010/017830/06)

JSE share code: LDO ISIN: ZAE000197935(“Lodestone” or “the company”)

PROSPECTUSThe definitions and interpretations commencing on page 7 of this prospectus have, where applicable, been used in these cover pages.

This prospectus is not an invitation to the public to subscribe for shares but is issued in compliance with the Listings Requirements and the Companies Act, for the purpose of providing information to the public regarding Lodestone and is issued in respect of:

• a private placement to raise up to R122.4 million by way of an offer for subscription to invited investors for up to 24 million ordinary shares in the share capital of Lodestone at an issue price of R5.10 per ordinary share; and

• the subsequent listing of all of the issued shares of the company in the “Diversified REIT’s” sector on the AltX of the JSE.

2015

Opening date of the private placement on (09:00) Wednesday, 11 FebruaryClosing date of the private placement on (12:00)* Friday, 13 FebruaryResults of the private placement released on SENS on Monday, 16 FebruaryProposed date of listing on the JSE from the commencement of trade on (09:00) Wednesday, 25 February* Invited investors must advise their CSDP or broker of their acceptance of the private placement shares in the manner and cut-off time stipulated by their CSDP

or broker.

A copy of this prospectus in English, accompanied by the documents referred to under “Documents available for inspection” as set out in paragraph 36 of this prospectus, was registered by CIPC on 6 February 2015 in terms of the Companies Act.

The ordinary shares to be issued pursuant to the private placement will rank pari passu with all other ordinary shares issued by Lodestone. There are no convertibility or redemption provisions relating to any of the private placement shares offered in terms of the private placement. The private placement shares will only be issued in dematerialised form. No certificated private placement shares will be issued. There will be no fractions of private placement shares offered or issued in terms of the private placement. The private placement will not be underwritten. The listing is not conditional on raising a minimum amount in terms of the private placement. The proceeds of the private placement will be used by Lodestone to settle interest-bearing debt and strengthen the balance sheet for ongoing investment activities.

Applications in terms of the private placement must be for a minimum of 5 000 ordinary shares.

Immediately prior to the private placement and the listing:

• the authorised share capital of the company will comprise 1 billion ordinary shares of no par value;

• the issued share capital of the company will comprise 105 762 736 ordinary shares of no par value; and

• the company will have no treasury shares in issue.

Assuming that the private placement is fully subscribed for, immediately after the private placement and the listing:

• the authorised share capital of the company will comprise 1 billion ordinary shares of no par value;

• the issued share capital of the company will comprise 129 762 736 ordinary shares of no par value; and

• the company will have no treasury shares in issue.

At the date of listing, assuming the private placement is fully subscribed for, the anticipated market capitalisation of the company should be approximately R601 million.

The JSE has granted Lodestone a listing of all its issued shares in the “Diversified REIT’s” sector on the AltX of the JSE, under the abbreviated name: “Lodestone”, JSE share code: “LDO” and ISIN: ZAE000197935, with effect from the commencement of trade on Wednesday, 25 February 2015, subject to the company maintaining a spread of public shareholders acceptable to the JSE at the point of listing on the AltX being public shareholders holding not less than 10% of the issued share capital of the company to ensure reasonable liquidity.

The directors, whose names are given in paragraph 2 of section one of this prospectus, collectively and individually, accept full responsibility for the accuracy of the information given herein and certify that, to the best of their knowledge and belief, no facts have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this prospectus contains all information required by law and the Listings Requirements.

Each of the corporate advisor and bookrunner, the designated advisor, the independent reporting accountants and auditors, the attorneys, the independent property valuer, the transfer secretaries, the bankers and the company secretary whose names are included in this prospectus, have consented in writing and have not, prior to publication of this prospectus, withdrawn their written consent to the inclusion of their names in the capacity stated and, where applicable, to their reports being included in this prospectus.

An abridged version of this prospectus was published on SENS on Wednesday, 11 February 2015.

Corporate advisor, bookrunner and designated advisor Attorneys

Independent reporting accountants and auditors Independent property valuer

Date of issue: 11 February 2015This prospectus is only available in English. Copies of this prospectus may be obtained from the registered office of the company, the designated advisor or the transfer secretary whose addresses are set out in the “Corporate Information” section of this prospectus from Wednesday, 11 February 2015 to Wednesday, 25 February 2015 and on the company’s website at www.lodestoneproperties.co.za.

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CORPORATE INFORMATION

Registered office of the company3rd Floor, Rivonia VillageRivonia BoulevardRivonia, 2191(PO Box 6063, Rivonia, 2128)

Corporate advisor and bookrunnerWaydale Investments Proprietary Limitedtrading as Java Capital(Registration number 2012/089864/07)2 Arnold RoadRosebank, 2196(PO Box 2087, Parklands, 2121)

AttorneysCliffe Dekker Hofmeyr Inc.(Registration number 2008/018923/21)11 Buitengracht StreetCape Town, 8001(PO Box 695, Cape Town, 8000)

Independent property valuersQuadrant Properties Proprietary Limited(Registration number 1995/003097/07)16 North Road, Cnr Jan Smuts AvenueDunkeld West, 2196(PO Box 1984, Parklands, 2121)

Transfer secretaryLink Market Services South AfricaProprietary Limited(Registration number 2000/007239/07)13th Floor, Rennie House19 Ameshoff StreetBraamfontein, Johannesburg, 2001(PO Box 4844, Johannesburg, 2000)

Company secretaryLeonie Gindan4th Floor, Rivonia VillageRivonia BoulevardRivonia, 2191(PO Box 6063, Rivonia, 2128)

Designated advisorJava Capital Trustees and SponsorsProprietary Limited(Registration number 2006/005780/07)2 Arnold RoadRosebank, 2196(PO Box 2087, Parklands, 2121)

Independent reporting accountants and auditorsDeloitte & ToucheRegistered Auditors(Practise number 902276)Buildings 1 and 2, Deloitte PlaceThe Woodlands20 Woodlands DriveWoodmead, Sandton, 2196(Private Bag X6, Gallo Manor, 2052)

BankersInvestec Bank Limited(Registration number 1969/004763/06)100 Grayston DriveSandown, 2196(PO Box 785700, Sandton, 2146)

BankersThe Standard Bank of South Africa Limited(Registration number 1962/000738/06)1st Floor, 5 Simmonds StreetJohannesburg, 2001(PO Box 7725, Johannesburg, 2000)

Place and date of incorporationIncorporated in the Republic of South Africa on 27 August 2010.

Offers in South Africa onlyThis prospectus has been issued in connection with the private placement in South Africa only and is addressed only to persons to whom the private placement may lawfully be made. The distribution of this prospectus and the making of an offer through this private placement may be restricted by law. Persons into whose possession this prospectus comes must inform themselves about and observe any such restrictions. This prospectus does not constitute an offer of or invitation to subscribe for and/or purchase any of the shares in any jurisdiction in which such offer, subscription or sale would be unlawful. No one has taken any action that would permit a public offering of shares in the company to occur outside South Africa.

Forward-looking statementsThis prospectus includes forward-looking statements. Forward-looking statements are statements including, but not limited to, any statements regarding the future financial position of the group and its future prospects. These forward-looking statements have been based on current expectations and projections about future results which, although the directors believe them to be reasonable, are not a guarantee of future performance.

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TABLE OF CONTENTS

The definitions and interpretations commencing on page 7 of this prospectus have been used in the following table of contents. Page

Corporate information 1

Salient features 4

Important dates and times 6

Definitions and interpretations 7

Prospectus

Section one – Information on the Lodestone group1. Name, address and incorporation 112. Directors, other office holders or material third parties 113. History, state of affairs and prospects of the group 174. Share capital of the company 205. Options and preferential rights in respect of shares 216. Commissions paid or payable in respect of underwriting 217. Material contracts 228. Interests of directors and promoters 229. Loans and borrowings 2210. Shares issued or to be issued other than for cash 2211. Properties, assets and business undertakings acquired or to be acquired 2212. Promoters’ interests and amounts paid or payable to promoters 2213. Preliminary expenses and issue expenses 23

Section two – Details of the private placement14. Purposes of the private placement and the listing 2415. Salient dates and times 2416. Particulars of the private placement 2417. Minimum subscription 27

Section three – Financial information18. Adequacy of capital 2819. Report by directors as to material changes 2820. Statement as to listing on stock exchange 2821. Report by auditor of the Lodestone group 2822. Forecast statements of comprehensive income 2823. Consolidated pro forma statement of financial position 2824. Historical financial information 2925. Dividends and distributions 29

Section four – Additional material information26. Relationship information 3027. Considerations relating to Lodestone being approved as a REIT 3028. Properties, assets and business undertakings disposed of or to be disposed of 3129. Vendors 3130. Government protection and investment encouragement law 32

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31. Exchange Control Regulations 3232. Corporate governance 3233. Litigation statement 3234. Directors’ responsibility statement 3235. Consents 3336. Documents available for inspection 33

Section five – Inapplicable or immaterial matters37. Inapplicable or immaterial matters 34

Annexure 1 Group structure 35Annexure 2 Details of subsidiaries 36Annexure 3 Information on the directors, management, material third parties and the property managers 37Annexure 4 Current and past directorships 41Annexure 5 Service contracts 46Annexure 6 Extracts from the MOI 48Annexure 7 Material contracts 56Annexure 8 Details of the existing property portfolio 59Annexure 9 Independent property valuer’s summary valuation report on the property portfolio 61Annexure 10 Capital structure 71Annexure 11 Material borrowings and loans payable and receivable 79Annexure 12 Details of acquisitions and vendors 84Annexure 13 Financial information required in respect of Lodestone in terms of Regulation 79 of

the Companies Act 86Annexure 14 Report by the auditor in terms of Regulation 79 of the Companies Act in respect

of Lodestone 91Annexure 15 Forecast statements of comprehensive income of the Lodestone group 94Annexure 16 Independent reporting accountants’ assurance report on the property forecast statements

of comprehensive income of the Lodestone group 96Annexure 17 Consolidated pro forma statement of financial position of the Lodestone group 100Annexure 18 Independent reporting accountants’ assurance report on the compilation of the

consolidated pro forma statement of financial position of the Lodestone group 104Annexure 19 Independent reporting accountants’ review report on the valuation and existence of

the assets and liabilities acquired 106Annexure 20 Historical financial information 108Annexure 21 Independent reporting accountants’ report on the historical financial information

of Lodestone 120Annexure 22 Lodestone group accounting policies 122Annexure 23 Details of properties, assets and business undertakings disposed of and to be disposed of 131Annexure 24 Corporate governance statement 134Annexure 25 Lodestone group risk analysis 140

Private placement application form Attached

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SALIENT FEATURES

The information set out in this section of the prospectus is only an overview and is not intended to be comprehensive. It should be read in conjunction with the information contained in other sections of this prospectus.

1. INTRODUCTION

Lodestone is an opportunistic property holding investment company that has been established to invest in property assets in South Africa and abroad, with a balanced strategy of investing in industrial, retail, residential and commercial properties directly and through the holding of property securities. The company’s year-end was changed from 30 June to 31 March on 17 October 2014.

2. NATURE OF BUSINESS AND BUSINESS STRATEGY

Lodestone holds a diversified portfolio of 22 properties across the industrial, commercial and retail sectors.

Lodestone’s business strategy is to invest in yield-enhancing assets and areas that offer consistent, long-term rental growth. The asset management function is carried out internally by Lodestone’s experienced and specialised management team with a view to extracting maximum value from each property.

3. PROSPECTS

The board of Lodestone is confident that it will deliver growth in distribution of greater than 10% for the year ending 31 March 2016 as compared to the annualised dividend for the four months ending 31 March 2015, further details of which are set out in Annexure 15. With its opportunistic ability to invest in all real estate sectors both locally and internationally, the group will be able to add significantly to its property portfolio on a yield-enhancing basis for its investors.

4. DETAILS OF THE PRIVATE PLACEMENT

The private placement will be constituted by the issue of up to 24 million ordinary shares at an issue price of R5.10 per ordinary share.

The listing is conditional on the company maintaining a spread of public shareholders acceptable to the JSE at the point of listing on the AltX being public shareholders holding not less than 10% of the issued share capital of the company to ensure reasonable liquidity, by no later than 48 hours prior to the listing.

There are no convertibility or redemption provisions relating to the private placement shares being offered in terms of the private placement. Private placement shares will be issued in dematerialised form only. No fractions of private placement shares will be issued pursuant to the private placement. The private placement will not be underwritten. The listing is not conditional on raising a minimum amount in terms of the private placement.

5. STATEMENT AS TO LISTING ON THE JSE

The JSE has granted Lodestone a listing of all of its issued shares in the “Diversified REIT’s” sector on the AltX of the JSE under the abbreviated name: “Lodestone”, JSE share code: “LDO” and ISIN: ZAE000197935 with effect from the commencement of trade on Wednesday, 25 February 2015.

6. ACTION REQUIRED

Applications for private placement shares by invited investors must be made in accordance with paragraph 16 of this prospectus and by completing the application form which accompanies this prospectus.

Applications for private placement shares can only be made for dematerialised shares and must be submitted through a CSDP or broker in accordance with the agreement governing the relationship between the applicant and the CSDP or broker by the cut-off time stipulated by the CSDP or broker.

If you are in any doubt as to what action to take, you should consult your broker, attorney or other professional advisor immediately.

Applications in terms of the private placement must be for a minimum of 5 000 private placement shares.

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7. FURTHER COPIES OF THE PROSPECTUS

Copies of the prospectus may be obtained between 08:30 and 17:00 on business days from Wednesday, 11 February 2015 to Wednesday, 25 February 2015 at the following addresses and on the company’s website at www.lodestoneproperties.co.za:

Lodestone REIT Limited3rd Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191

Java Capital Trustees and Sponsors Proprietary Limited2 Arnold Road, Rosebank, Johannesburg, 2196

Link Market Services South Africa Proprietary Limited13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001

An abridged version of this prospectus was released on SENS on Wednesday, 11 February 2015.

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IMPORTANT DATES AND TIMES1

The definitions and interpretations commencing on page 7 of this prospectus apply to these important dates and times:

2015

Abridged prospectus released on SENS on Wednesday, 11 February

Opening date of the private placement on (09:00) Wednesday, 11 February

Closing date of the private placement on (12:00)2 Friday, 13 February

Results of the private placement released on SENS on Monday, 16 February

Notification of allotments to successful invited investors on or from Monday, 16 February

Accounts at CSDP or broker updated and debited in respect of dematerialised shareholders3 on Wednesday, 25 February

Lodestone shares listed on the JSE from the commencement of trade on (09:00) Wednesday, 25 February

Notes:

(1) All references to dates and times are to local dates and times in South Africa. These dates and times are subject to amendment. Any such amendment will be released on SENS.

(2) Invited investors must advise their CSDP or broker of their acceptance of the private placement shares in the manner and cut-off time stipulated by their CSDP or broker.

(3) CSDPs effect payment on a delivery-versus-payment basis.

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DEFINITIONS AND INTERPRETATIONS

In this prospectus and the annexures hereto, unless inconsistent with the context, an expression which denotes one gender includes the other genders, a natural person includes a juristic person and vice versa, the singular includes the plural and vice versa and the expressions set out in the first column bear the meaning assigned to them in the second column.

“A linked unit” an “A” linked unit in the capital of Lodestone prior to the capital restructure, further details of which are set out in Annexure 10, comprising one ordinary share of no par value in the share capital of Lodestone indivisibly linked to one “A” debenture having a face value of R9.97;

“A linked unitholders” the registered holders of A linked units;

“AltX” the Alternative Exchange of the JSE;

“Aucor” Aucor Corporate Proprietary Limited t/a Aucor Properties (Registration number 1995/007015/07), a private company registered and incorporated in accordance with the laws of South Africa;

“auction agreement” the agreement dated 19 March 2014 between Lodestone Investments, Aucor and Ebrahim Ghood, acting on behalf of New Order Investments 90 Proprietary Limited, further details of which are set out in Annexure 7;

“application form” the application form to be used by invited investors for purposes of subscribing for private placement shares in terms of the private placement which is attached to, and forms part of, this prospectus;

“attorneys” or “Cliffe Dekker Hofmeyr” Cliffe Dekker Hofmeyr Incorporated (Registration number 2008/018923/21), a personal liability company incorporated in accordance with the laws of South Africa, full details of which are set out in the “Corporate Information” section;

“B linked unit” a “B” linked unit in the capital of Lodestone prior to the capital restructure, further details of which are set out in Annexure 10, comprising one ordinary share with a par value of R0.01 each in the share capital of Lodestone indivisibly linked to one “B” debenture having a face value of R0.01;

“B linked unitholders” the registered holders of B linked units;

“Broll” Broll Property Group Proprietary Limited (Registration number 2008/027519/07), a private company registered and incorporated in accordance with the laws of South Africa, further details of which are set out in paragraph 2.6.1 of this prospectus;

“Broll property management agreement” the agreement entered into on 25 August 2014 between Broll and Lodestone Investments governing the provision by Broll of property management services to Lodestone Investments in respect of properties detailed in Annexure 8;

“board” or “directors” or “board of Lodestone”

the board of directors of Lodestone as set out in paragraph 2 of section one of this prospectus;

“business day” any day other than a Saturday, Sunday or official public holiday in South Africa;

“capital restructure” collectively, the redemption of the A and B debentures, the repurchase of the A and B shares and the issuance of ordinary shares, further details of which are set out in Annexure 10;

“CIPC” the Companies and Intellectual Property Commission under the Companies Act;

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“common monetary area” collectively, South Africa, the Kingdoms of Swaziland and Lesotho and the Republic of Namibia;

“Companies Act” or “the Act” the South African Companies Act (Act 71 of 2008), as amended;

“Companies Regulations” or “Regulations”

the Companies Regulations, 2011 promulgated in Government Gazette No. 34239 in terms of section 223 of the Companies Act;

“CSDP” a Central Securities Depository Participant in South Africa appointed by a shareholder for purposes of, and in regard to, dematerialisation and to hold and administer securities or an interest in securities on behalf of a shareholder;

“dematerialisation” the process whereby certificated shares are converted to an electronic form as dematerialised shares and recorded in the sub-register of shareholders maintained by a CSDP or broker in South Africa;

“dematerialised shares” Lodestone shares which have been incorporated into the Strate system, title to which is no longer represented by share certificates or other physical documents of title;

“documents of title” share certificates, certified transfer deeds, balance receipts and any other documents of title to share acceptable to the board;

“Exchange Control Regulations” the Exchange Control Regulations of South Africa issued under the Currency and Exchanges Act (Act 9 of 1933), as amended;

“existing property portfolio” or “existing properties” or “property portfolio”

comprising the properties set out in Annexure 8;

“Financial Markets Act” Financial Markets Act (Act 19 of 2012), as amended;

“Fortress” Fortress Income Fund Limited (Registration number 2009/016487/06), a public company registered and incorporated in accordance with the laws of South Africa and listed on the JSE;

“GLA” gross lettable area being the total area of a property that can be rented to a tenant;

“government” the government of South Africa;

“GR” gross rental/s;

“ independent reporting accountants and auditors” or

“independent reporting accountants” or “Deloitte & Touche”

Deloitte & Touche, a partnership formed in terms of the laws of South Africa, full details of which are set out in the “Corporate Information” section;

“independent property valuers” or “Quadrant Properties”

the independent property valuers of the company, being Quadrant Properties Proprietary Limited (Registration number 1995/003097/07), a private company registered and incorporated in accordance with the laws of South Africa, the details of which are set out in the “Corporate Information” section;

“Income Tax Act” Income Tax Act (Act 58 of 1962), as amended;

“invited investors” those specifically identified individuals, financial institutions, selected private clients and selected retail investors to whom the offer under the private placement will be addressed and made;

“issue price” the price at which the private placement shares are to be issued by Lodestone pursuant to the private placement being R5.10 per ordinary share;

“IFRS” International Financial Reporting Standards;

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“Java Capital” collectively, Waydale Investments Proprietary Limited trading as Java Capital (Registration number 2012/089864/07), the corporate advisor and Java Capital Trustees and Sponsors Proprietary Limited (Registration number 2006/005780/07), the designated advisor, further details of which are set out in the “Corporate Information” section;

“JHI” JHI Properties Proprietary Limited (Registration number 2007/021131/07), a private company registered and incorporated in terms of the laws of South Africa, further details of which are set out in paragraph 2.6.2 of this prospectus;

“JHI property management agreement” the agreement entered into on 26 August 2014 between JHI and Lodestone Investments governing the provision by JHI of property management services to Lodestone Investments in respect of properties detailed in Annexure 8;

“JSE” Johannesburg Stock Exchange, being the exchange operated by the JSE Limited (Registration number 2005/022939/06), licensed as an exchange under the Financial Markets Act, as amended and a public company registered and incorporated in accordance with the laws of South Africa;

“King III” the Code of Corporate Practices and Conduct in South Africa representing principals of good corporate governance as laid out in the King Report, as amended from time to time;

“last practical date” the last trading date before the finalisation of this prospectus, being Friday, 23 January 2015;

“the listing” the listing of all of the shares of Lodestone in the AltX sector of the JSE;

“Listings Requirements” the Listings Requirements, as issued by the JSE from time to time;

“Lodestone” or “the company” Lodestone REIT Limited (previously Lodestone Properties Limited) (Registration number 2010/017830/06), a public company registered and incorporated in accordance with the laws of South Africa;

“Lodestone group” or “the group” collectively Lodestone and its wholly owned subsidiaries;

“Lodestone Investments” Lodestone Investments Proprietary Limited (Registration number 2005/043144/07), a private company registered and incorporated in accordance with the laws of South Africa and a wholly owned subsidiary of the company, further details of which are set out in Annexure 2;

“Lodestone Investments 2” Lodestone Investments 2 Proprietary Limited (Registration number 2008/029004/07), a private company registered and incorporated in accordance with the laws of South Africa and a wholly owned subsidiary of the company, further details of which are set out in Annexure 2;

“m2” square metres;

“Makhado Square acquisition agreement” the agreement dated 27 May 2014 between Municipal Employees Pension Fund and Lodestone Investments, further details of which are set out in Annexure 7;

“Makhado Square addendum agreement” the agreement dated 20 June 2014 between Municipal Employees Pension Fund and Lodestone Investments, further details of which are set out in Annexure 7;

“MOI” the memorandum of incorporation of the company, extracts of which are set out in Annexure 6;

“ordinary shares” or “shares” the ordinary shares in the capital of Lodestone of no par value;

“press” the Business Day newspaper;

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“private placement” the private placement to raise approximately R122.4 million by Lodestone by way of an offer to invited investors to subscribe for up to 24 million ordinary shares at an issue price of R5.10 per ordinary share;

“private placement shares” the 24 million ordinary shares in the share capital of Lodestone to be offered and issued in terms of the private placement;

“promoter” the party(ies) responsible for the formation of a company to be listed, or acquired by an existing issuer, and who earn(s) a fee therefrom, in cash or otherwise;

“property management agreements” collectively, the Broll property management agreement, the RMS property management agreement and the JHI property management agreement;

“property managers” each of Broll, JHI and RMS in respect of different portfolios of properties in the existing property portfolio;

“prospectus” this bound document inclusive of all annexures and accompanying specimen application form dated 11 February 2015, prepared in compliance with the Companies Act and the JSE Listings Requirements;

“R” or “Rand” or “ZAR” the South African Rand, the lawful currency of South Africa;

“REIT” a public company listed as a Real Estate Investment Trust on the JSE;

“RMS” RMS Property and Facilities Management Proprietary Limited (Registration number 1990/000630/07), a private company registered and incorporated in terms of the laws of South Africa, further details of which are set out in paragraph 2.6.3 of this prospectus;

“RMS property management agreement” the agreement entered into on 1 July 2011 between RMS and Lodestone Investments governing the provision by RMS of property management services to Lodestone Investments in respect of properties detailed in Annexure 8;

“SARB” South African Reserve Bank;

“SENS” Stock Exchange News Service of the JSE;

“shareholders” or “Lodestone shareholders” holders of Lodestone shares as recorded in the share register of the company;

“Siyabuswa Land disposal agreement” the agreement dated 9 June 2014 between Lodestone Investments, Aucor and Broad Brush Inv 207 Proprietary Limited, further details of which are set out in Annexure 7;

“subsidiaries” collectively, Lodestone Investments and Lodestone Investments 2, further details of which are set out in Annexure 2;

“Strate” Strate Proprietary Limited (Registration number 1998/022242/07), a private company which is registered in terms of the Financial Markets Act, as amended, responsible for the electronic settlement system of the JSE;

“transfer secretaries” or “Link Market Services”

Link Market Services South Africa Proprietary Limited (Registration number 2000/007239/07), a private company registered and incorporated in South Africa, full details of which are set out in the “Corporate Information” section;

“VAT” value added tax as defined in the Value Added Tax Act, 1991, as amended; and

“yield” the distribution available to a holder of a share in any future 12-month period or any financial year, as the case may be, divided by the current market price of that share.

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Directors of the companyJS Cooper (Managing director)IF Pick (Financial director)G Trope (Executive director)HA Zolty (Executive director)CB Hallowes (Independent non-executive director)AL Manickum (Independent non-executive director) (Chairman)N Shongwe (Independent non-executive director)MC McNamara (Independent non-executive director)JJ van Wyk (Independent non-executive director)

PROSPECTUS

SECTION ONE – INFORMATION ON THE LODESTONE GROUP

1. NAME, ADDRESS AND INCORPORATION

1.1 Lodestone REIT Limited (previously Lodestone Properties Limited) (Registration number 2010/017830/06) was incorporated as a public company on 27 August 2010.

1.2 The company’s year-end was changed from 30 June to 31 March on 17 October 2014.

1.3 The addresses of the company’s registered office and the transfer secretary’s registered office is set out in the “Corporate Information” section.

1.4 The group structure is set out in Annexure 1 and the names, registration numbers, places of incorporation, dates of incorporation, nature of business and issued capital of each of Lodestone’s subsidiaries are set out in Annexure 2.

2. DIRECTORS, OTHER OFFICE HOLDERS OR MATERIAL THIRD PARTIES

2.1 Directors of the company

The board is currently made up of nine directors of which five are non-executives (all of whom are independent) and four are executive directors.

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2.1.1 The full names, ages, business addresses, qualifications, positions and experience of the directors of Lodestone are outlined below:

Name and age Jason Scott Cooper (45)

Business address 3rd Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191

Qualification National Diploma Marketing and Sales

Position Managing director

Experience Jason has been involved in commercial property for 18 years working as a corporate broker and private investor. He spent 13 years at JHI heading the broking division. Since 2008 he has been involved in building a private portfolio. In April 2010 he joined Lodestone as head of the industrial portfolio. He was appointed managing director in February 2014.

Name and age Inge Frances Pick (35)


Qualification BCom (Acc), BCom (Hons)(Acc), CA(SA)

Position Financial director

Experience Inge completed her articles with Deloitte and was seconded to the Deloitte New York office for two years. Upon her return, she was promoted to senior manager at Deloitte. Inge joined the Resilient group in 2009 holding the position of financial manager and company secretary of Pangbourne Properties Limited (“Pangbourne”). She was involved in the Pangbourne – Capital Property Fund (“Capital”) merger and was subsequently appointed as the financial manager and company secretary of Capital. She was involved in the internalisation of Capital and was the financial manager and company secretary of Capital Property Fund Limited until her appointment as the financial director of Lodestone in October 2014.

Name and age Gidon Trope (34)


Qualification BSc (Property)

Position Executive director

Experience Gidon started his career at Broll in the retail leasing and development division specifically focusing on retail leasing of new and existing developments in South Africa as well as in several African countries including Ghana, Nigeria, Tanzania, Zambia and Namibia. Gidon later joined Retail Africa as a senior leasing manager working on a number of new convenience and community retail centres in and around South Africa. From June 2010 Gidon has been responsible for Lodestone’s retail portfolio.

Name and age Herman Allan Zolty (34)


Qualification BSc (Property)

Position Executive director

Experience Since completing his degree at UCT in 2001, Herman has been involved in various sectors of the property industry. His experience ranges from property management to valuations and finance. His primary role at Lodestone since June 2010 was to lead the company’s acquisition and disposal strategy.

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Name and age Craig Brabazon Hallowes (45)


Qualification BA, LLB, ILPA-CPF, LLM (Taxation), MBA (with distinction)

Position Independent non-executive director

Experience Prior to listing and then joining Rockcastle Global Real Estate Company Limited as chief executive officer, Craig was the managing director of Siyathenga Property Fund Limited, an executive director of Pangbourne and Property Fund Managers Limited, the management company of Capital and was actively involved in the turnaround of both Capital and Pangbourne. Craig is currently a director of Grindrod Index Tracker Managers Proprietary Limited. Craig worked at Bowman Gilfillan Attorneys, qualified as an attorney and practiced for a number of years, concentrating on the fields of commerce and litigation. He then joined Investec and Investec Asset Management where he held various managerial positions. Craig is an executive director of Fortress.

Name and age Annalese Lucille Manickum (50)


Qualification National Diploma Financial Accounting, South African Institute of Management (SAIM) – Business Management/Property Development Programme (PDP)

Position Independent non-executive director (Chairman)

Experience Annalese is currently the managing member of Prominent Properties CC, which undertakes property management, property development and consulting for JSE-listed clients. She was previously a senior portfolio manager at JHI Real Estate Limited. Annalese has more than 18 years experience in the property industry, representing clients including the Public Investment Corporation, Cenprop, Capital and UAL. Annalese has broad experience in financial and property-related fields.

Name and age Ndhlabole Shongwe (50)


Qualification BAdmin and BA Hons (Public Management & Development) (Cum Laude)


Experience Ndhlabole started his career in the property industry 10 years ago after a career in local government. His focus is on the retail sector and he has put together a private portfolio of properties in conjunction with some of the major role-players in the industry. He currently manages his private property portfolio, which includes site visits and attending meetings with property managers. Ndhlabole operates from his home address. For any business dealing with Lodestone, he will be based at the offices of Lodestone.

Name and age Michael Charles McNamara (51)


Qualification National Higher Diploma Civil Engineering


Experience Mike started his career with Rand Roads (a division of LTA) in 1984 as a student. In 1989 he joined Uhlmann Witthaus and Prins Consulting Engineers where he was appointed the Town Engineer of Mabopane in the then Republic of Bophuthatswana.

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In 1994 Mike started Agmac Construction cc of which he is the managing member. A wide range of projects have been completed ranging from prestigious residential homes, leisure resorts and lodges to shopping malls. For the past four years, the focus has been on the construction of shopping malls.

In 2004 Mike and his partners formed a property development company which has successfully completed a number of small developments. The company still holds interests in some of these developments.

Mike has recently registered a construction company in Nigeria which is involved in the construction of a mall in that country.

Name and age Jacques Johannes van Wyk (38)


Qualification BCompt (Honours), CA(SA)


Experience Jacques started his career with auditing and consulting at KPMG. In 2002 he joined the corporate finance division of the then Nedcor Investment Bank and left the bank after the listing of Resilient Property Income Fund Limited in 2002. Jacques is former financial director of Resilient Property Income Fund Limited, Diversified Property Fund Limted and Pangbourne. He currently manages a private investment portfolio. Jacques operates from his home address. For any business dealing with Lodestone, Jacques will be based at the office of Lodestone.

All of the directors are South African nationals.

2.2 Directors of major subsidiaries

2.2.1 The company has two subsidiaries, further details of which are set out in Annexure 2.

2.2.2 The directors of the subsidiaries are Jason Cooper, Inge Pick, Gidon Trope and Herman Zolty.

2.2.3 The full names, ages, business addresses, qualifications, capacities and positions of Jason Cooper, Inge Pick, Gidon Trope and Herman Zolty are set out in paragraph 2.1 above.

2.3 Lodestone advisors and company secretary

2.3.1 The names and business addresses of the company’s advisors are set out in the “Corporate Information” section.

2.3.2 Leonie Gindan is the company secretary whose name and business address are set out in the “Corporate Information” section. Leonie obtained a diploma in computer science from Boston City Campus in 1997.

2.3.3 The company’s advisors and the company secretary do not have any interests in Lodestone shares, other than as disclosed in Annexure 3.

2.4 Additional information related to the directors

2.4.1 Annexure 3 contains the following additional information in respect of the directors:

2.4.1.1 directors’ emoluments;

2.4.1.2 borrowing powers of the group exercisable by the directors;

2.4.1.3 interests in shares and transactions;

2.4.1.4 interests of directors and promoters; and

2.4.1.5 directors’ declarations.

2.4.2 Annexure 4 contains details of directors’ other directorships and partnerships in the previous five years.

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2.4.3 The salient terms of the service contracts of the executive directors are set out in Annexure 5. All employees of the Lodestone group, including the executive directors, are employed via the main operating subsidiary of the group, being Lodestone Investments.

2.4.4 The provisions of the MOI with regard to the following are set out in Annexure 6:

2.4.4.1 powers of the company;

2.4.4.2 issue of shares and variation of rights;

2.4.4.3 votes of shareholders;

2.4.4.4 shareholder resolutions;

2.4.4.5 composition and powers of the board of directors;

2.4.4.6 directors’ compensation and financial assistance;

2.4.4.7 borrowing powers; and

2.4.4.8 distributions.

2.5 Asset management

The asset management function of the group is undertaken internally by its executive management, who are very experienced in this regard, who will implement the company’s investment and growth strategy as described in paragraph 3.2 below. Part of the asset management role of the executive management of Lodestone is to seek new investment opportunities for the company, to consider ways of optimising the performance of existing assets and, where necessary, to work on the disposal of assets which no longer contribute to the company’s income growth strategy.

2.6 Property management

The property management function of the group, which relates to multi-tenanted properties, is outsourced on market-related terms to Broll, JHI and RMS, further details of which are set out in Annexure 8. All internally managed properties are single tenanted.

2.6.1 Broll

2.6.1.1 Broll’s directors are K Gerber, L Michau, R Hunting, D Alcock, J Broll, R du Plooy, E Badenhorst, M Horne, H Rix, H Wallace and D MacKay.

2.6.1.2 Broll’s business address is 27 Fricker Road, Illovo, Sandton, 2196.

2.6.1.3 The shareholders of Broll are Rowmoor Investment 579 Proprietary Limited (70%), Tactical Software Systems (20%) and management (10%).

2.6.1.4 Neither Broll nor its members have any beneficial interest, direct or indirect, in relation to any property held by the Lodestone group or property to be acquired by the group nor are they contracted to become a tenant of any part of the property of the group.

2.6.1.5 Broll does not have any beneficial interest, direct or indirect, in any securities or participatory interests to be issued by the company in order to finance the acquisition of any properties.

2.6.1.6 Broll is appointed as property manager for the period from 1 July 2014 (“the commencement date”) to 30 June 2015 with effect from the commencement date.

2.6.1.7 The Broll property management agreement or, any portion thereof, will be terminated on one month’s written notice in the following circumstances:

2.6.1.7.1 in the event that the shares of Lodestone Investments are sold or Lodestone Investments selling the property or business associated with managing the property;

2.6.1.7.2 in the event of ownership and/or holding and/or control of the manager changing in a material way, unless the company has approved such change;

2.6.1.7.3 in the event of the company disposing of any property managed under the Broll property management agreement. In this regard cession of Broll’s services and remuneration pertaining to that property will be subject to one month’s written notice.

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2.6.1.8 Broll’s functions as property manager includes, inter alia, the letting of properties, preparation of leases, preparation of invoices, monthly statements and rent rolls, the distribution of monthly invoices and statements, the collection of all amounts due by tenants, maintenance of financial and operational controls, balances and reconciliations, compilation of monthly management reports, manage budgeted disbursements, credit control for and in respect of the properties managed by it, reports, the management of legal matters, the compilation of financial reports and budgets, liaison with local authorities, maintenance of insurance, receipting of all income and tenant deposits, maintenance of books of account and compliance with the Occupational Health and Safety Act, 1993.

2.6.2 JHI

2.6.2.1 JHI’s directors are JE Wellsted, M van der Walt and NNN Radebe.

2.6.2.2 JHI’s business address is Norwich Place East, 2 Norwich Close, Sandton, South Africa, 2010.

2.6.2.3 JHI is a wholly owned subsidiary of Excellerate Property Services Proprietary Limited (formerly Nervada Trading Proprietary Limited).

2.6.2.4 Neither JHI nor its directors have any beneficial interest, direct or indirect, in relation to any property held by the Lodestone group or property to be acquired by the group nor are they contracted to become a tenant of any part of the property of the group.

2.6.2.5 JHI does not have any beneficial interest, direct or indirect, in any securities or participatory interests to be issued by the company in order to finance the acquisition of any properties.

2.6.2.6 JHI is appointed as property manager for the period from 1 September 2014 (“the commencement date”) to 1 September 2016 and thereafter for an indefinite period, terminable on three calendar months’ written notice by either JHI or Lodestone Investments.

2.6.2.7 JHI’s functions as property manager includes, inter alia, the compiling of budgets, the dispatching of tax invoices and the collection of income, the monitoring of arrears in rentals, the collection of debt and outstanding arrears, the management of and adherence to legal processes, the assessment of prospective tenants, lease management, leasing, compliance with the Occupational Health and Safety Act, 1993, maintenance, procurement, project management, the drafting of service level agreements, the appointment of sub-contractors, account payments, compiling reports and control procedures.

2.6.3 RMS

2.6.3.1 RMS’ directors are WH Ward and BW Kaiser.

2.6.3.2 RMS’ business address is 2969 William Nicol Drive, Sandton, 2012.

2.6.3.3 RMS is a wholly owned subsidiary of RMS Corporate Solutions Proprietary Limited.

2.6.3.4 Neither RMS nor its members have any beneficial interest, direct or indirect, in relation to any property held by the Lodestone group or property to be acquired by the group nor are they contracted to become a tenant of any part of the property of the group.

2.6.3.5 RMS does not have any beneficial interest, direct or indirect, in any securities or participatory interests to be issued by the company in order to finance the acquisition of any properties.

2.6.3.6 RMS is appointed as property manager for the period from 1 July 2014 (“the commencement date”) for a period of three years.

2.6.3.7 The RMS property management agreement will be terminated on one month’s written notice in the following circumstances:

2.6.3.7.1 in the event that the ownership in Lodestone Investments, or the executive management of the company, is changed, or the existing shareholders sell their shares in Lodestone Investments, or Lodestone Investments selling the properties or the business associated with managing the property, or any portion thereof;

2.6.3.7.2 in the event of ownership and/or holding and/or control of the manager changing in a material way, unless the company has approved such change;

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2.6.3.7.3 in the event of the company disposing of any property managed under the RMS property management agreement. In this regard cession of RMS’ services and remuneration pertaining to that property will be subject to one month’s written notice.

2.6.3.8 RMS’ functions as property manager includes, inter alia, the letting of properties, preparation of leases, preparation of invoices, monthly statements and monthly reports, the collection of all amounts due by tenants, credit control, repairs, the management of all legal matters pertaining to the properties, the compilation of financial reports and budgets, liaison with local authorities, maintenance of insurance, receipting of all income and tenant deposits, maintenance of books of account and compliance with the Occupational Health and Safety Act, 1993.

3. HISTORY, STATE OF AFFAIRS AND PROSPECTS OF THE GROUP

3.1 History of Lodestone

Lodestone is an opportunistic property holding and investment company that was established to invest in property assets through the ownership or lease of immovable property in South Africa and abroad with a balanced strategy of investing in industrial, retail, residential and commercial properties directly and through the holding of property securities.

There was an understanding between Fortress and Lodestone that Fortress had a right of first refusal over any potential acquisitions identified by Lodestone. This right of first refusal was cancelled with effect from 1 December 2014.

The historical trading results of the company are set out in Annexure 13.

The company undertakes asset management of its investment properties and property letting enterprises internally. Each of the subsidiaries has been established to carry on business as an investment property holding and letting enterprise.

3.2 Investment and growth strategy

The company’s primary objective is to identify value-enhancing opportunities within the commercial, industrial, residential and retail sectors via direct property and listed equity investments, both locally and abroad, to create a stable and diverse portfolio of assets capable of generating secure and escalating free cash flows. This is achieved by its experienced and hands on management team focusing on proactive portfolio management and aggressive cost containment.

3.3 Prospects

The board of Lodestone is confident that it will deliver growth in distribution of greater than 10% for the period ending 31 March 2016 as compared to the annualised dividend for the four months ending 31 March 2015, further details of which are set out in Annexure 15. With its opportunistic ability to invest in all real estate sectors both locally and internationally, the group will be able to add significantly to its property portfolio on a yield-enhancing basis for its investors.

3.4 The existing property portfolio

Lodestone holds a diversified portfolio of 22 properties across the industrial, commercial and retail sectors. The properties are situated in areas with high growth potential. The company also invests in property securities. In this regard, the company held and subsequently disposed of securities in Rockcastle Global Real Estate Company Limited, further details of which are set out in Annexure 12 and Annexure 23.

The group’s property portfolio, valued as at 1 December 2014 in aggregate at R979 030 000, consists of 22 properties with a GLA of 170 049 m2. A detailed list of the properties comprising the property portfolio appears in Annexure 8.

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3.4.1 Analysis of the existing property portfolio

An analysis of the existing property portfolio in respect of sectoral, geographic, tenant, vacancy and lease expiry profiles as at 1 December 2014 is provided in the tables below.

3.4.1.1 Sectoral profile

By GLA By GR

Retail 36.4% 52.7%Industrial 63.6% 47.3%

Total 100.0% 100.0%

3.4.1.2 Geographic profile

By GLA By GR

Gauteng 67.9% 62.9%Northern Cape 14.1% 7.9%North West 7.8% 15.8%KwaZulu-Natal 6.0% 9.9%Limpopo 4.2% 3.5%

Total 100.0% 100.0%

3.4.1.3 Tenant profile

Based on GLA Based on GR

A 57.5% 55.1%B 25.8% 25.2%C 16.7% 19.7%

Total 100.0% 100.0%

For the tenant profile table, the following key is applicable:A. Large international and national tenants, large listed tenants and government. These

include, inter alia, Shoprite Checkers, Pick ’n Pay, Pepkor, Mr Price, Standard Bank, Edcon, Oasys Innovations Proprietary Limited, Actom Proprietary Limited, AkzoNobel Powder Coatings South Africa Proprietary Limited, Truworths, Foschini, Studio 88 and Kansai Plascon Proprietary Limited.

B. Smaller international and national tenants, smaller listed tenants, major franchisees and medium to large professional firms. These include, inter alia, Spitz, Webbers, KFC, Rage and The Crazy Store.

C. Other local tenants and sole proprietors. This comprises 178 tenants.

3.4.1.4 Lease expiry profile

Total GLA

Total GR*

Vacant – –Mar-15 – –Mar-16 25.8% 24.7%Mar-17 15.4% 22.0%Mar-18 10.9% 15.7%Mar-19 3.0% 6.1%>Mar-19 44.9% 31.5%

Total 100.0% 100.0%

*Based on existing leases at 1 December 2014.

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Retail GLA

RetailGR*

Industrial GLA

IndustrialGR*

Vacant – –Mar-15 – – – –Mar-16 15.0% 17.4% 32.0% 34.7%Mar-17 23.0% 27.2% 11.0% 14.9%Mar-18 22.0% 24.6% 4.5% 3.5%Mar-19 5.8% 9.0% 1.4% 2.1%>Mar-19 34.2% 21.8% 51.1% 44.8%

Total 100.0% 100.0% 100.0% 100.0%

*Based on existing leases at 1 December 2014.

3.4.1.5 Vacancy profile

The vacancy profile indicated below reflects the vacancy percentage in terms of current GLA by sector.

Sector Vacancy based on GLA

Retail 2.9%Industrial 3.7%

Portfolio vacancy 3.4%

*Based on existing leases at 30 June 2014 as it is not possible to forecast vacancies.

3.4.1.6 Rental escalations and rental per square metre

The annualised weighted average gross rental escalation by GLA for the year ending 31 March 2015 is presented in the table below.

Sector

Retail 7.36%Industrial 7.15%

Total 7.28%

The weighted average gross rental per square metre for the year ending 31 March 2015 is presented in the table below.

Sector R/m2

Retail 76.30Industrial 32.12

Weighted average total 48.22

The average annualised property yield of the properties (based on existing leases) at 30 June 2014 is 9.22%.

3.5 Valuation reports

3.5.1 The properties in the existing property portfolio were valued by Peter Parfitt of Quadrant Properties, who is an independent external registered professional valuer in terms of the Property Valuers Profession Act, No 47 of 2000.

3.5.2 Detailed valuation reports have been prepared in respect of each of the properties and are available for inspection as set out in paragraph 36. The summary of the valuation reports in respect of each of the properties comprising the existing property portfolio has been included in Annexure 9.

3.6 Material changes

Save for the acquisitions set out in Annexure 12, the disposals set out in Annexure 23 and the private placement contemplated in this prospectus:

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3.6.1 there have been no other material changes in the financial or trading position of the group since Lodestone published its audited financial information for the year ended 30 June 2014; and

3.6.2 there have been no other changes in the business or trading objects of Lodestone since incorporation.

3.7 Material commitments, lease payments and contingent liabilities

The company has no material commitments, lease payments and contingent liabilities.

3.8 Turnover, profit/loss and dividend history

As required in terms of Regulations 59(3)(g) and 79 of the Companies Act, particulars of the gross turnover, the profits or losses (before and after tax) and dividends paid by the Lodestone group in the preceding three periods, being the years ended 30 June 2012, 30 June 2013 and 30 June 2014 are contained in Annexure 13. The financial information presented in Annexure 13 has been extracted from the audited financial statements of the group for the years ended 30 June 2012, 30 June 2013 and 30 June 2014.

4. SHARE CAPITAL OF THE COMPANY

4.1 The authorised and issued share capital of the company as at the last practical date was as follows:

Number of shares R’000

Authorised share capitalOrdinary shares of no par value 1 000 000 000 –Issued share capitalStated capital – Ordinary shares of no par value 105 762 736 528 714

Total 105 762 736 528 714

4.2 The authorised and issued share capital of the company after the private placement and the listing is expected to be as follows:

Number of shares R’000

Authorised share capitalOrdinary shares of no par value 1 000 000 000 –Issued share capitalStated capital – Ordinary shares of no par value 129 762 736 656 599

Total 129 762 736 656 599

The table above in paragraph 4.2 assumes that the private placement is fully subscribed.

4.3 Annexure 10 contains the following salient information relating to the authorised and issued share capital:

4.3.1 authorisations;

4.3.2 alterations to share capital during the preceding three years;

4.3.3 issues and repurchases of shares in the preceding three years; and

4.3.4 statement as to listing on stock exchange.

4.4 Founders of Lodestone

Lodestone was founded by Jason Cooper, Gidon Trope, Herman Zolty and Spiro Noussis. Details of their beneficial interest in Lodestone shares are set out in paragraph 3 of Annexure 3.

4.5 Major and controlling shareholders

4.5.1 Set out below are the names of shareholders, other than the directors who, directly or indirectly, will be beneficially interested in 5% or more of the issued ordinary shares of Lodestone at the last practicable date.

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Name of shareholder Number of shares controlled Total

Percentage of issued shares

heldDirectly Indirectly

Dusty Gold Investments 4 Proprietary Limited – 11 554 579 11 554 579 10.9%

Blue Dot Properties 456 Proprietary Limited – 8 513 900 8 513 900 8.0%

Hollyrood Investments Proprietary Limited – 8 513 900 8 513 900 8.0%

Numigraph Proprietary Limited – 6 081 358 6 081 358 5.8%

Total – 34 663 737 34 663 737 32.7%

4.5.2 Set out below are the names of shareholders, other than the directors who, directly or indirectly, are expected to be beneficially interested in 5% or more of the issued ordinary shares of Lodestone immediately after the private placement and the listing.

Name of shareholder Number of shares controlled Total

Percentage of issued shares

heldDirectly Indirectly

Dusty Gold Investments 4 Proprietary Limited – 11 554 579 11 554 579 10.9%

Blue Dot Properties 456 Proprietary Limited – 8 513 900 8 513 900 8.0%

Hollyrood Investments Proprietary Limited – 8 513 900 8 513 900 8.0%

Numigraph Proprietary Limited – 6 081 358 6 081 358 5.8%

Total – 34 663 737 34 663 737 32.7%

4.5.3 As at the last practical date the company does not have a controlling shareholder and it is not anticipated that following implementation of the private placement and the listing that Lodestone will have a controlling shareholder.

5. OPTIONS AND PREFERENTIAL RIGHTS IN RESPECT OF SHARES

5.1 The company is not party to any contract or arrangement (or proposed contract or arrangement), whereby an option or preferential right of any kind is (or is proposed to be) given to any person to subscribe for any shares in the company or any subsidiary of the company.

5.2 There are no preferential conversion and/or exchange rights in respect of any of the shares.

6. COMMISSIONS PAID OR PAYABLE IN RESPECT OF UNDERWRITING

6.1 There have been no commissions paid or payable in respect of underwriting by the company in the three years preceding the date of this prospectus.

6.2 No other commissions, discounts or brokerages have been paid nor have any other special terms been granted in connection with the issue or sale of any shares in the share capital of the company, in the three years preceding the date of this prospectus.

6.3 The group is not subject to any royalty agreements and no royalties are payable by the company.

6.4 Other than the property management agreements, further details of which are set out in paragraph 2.6 above, the group is not subject to any other management agreements.

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7. MATERIAL CONTRACTS

7.1 Other than the service contracts as set out in Annexure 5, the group has not entered into any contracts relating to the directors’ and managerial remuneration, secretarial and technical fees and restraint payments.

7.2 Save for the material contracts as set out in Annexure 7, the service contracts as set out in Annexure 5 and the loan agreements as set out in Annexure 11, the group has not entered into any other material contract, being a contract entered into other than in the ordinary course of business, within the two years prior to the date of this prospectus or at any time containing an obligation or settlement that is material to the group at the date of this prospectus.

8. INTERESTS OF DIRECTORS AND PROMOTERS

Details of the directors’ and promoters’ interests in the company are set out in paragraph 3 of Annexure 3 to this prospectus.

9. LOANS AND BORROWINGS

9.1 Material loans and borrowings advanced to the group

9.1.1 Details of material loans and borrowings advanced to the group as at the last practical date are set out in Annexure 11.

9.1.2 None of the material loans and borrowings listed in Annexure 11 have any redemption or conversion rights attaching to them.

9.1.3 The company has no loan capital outstanding.

9.1.4 Other than the inter-company loans with Lodestone as set out in Annexure 2, the group has not entered into any other material inter-company financial or other transactions.

9.1.5 As at the last practical date, the group has not undertaken any off-balance sheet financing.

9.2 Material loans and borrowings advanced by the group

9.2.1 No material loans or borrowings were made by the Lodestone group as at the last practical date.

9.2.2 No loans or borrowings have been made or security furnished by the group for the benefit of any director, manager or associate of any director or manager of the group, other than loans advanced to directors to acquire shares in the company.

10. SHARES ISSUED OR TO BE ISSUED OTHER THAN FOR CASH

No shares were issued or agreed to be issued by the company or any of its subsidiaries during the past three years other than for cash.

11. PROPERTIES, ASSETS AND BUSINESS UNDERTAKINGS ACQUIRED OR TO BE ACQUIRED

11.1 Other than as disclosed in Annexure 12, no other material immovable properties and/or fixed assets and/or business undertakings have been acquired by the group within the past three years or are in the process of being or are proposed to be acquired by the group (or which the group has an option to acquire).

11.2 Details relating to the vendors of material properties (“acquisition properties”) purchased by the group in the preceding three years or proposed to be purchased are set out in paragraph 29 and Annexure 12.

12. PROMOTERS’ INTERESTS AND AMOUNTS PAID OR PAYABLE TO PROMOTERS

Details of the promoters’ interests in the company are set out in paragraph 4 of Annexure 3. There were no amounts paid, accrued to be paid or proposed to be paid to any promoter in the three years preceding the date of this prospectus.

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13. PRELIMINARY EXPENSES AND ISSUE EXPENSES

The preliminary and issue expenses (excluding VAT) relating to the private placement and the listing which have been incurred or that are expected to be incurred by the group are presented in the table below:

Expense Recipient R’000

Corporate advisory and designated advisor fees Java Capital 3 500Independent reporting accountants’ fees Deloitte & Touche 546Competition Commission fees Competition Commission 350Takeover Regulations Panel fee Takeover Regulations Panel 165Legal and tax advisor fees Cliffe Dekker Hofmeyr 100Transfer secretarial fees Link Market Services 55JSE listing fees JSE 19JSE REIT status application fee JSE 12JSE REIT new listing document fee JSE 7JSE documentation inspection fee JSE 58JSE fees for review of the MOI JSE 7Press announcements, printing and marketing Ince 260Contingency costs Other 171

Total 5 250

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SECTION TWO – DETAILS OF THE PRIVATE PLACEMENT

14. PURPOSES OF THE PRIVATE PLACEMENT AND THE LISTING

14.1 The main purposes of the private placement and the listing are to:

14.1.1 provide investors, both institutional and private, with an opportunity to participate over the long term in the income streams and future capital growth of the group;

14.1.2 enhance the liquidity and tradability of the shares;

14.1.3 provide the group with a platform to raise equity funding to pursue growth and investment opportunities in the future; and

14.1.4 enhance the public profile and general public awareness of Lodestone.

14.2 The main purposes of this prospectus are to:

14.2.1 provide investors with relevant information relating to the group and the proposed listing on the AltX of the JSE;

14.2.2 communicate the strategy and the objectives of Lodestone; and

14.2.3 set out the salient details of the private placement and the procedure for participating therein.

14.3 The proceeds of the private placement will be used by Lodestone to settle interest-bearing debt and strengthen the balance sheet for ongoing investment activities.

15. SALIENT DATES AND TIMES

2015

Opening date of the private placement on (09:00) Wednesday, 11 February

Closing date of the private placement on (12:00) Friday, 13 February

Results of the private placement released on SENS on Monday, 16 February

Notification of allotments to successful invited investors on or from Monday, 16 February

Accounts at CSDP or broker updated and debited in respect of dematerialised shareholders on Wednesday, 25 February

Listing of shares and the commencement of trading on the JSE on (09:00) Wednesday, 25 February

The dates and times in this prospectus are subject to change and any changes will be communicated on SENS.

16. PARTICULARS OF THE PRIVATE PLACEMENT

16.1 Details of the private placement

16.1.1 Lodestone intends to raise up to R122.4 million by way of an offer for subscription to invited investors for up to 24 million private placement shares in the company at an issue price of R5.10 per private placement share.

16.1.2 The private placement shares issued in terms of this prospectus will be allotted subject to the provisions of the MOI and will rank pari passu in all respects including distributions, with all existing issued shares in the company.

16.1.3 There are no convertibility or redemption provisions relating to any shares.

16.1.4 The private placement shares will only be issued in dematerialised form. There will be no certificated private placement shares issued.

16.1.5 There will be no fractions of private placement shares offered in terms of the private placement.

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16.2 Conditions to the listing

16.2.1 The listing is subject to the company maintaining a spread of public shareholders acceptable to the JSE at the point of listing on the AltX being public shareholders holding not less than 10% of the issued share capital of the company to ensure reasonable liquidity.

16.2.2 If the condition precedent fails, the private placement and any acceptance thereof shall not be of any force or effect and no person shall have claim whatsoever against Lodestone or any other person as a result of the failure of any condition.

16.3 Procedures for acceptance

16.3.1 The private placement is open to invited investors only.

16.3.2 Invited investors are to provide Java Capital, the bookrunner, with their completed application form by 12:00 on Friday, 13 February 2015. Invited investors will be informed of their allocated private placement shares, if any, on or from Monday, 16 February 2015. Invited investors must make the necessary arrangements to enable their CSDP or broker, as the case may be, to make payment for the allocated private placement shares on settlement date. The allocated private placement shares will be transferred, on a “delivery-versus-payment” basis, to successful applicants on the settlement date, which is expected to be Wednesday, 25 February 2015.

16.3.3 The following parties may not participate in the private placement:

16.3.3.1 any person who may not lawfully participate in the private placement; and/or

16.3.3.2 any investor who has not been invited to participate; and/or

16.3.3.3 any person acting on behalf of a minor or deceased estate.

16.3.4 No applications will be accepted after 12:00 on Friday, 13 February 2015. Monday, 16 February 2015 will be reserved for auditing the applications.

16.3.5 Applications submitted by invited investors are irrevocable and may not be withdrawn once received by Java Capital.

16.3.6 Application forms must be completed in accordance with the provisions of this prospectus and the instructions contained in the application form, which is attached to this prospectus.

16.3.7 Copies or reproductions of the application form will be accepted at the discretion of the directors of the company.

16.3.8 Any alterations on the application form must be authenticated by full signature.

16.3.9 Receipts will not be issued for applications, application monies or supporting documents received.

16.3.10 Each application will be regarded as a single application.

16.3.11 Other than as detailed in the application form, no documentary evidence of capacity to apply needs to accompany the application form, but the company reserves the right to call upon any applicant to submit such evidence for noting, which evidence will be held on file with the company or the transfer secretaries or returned to the applicant at the applicant’s risk.

16.3.12 The directors of the company reserve the right to accept or refuse any applications, either in whole or in part, or to abate any or all applications (whether or not received timeously) in such manner as they may, in their sole and absolute discretion, determine.

16.4 Issue and allocation of private placement shares

16.4.1 All shares subscribed for in terms of this prospectus will be issued at the expense of Lodestone.

16.4.2 It is intended that notice of the allocations will be given on or from Monday, 16 February 2015.

16.4.3 Successful applicants’ accounts with their CSDP or broker will be credited with the allocated private placement shares on the settlement date being Wednesday, 25 February 2015, on a “delivery-versus-payment” basis.

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16.5 Payment and delivery of shares

16.5.1 No payment should be submitted with the application form delivered to the bookrunner, Java Capital. Applicants must make the necessary arrangements to enable their CSDP or broker to make payment for the allocated private placement shares on the settlement date, which is expected to be Wednesday, 25 February 2015, in accordance with each applicant’s agreement with their CSDP or broker.

16.5.2 The allocated private placement shares will be transferred, on a “delivery-versus-payment” basis, to successful applicants on the settlement date, which is expected to be Wednesday, 25 February 2015.

16.5.3 The applicant’s CSDP or broker must commit to Strate to the receipt of the applicant’s allocation of private placement shares against payment on Wednesday, 25 February 2015.

16.5.4 On the settlement date, the applicant’s allocation of private placement shares will be credited to the applicant’s CSDP or broker against payment during the Strate settlement runs, prior to the opening of the market.

16.5.5 The CSDP or broker concerned will receive and hold the dematerialised private placement shares on the applicants’ behalf.

16.5.6 In the event that the listing does not proceed, the shares will not be issued to investors and no funds will be transferred to the company.

16.6 Representation

Any invited investor applying for or accepting the private placement shares in the private placement shall be deemed to have represented to Lodestone that such investor was in possession of a copy of this prospectus at that time. Any party applying for or accepting private placement shares on behalf of another investor shall be deemed to have represented to Lodestone that they are duly authorised to do so and warrant that they and the purchaser for whom they are acting as agent is duly authorised to do so in accordance with all relevant laws and such investor guarantees the payment of the issue price and that a copy of this prospectus was in the possession of such investor for whom they are acting as agent.

16.7 Applicable law

The private placement, applications, allocations and acceptances will be exclusively governed by the laws of South Africa and each invited investor will be deemed, by applying for shares, to have consented and submitted to the jurisdiction of the courts of South Africa in relation to all matters arising out of or in connection with the private placement.

16.8 Strate

16.8.1 Shares may be traded only on the JSE in electronic form (as dematerialised shares) and will be trading for electronic settlement in terms of Strate immediately following the listing.

16.8.2 Strate is a system of “paperless” transfer of securities. If you have any doubt as to the mechanics of Strate please consult your broker, CSDP or other appropriate adviser and you are referred to the Strate website (www.strate.co.za).

16.8.3 Some of the principal features of Strate are:

16.8.3.1 electronic records of ownership replace certificates and physical delivery of certificates;

16.8.3.2 trades executed on the JSE must be settled within five business days;

16.8.3.3 all investors owning dematerialised shares or wishing to trade their securities on the JSE are required to appoint either a broker or a CSDP to act on their behalf and to handle their settlement requirements; and

16.8.3.4 unless investors owning dematerialised shares specifically request their CSDP to register them as an “own name” holder (which entails a fee), their respective CSDP’s or broker’s nominee company holding shares on their behalf, will be the holder (member) of the relevant company and not the investor. Subject to the agreement between the investor and the CSDP or broker (or the CSDP’s or broker’s nominee company), generally in terms of the rules of Strate, the investor is entitled to instruct the CSDP or broker (or the CSDP’s or broker’s nominee company), as to how it wishes to exercise the rights attaching to the shares and/or to attend and vote at shareholder meetings.

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16.9 Pre-commitments

As at the last practicable date, there are no pre-commitments.

16.10 Over-subscription

16.10.1 There is no maximum number of shares that can be subscribed for and/or purchased in terms of the private placement per applicant.

16.10.2 In the event of an over-subscription, the board shall, in its sole discretion, determine an appropriate allocation mechanism, such that the private placement shares will be allocated on an equitable basis, as far as reasonably possible taking into account the spread requirements of the JSE, the liquidity of the shares and considering the potential shareholder base that the board wishes to achieve and whether or not the board considers it appropriate to grant preferential allocation to any applicant or group of applicants.

16.10.3 Depending upon the level of demand, invited investors may receive no private placement shares or fewer than the number of private placement shares applied for. Any dealing in shares prior to delivery of the private placement shares is entirely at the invited investor’s own risk.

16.11 Simultaneous issues

No shares of the same class are issued or to be issued simultaneously or almost simultaneously with the issue of shares for which application is being made.

16.12 Underwriting

The private placement will not be underwritten.

16.13 Previous issues of securities for cash

16.13.1 The company did not issue any securities for cash during the three years immediately preceding the date of the prospectus, other than in terms of the capital restructure.

16.13.2 The company did not issue any securities for a premium during the three years immediately preceding the effective date.

17. MINIMUM SUBSCRIPTION

The listing is not conditional on raising a minimum amount in terms of the private placement, however, shareholders are advised that applications in terms of the private placement must be for a minimum of 5 000 ordinary shares.

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SECTION THREE – FINANCIAL INFORMATION

18. ADEQUACY OF CAPITAL

The directors of the company are of the opinion that the issued capital of the group and the working capital available to the group is adequate for the purposes of the business of the group, for at least the next 12 months from the date of issue of this prospectus.

19. REPORT BY DIRECTORS AS TO MATERIAL CHANGES

Save for the acquisitions and disposals as set out in Annexure 12 and Annexure 23 respectively and the private placement contemplated in this prospectus, there have been no other material changes in the assets or liabilities of the company or any subsidiary between the financial statements of 30 June 2014 of the company, or from the financial year ended 30 June 2014 for any subsidiary of the company, being the latest reported period and the date of this prospectus.

20. STATEMENT AS TO LISTING ON STOCK EXCHANGE

Subject to the company maintaining a spread of public shareholders acceptable to the JSE at the point of listing on the AltX being public shareholders holding not less than 10% of the issued share capital of the company to ensure reasonable liquidity, the JSE has granted Lodestone approval for the listing of up to 129 762 736 ordinary shares in the “Diversified REIT’s” sector on the AltX of the JSE, in terms of the FTSE classification, under the abbreviated name: “Lodestone”, JSE share code: LDO and ISIN: ZAE000197935. It is anticipated that the listing will be effective as from the commencement of trade of the JSE on Wednesday, 25 February 2015.

21. REPORT BY AUDITOR OF THE LODESTONE GROUP

In terms of Regulation 79 of the Companies Act, the auditor is required to prepare a report on the profits and losses, dividends and assets and liabilities of Lodestone and the Lodestone group in respect of each of the three financial years immediately preceding the issue of the prospectus. In this regard Annexure 13 and Annexure 14 of this prospectus sets out the financial information and the auditor’s report in respect of the financial information.

22. FORECAST STATEMENTS OF COMPREHENSIVE INCOME

22.1 The forecast statements of comprehensive income of the Lodestone group (“forecasts”) for the nine months ending 31 March 2015 and the year ending 31 March 2016 are presented in Annexure 15.

22.2 The forecasts, including the assumptions on which they are based and the financial information from which they are prepared, are the responsibility of the directors. The forecasts must be read in conjunction with the independent reporting accountants’ assurance report on the forecasts which is presented in Annexure 16.

22.3 The forecasts have been prepared in compliance with IFRS and in accordance with the group’s accounting policies as set out in Annexure 22.

23. CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL POSITION

23.1 The consolidated pro forma statement of financial position of the Lodestone group is presented in Annexure 17.

23.2 The consolidated pro forma statement of financial position, including the assumptions on which it is based and the financial information from which it is prepared, are the responsibility of the directors. The independent reporting accountants’ assurance report on the consolidated pro forma statement of financial position of the group is presented in Annexure 18.

23.3 The independent reporting accountants’ review conclusion on the value and existence of the assets and liabilities acquired by the group is set out in Annexure 19.

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24. HISTORICAL FINANCIAL INFORMATION

24.1 The audited historical financial information for Lodestone for the year ended 30 June 2014 is presented in Annexure 20.

24.2 The auditors’ report in terms of Regulation 79 of the Companies Regulations is presented in Annexure 14.

24.3 The compilation, contents and presentation of all the historical financial information is the responsibility of the directors. The independent reporting accountants’ report on the historical financial information of Lodestone is presented in Annexure 21.

25. DIVIDENDS AND DISTRIBUTIONS

25.1 Save for the dividends declared by the company and Lodestone Investments on 30 June 2014, further details of which are set out in Annexure 13 and the clean out distribution up to 30 November 2014 as set out in paragraph 1.4.7 of Annexure 7, no dividends have been declared by Lodestone or any of the subsidiaries to date.

25.2 It is the directors’ intention to declare bi-annual dividends, which are expected to be declared for the periods ending 31 March and 30 September. These dividends will be payable by the beginning of June and December respectively.

25.3 Any dividends remaining unclaimed for a period of three years from the declaration date thereof may be forfeited by resolution of the directors for the benefit of Lodestone.

25.4 There are no arrangements in terms of which future dividends distributions are waived or agreed to be waived.

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SECTION FOUR – ADDITIONAL MATERIAL INFORMATION

26. RELATIONSHIP INFORMATION

26.1 The directors of Lodestone, the directors of its subsidiaries and the promoters, did not have any beneficial interests, direct or indirect, in relation to any property held or property to be acquired by the group nor are they contracted to become a tenant of any part of the property of the group.

26.2 There is no relationship between any parties mentioned in paragraph 2 of the prospectus and another person that may conflict with a duty to the group.

26.3 Neither the property managers, nor its directors have any beneficial interest, direct or indirect, in any securities or participatory interests to be issued by the company.

26.4 Save as disclosed in respect of the acquisitions set out in Annexure 12, the vendors did not have any beneficial interest, direct or indirect, in any securities or participatory interests to be issued by the company.

26.5 The directors of Lodestone, the directors of its subsidiaries and the promoters did not have any material beneficial interest in the acquisition or disposal of any properties or investments of the company during the two years preceding the date of the valuation of such properties being 1 December 2014, other than as disclosed in Annexure 23.

27. CONSIDERATIONS RELATING TO LODESTONE BEING APPROVED AS A REIT

27.1 The JSE has granted Lodestone a listing of all its issued ordinary shares in the “Diversified REIT’s” sector on the AltX of the JSE lists, in terms of the “FTSE classification”.

27.2 With effect from 1 April 2013 a unified system was created for taxing REITs.

27.3 The new legislation has been drafted in line with international norms on the basis that the objective of a REIT is to provide investors with a steady rental stream whilst also providing capital growth that flows from the investment in the underlying property.

27.4 In order to qualify as a REIT for tax purposes, the entity must be a South African tax resident and its securities must be listed on the JSE as securities in a REIT.

27.5 A REIT is entitled to claim a deduction in respect of all qualifying distributions made by it either in the form of dividends or as interest on the debenture portion of a linked unit. The deduction does not apply to any dividends in the form of share buybacks. In order to become a REIT, a qualifying distribution of at least 75% of the gross income received by or accrued to a REIT must consist of rental income. The concept of rental income is not only defined with reference to amounts received or accrued in respect of the use of immovable property such as rental, but also:

27.5.1 a penalty or interest in respect of the late payment of rentals;

27.5.2 a dividend from a company that is a REIT at the time of the distribution of the dividend;

27.5.3 a qualifying distribution from a controlled company; or

27.5.4 a dividend from a property company.

27.6 By being able to claim a deduction in respect of these qualifying distributions, the tax liability of a REIT is expected to be minimal.

27.7 The consequence of being able to claim a deduction in respect of qualifying distributions is that the dividends distributed by a REIT to resident shareholders will be subject to normal tax and will not be exempt. However, no additional dividends tax will be payable in respect of these distributions which are subject to income tax. With effect from 1 January 2014, dividends that are distributed by a REIT to foreign shareholders are subject to dividends withholding tax.

27.8 The tax dispensation that applies to REITs also applies to so-called controlled companies. A controlled company is a company that is a subsidiary of a REIT as defined in terms of IFRS. In other words, the requirement is to be determined from an IFRS perspective and not from a company law perspective. For instance, a company can be a subsidiary of a trust in certain circumstances. The effect is that a controlled company can make deductible distributions to the REIT for so long as the 75% rental test is satisfied.

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27.9 A second category of companies that is relevant for a REIT is that of a property company. This is a company in which 20% or more of the equity share or linked units are held by a REIT or a controlled company and of which at the end of such previous year of assessment 80% or more of the value of the assets, as reflected in the annual financial statements of such property company for the previous year of assessment is, directly or indirectly, attributable to immovable property. Even though this type of entity is not entitled to deduct distributions, the distributions so received by a REIT from a property company will qualify as rental income if the property company has made distributions in circumstances where it satisfies the 75% rental test.

27.10 Pursuant to being classified as a REIT for tax purposes, capital gains or losses that arise in respect of the disposal by a REIT or a controlled company of the following assets are to be ignored for capital gains tax purposes:

27.10.1 immovable property;

27.10.2 a share or a linked unit in a company that is a REIT at the time of the disposal; or

27.10.3 a share or a linked unit in a company that is a property company at the time of the disposal.

27.11 It is important to note that speculative transactions are still taxable.

27.12 The aggregate amount of the deductions that can be claimed by a REIT in respect of a qualifying distribution may not exceed the taxable income for that year of assessment of that REIT or the relevant controlled company, before taking into account:

27.12.1 any deduction of an amount as envisaged in section 25BB of the Income Tax Act;

27.12.2 any assessed loss brought forward in terms of section 20 of the Income Tax Act; and

27.12.3 the amount of taxable capital gain included in taxable income in terms of section 26A of the Income Tax Act.

27.13 Any amount received by or accrued to a REIT or a controlled company in respect of a financial instrument must now be included in the income of the relevant company, whether or not the financial instrument may have been held on capital account. However, this deeming provision does not apply to the disposal of a share or a linked unit in a company that is a REIT, a controlled company, or a property company on the date of disposal.

27.14 Both the acquisition and disposal of shares in a REIT are exempt from the payment of securities transfer tax.

28. PROPERTIES, ASSETS AND BUSINESS UNDERTAKINGS DISPOSED OF OR TO BE DISPOSED OF

Other than as disclosed in Annexure 23, no other material immovable properties and/or fixed assets and/or business undertakings have been disposed of in the three years preceding the last practical date or are intended to be disposed of within six months of listing on the JSE.

29. VENDORS

29.1 Details relating to the vendors of material properties (“acquisition properties”) purchased by the group in the preceding three years or proposed to be purchased are set out in Annexure 12.

29.2 The vendors of the acquisition properties have not guaranteed the book debts of the letting enterprises acquired or to be acquired by the group. The agreements entered into governing the acquisition of the acquisition properties contain warranties which are usual for transactions of this nature.

29.3 The agreements entered into between the company and each of the vendors of the acquisition properties do not preclude the vendors of the acquisition properties from carrying on business in competition with the company nor do the agreements impose any other restrictions on the vendors of the acquisition properties and therefore no payment in cash or otherwise has been made in this regard.

29.4 There are no liabilities for accrued taxation that will be settled in terms of agreements with vendors of the acquisition properties.

29.5 Save as disclosed in respect of the acquisitions set out in Annexure 12, Lodestone has not purchased any securities in any company.

29.6 No promoter or director (or any partnership, syndicate or other association in which a promoter or director had an interest) had any beneficial interest, direct or indirect in any transaction relating to any of the assets detailed in Annexure 12 and Annexure 23.

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29.7 No cash or securities have been paid or any benefit given within the three preceding years of this prospectus or is proposed to be paid or given to any promoter (not being a director).

29.8 Other than those acquisitions referred to in Annexure 12, all of the assets acquired have been transferred into the name of the group. The assets referred to in Annexure 12 have not been ceded or pledged to any party. However, the assets referred to in Annexure 12 have been provided as security for borrowings as set out in Annexure 11.

30. GOVERNMENT PROTECTION AND INVESTMENT ENCOURAGEMENT LAW

There is no government protection or any investment encouragement law pertaining to any of the businesses operated by the group.

31. EXCHANGE CONTROL REGULATIONS

The following summary is intended as a guide and is, therefore, not comprehensive. If you are in any doubt hereto, please consult your professional advisor.

31.1 Emigrants from the common monetary area

31.1.1 A former resident of the common monetary area who has emigrated from South Africa may use blocked Rands to purchase shares in terms of the private placement.

31.1.2 All payments in respect of subscriptions for placement shares by emigrants using blocked Rands must be made through an authorised dealer in foreign exchange.

31.1.3 Statements issued to dematerialised shareholders will be restrictively endorsed as “NON-RESIDENT”.

31.1.4 If applicable, refund monies in respect of unsuccessful applications, emanating from blocked Rand accounts, will be returned to the authorised dealer administering such blocked Rand accounts for the credit of such applicant’s blocked Rand account.

31.1.5 No residents of the common monetary area may, either directly or indirectly, be permitted to receive an allocation as employees of any offshore subsidiaries.

31.2 Applicants resident outside the common monetary area

31.2.1 A person who is not resident in the common monetary area should obtain advice as to whether any government and/or legal consent is required and/or whether any other formality must be observed to enable an application to be made in terms of the private placement.

31.2.2 This prospectus is accordingly not a placement in any area or jurisdiction in which it is illegal to make such a placement. In such circumstances this prospectus is provided for information purposes only. Statements issued to dematerialised shareholders will be restrictively endorsed as “NON-RESIDENT”.

32. CORPORATE GOVERNANCE

The board has set out the corporate governance statement in Annexure 24.

33. LITIGATION STATEMENT

There are no legal or arbitration proceedings, including any proceedings that are pending or threatened, of which Lodestone is aware, that may have or have had in the recent past, being the previous 12 months, a material effect on the group’s financial position.

34. DIRECTORS’ RESPONSIBILITY STATEMENT

The directors, whose names are given in paragraph 2.1.1 of this prospectus, collectively and individually, accept full responsibility for the accuracy of the information given herein and certify that, to the best of their knowledge and belief, no facts have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this prospectus contains all information required by law and the Listings Requirements.

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35. CONSENTS

Each of the corporate advisor and bookrunner, the designated advisor, independent reporting accountant and auditor, the attorneys, the independent property valuer, the bankers, the transfer secretaries and the company secretary have consented in writing to act in the capacities stated and to their names appearing in this prospectus and have not withdrawn their consent prior to the publication of this prospectus.

The independent reporting accountant, auditor and the independent property valuer have consented to the inclusion of their reports in the form and context in which they are included in the prospectus, which consents have not been withdrawn prior to the publication of this prospectus.

36. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the company’s registered office and from the company’s designated advisor during business hours from date of issue of the prospectus up to and including Wednesday, 25 February 2015:

36.1 the signed prospectus;

36.2 the MOI;

36.3 the material contracts set out in Annexure 7;

36.4 the property management agreements;

36.5 the summary valuation report prepared by the independent property valuer as set out in Annexure 9;

36.6 the detailed valuation reports prepared by the independent property valuer;

36.7 the service contracts of directors as set out in Annexure 5;

36.8 the letters of consent referred to in paragraph 35 above;

36.9 the signed reports by the independent reporting accountant and auditor the contents of which are set out in Annexure 14, Annexure 16, Annexure 18, Annexure 19 and Annexure 21;

36.10 the audited financial statements of the Lodestone group indicating the years ended 30 June 2014, 30 June 2013 and 30 June 2012; and

36.11 the written resolutions of the company.

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SECTION FIVE – INAPPLICABLE OR IMMATERIAL MATTERS

37. INAPPLICABLE OR IMMATERIAL MATTERS

The following paragraphs of the Companies Act Regulations dealing with the requirements for a prospectus are not applicable to this prospectus:

37.1 Regulation 59(2)(a);

37.2 Regulation 77;

37.3 Regulation 78; and

37.4 Regulation 80.

Signed in Johannesburg by Inge Pick on her behalf and on behalf of all of the directors of the company on 29 January 2015 in terms of powers of attorney granted by them.

___________________________________Inge Pick

___________________________________For: Jason Cooper, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Gidon Trope, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Herman Zolty, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Annalese Manickum, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Michael McNamara, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Ndhlabole Shongwe, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 26 January 2015

___________________________________For: Jacques van Wyk, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January 2015

___________________________________For: Craig Hallowes, a director, herein represented by Inge Pick under and in terms of a power of attorney executed on 27 January

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Annexure 1

GROUP STRUCTURE

LODESTONE REIT LIMITED

Lodestone Investments Proprietary Limited

Lodestone Investments 2 Proprietary Limited

Investment Properties Investment Properties

100% 100%

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Annexure 2

DETAILS OF SUBSIDIARIES

The following table contains a list, as at the date of this prospectus, of the subsidiary undertakings of the company.

Name of subsidiary and nature of business

Date and place of

incorporationRegistration

number

Issued share

capital (R)

% held

Inter-company loan owing

(to)/by Lodestone

as at last practical date

(R)

Date of becoming

a subsidiary

1. Lodestone Investments Proprietary Limited (formerly Brodsky Trading 299 Proprietary Limited)Property investment

7 December 2005

South Africa

2005/043144/07 100 100 (5 032 426.53) 31 August 2010

2. Lodestone Investments 2 Proprietary Limited (formerly Intshebe Props 112 Proprietary Limited)Property investment

10 December 2008

South Africa

2008/029004/07 100 100 (13 235 697.54) 31 August 2010

All subsidiaries are incorporated in South Africa and are not listed on any stock exchange.

The amounts owing by/to subsidiaries are unsecured and bear interest at rates agreed from time to time and the terms of the repayment have not been determined. The directors do not intend to demand payment within 12 months.

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Annexure 3

INFORMATION ON THE DIRECTORS, MANAGEMENT, MATERIAL THIRD PARTIES AND THE PROPERTY MANAGERS

1. DIRECTORS’ EMOLUMENTS

1.1 The emoluments of the directors to be paid for the period ending 31 March 2015 are set out in the tables below:

Basic salaries Directors’ fees

Bonuses and other performance

payments TotalDirector R R R R

Executive directorsJason Cooper 500 000 – – 500 000Inge Pick 150 000 – – 150 000Gidon Trope 391 000 – – 391 000Herman Zolty 391 000 – – 391 000

1 432 000 – – 1 432 000

Non-executive directorsCraig Hallowes – 79 167 – 79 167Annalese Manickum – 79 167 – 79 167Michael McNamara – 87 500 – 87 500Ndhlabole Shongwe – 62 500 – 62 500Jacques van Wyk – 70 833 – 70 833

– 379 167 – 379 167

Total 1 432 000 379 167 – 1 811 167

1.2 The emoluments of the directors anticipated to be paid for the year ending 31 March 2016 are set out in the table below:

Basic salaries Directors’ fees

Bonuses and other performance

payments TotalDirector R R R R

Executive directorsJason Cooper 1 620 000 – – 1 620 000Inge Pick 600 000 – – 600 000Gidon Trope 1 266 840 – – 1 266 840Herman Zolty 1 266 840 – – 1 266 840

4 753 680 – – 4 753 680

Non-executive directorsCraig Hallowes – 256 500 – 256 500Annalese Manickum – 256 500 – 256 500Michael McNamara – 283 500 – 283 500Ndhlabole Shongwe – 202 500 – 202 500Jacques van Wyk – 229 500 – 229 500

– 1 228 500 – 1 228 500

Total 4 753 680 1 228 500 – 5 982 180

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1.3 Save for the tables above, the directors of the company did not receive any emoluments in the form of:

1.3.1 fees for services as a director;

1.3.2 management, consulting, technical or other fees paid for such services rendered, directly or indirectly, including payments to management companies, a part of which is then paid to a director of the company;

1.3.3 basic salaries;

1.3.4 bonuses and performance-related payments;

1.3.5 sums paid by way of expense allowance;

1.3.6 any other material benefits received;

1.3.7 contributions paid under any pension scheme; or

1.3.8 any commission, gain or profit-sharing arrangements.

1.4 No share options or any other right has been given to a director of the company in respect of providing a right to subscribe for shares in the company.

1.5 There is no share purchase scheme in place. Loans were granted by Lodestone to Jason Cooper, Gidon Trope and Herman Zolty to acquire shares in Lodestone.

1.6 The non-executive directors of Lodestone will be remunerated by Lodestone. The executive directors will be remunerated by Lodestone Investments Proprietary Limited. The directors will not receive any other remuneration or benefit in any form from any subsidiary, joint venture or other third party management or advisory company.

1.7 The company has not paid and will not pay any other fees or incurred any fees that are payable to a third party in lieu of directors’ fees.

1.8 The remuneration received by any of the directors will not be varied as a consequence of any transactions.

1.9 Other than as detailed in paragraphs 2.5 and 2.6 of this prospectus, the business of the group, or any part thereof, is not managed or proposed to be managed by any third party under contract or arrangement.

2. BORROWING POWERS

2.1 The borrowing powers of the group exercisable by the directors are unlimited. The borrowing powers of the group may not be varied unless a special resolution has been passed by shareholders with the support of 75% of voting rights exercised.

2.2 The borrowing powers have not been exceeded during the immediately preceding three years. There is no exchange control or other restrictions on the borrowing powers of the group. Further information related to the borrowing powers of directors are set out in Annexure 6.

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3. DIRECTORS’ AND OFFICERS’ INTERESTS

3.1 Directors’ and officers’ interests in Lodestone shares

3.1.1 Set out below are the direct and indirect beneficial interest of directors, officers and their associates (including directors who have resigned in the last 18 months) of the company and the subsidiaries as at the last practical date.

Ordinary shares

Beneficially held

Directors Directly Indirectly Total %

Andrew Teixera# – 11 554 579 11 554 579 10.92Spiro Noussis* – 10 576 268 10 576 268 10.00Jason Cooper^ – 10 047 468 10 047 468 9.50Herman Zolty^ – 9 783 050 9 783 050 9.25Gidon Trope^ – 9 783 050 9 783 050 9.25Jacques van Wyk – 2 432 543 2 432 543 2.30Craig Hallowes – 2 432 544 2 432 544 2.30Inge Pick^ – – – –

Total – 56 609 502 56 609 502 53.52

* Spiro Noussis resigned with effect from 6 February 2014 from the boards of Lodestone, Lodestone Investments and Lodestone Investments 2.

^ Director of Lodestone, Lodestone Investments and Lodestone Investments 2.# Andrew Teixera resigned with effect from 17 October 2014 from the board of Lodestone.

3.1.2 Set out below are the anticipated direct and indirect beneficial interest of directors, officers and their associates (including directors who have resigned in the last 18 months) of the company and the subsidiaries after the private placement and the listing.

Ordinary shares

Beneficially held

Directors Directly Indirectly Total %

Andrew Teixera# – 11 554 579 11 554 579 10.92Spiro Noussis* – 10 576 268 10 576 268 10.00Jason Cooper^ – 10 047 468 10 047 468 9.50Herman Zolty^ – 9 783 050 9 783 050 9.25Gidon Trope^ – 9 783 050 9 783 050 9.25Jacques van Wyk – 2 432 543 2 432 543 2.30Craig Hallowes – 2 432 544 2 432 544 2.30Inge Pick^ – – – –

Total – 56 609 502 56 609 502 53.52

* Spiro Noussis resigned with effect from 6 February 2014 from the boards of Lodestone, Lodestone Investments and Lodestone Investments 2.

^ Director of Lodestone, Lodestone Investments and Lodestone Investments 2.# Andrew Teixera resigned with effect from 17 October 2014 from the board of Lodestone.

3.2 Directors’ interests in transactions

Save in relation to their holdings in Lodestone shares as detailed in paragraphs 3.1.1 and 3.1.2 above and their holdings in Rockcastle Global Real Estate Company Limited shares as set out in paragraph 2 of Annexure 23, none of the directors have or have had a material beneficial interest, direct or indirect, in transactions, that were effected by the Lodestone group during the current or immediately preceding financial year or during any earlier financial year and which remain in any respect outstanding or unperformed.

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4. INTERESTS OF DIRECTORS AND PROMOTERS

4.1 No amount has been paid, or is accrued as payable, within the preceding three years, or is proposed to be paid to any promoter or to any partnership, syndicate or other association of which such promoter is or was a member and no other benefit has been given or is proposed to be given to such promoter, partnership, syndicate or other association within the said period.

4.2 Neither the directors nor the promoters of the company have received any material beneficial interest, direct or indirect, in the promotion of the company and its properties during the three years preceding this prospectus. This includes a partnership, company, syndicate or other association.

4.3 No amount has been paid, or has been agreed to be paid, within the three years preceding the date of this prospectus, to any director of the company or to any company in which such director is beneficially interested, directly or indirectly, or of which he is a director (“the associate company”) or to any partnership, syndicate or other association of which he is a member (“the associate entity”), in cash, securities or otherwise, by any person, either to induce him to become, or to qualify him as a director or otherwise for services rendered by him or by the associate company or the associate entity in connection with the promotion or formation of the group.

5. DIRECTORS’ DECLARATIONS

None of the directors have:

5.1 been a director of a company that has been put into liquidation or been placed under business rescue proceedings or had an administrator or other executor appointed during the period when he was (or within the preceding 12 months had been) one of its directors, or alternate directors or equivalent position;

5.2 either themselves or any company of which he was a director or an alternate director or officer at the time of the offence, been convicted in any jurisdiction of any criminal offence, or an offence under legislation relating to the Companies Act;

5.3 been removed from an office of trust, on grounds of misconduct, involving dishonesty;

5.4 been disqualified by a court from acting as a director of the company, or from acting in management or conduct of the affairs of any company;

5.5 been convicted of an offence resulting from dishonesty, fraud, theft, perjury, misrepresentation or embezzlement;

5.6 been adjudged bankrupt or sequestrated in any jurisdiction;

5.7 been a party to a scheme of arrangement or made any other form of compromise with his creditors;

5.8 been found guilty in disciplinary proceedings, by an employer or regulatory body, due to dishonest activities;

5.9 had any court grant an order declaring him to be a delinquent or placed such director under probation in terms of section 162 of the Companies Act and/or 47 of the Close Corporations Act, 1984 (Act No 69 of 1984) of South Africa;

5.10 been barred from entry into any profession or occupation;

5.11 been convicted in any jurisdiction of any criminal offence, or an offence under legislation relating to the Companies Act;

5.12 has received any official public criticisms by any statutory or regulatory authorities (including recognised professional bodies);

5.13 entered into any compulsory liquidations, administrations or partnership voluntary arrangements of any partnerships where such person is or was a partner at the time of or within the 12 months preceding such event;

5.14 entered into receiverships of any asset(s) of such person or of a partnership of which the person is or was a partner at the time of, or within the 12 months preceding, such event; or

5.15 been involved in any offence involving dishonesty committed by such person.

In terms of 21.3(d) of the Listings Requirements, the directors are required to attend a Directors’ Induction Programme. As at the last practicable date the directors of the company have not attended the Directors Induction Programme. The directors have, however, made arrangements to attend the Directors’ Induction Programme as soon as possible.

41

Annexure 4

CURRENT AND PAST DIRECTORSHIPS

The table below lists the companies and partnerships of which each director of the company is currently a director or partner as well as the companies and partnerships of which each director of the company was a director or partner over the five years preceding this prospectus:

DIRECTORS OF THE COMPANY

Director Current directorships and partnershipsDirectorships and partnerships held in the last five years

Jason Cooper Lodestone REIT Limited (previously Lodestone Properties Limited)

Larchwood Construction Proprietary LimitedLodestone Investments Proprietary LimitedLodestone Investments 2 Proprietary LimitedLodestone Investments 3 Proprietary LimitedStarship Props Two CCTwenty Eight Twelve Investment Properties CC

None

Inge Pick Lodestone REIT Limited(previously Lodestone Properties Limited)

Lodestone Investments Proprietary LimitedLodestone Investments 2 Proprietary Limited

None

Gidon Trope Lodestone REIT Limited (previously Lodestone Properties Limited)

HG Training Solutions CCLodestone Investments Proprietary LimitedLodestone Investments 2 Proprietary LimitedLodestone Investments 3 Proprietary LimitedPause Express CCRedspiced Investments Proprietary Limited

None

Herman Zolty Lodestone REIT Limited (previously Lodestone Properties Limited)

HG Training Solutions CCLodestone Investments Proprietary LimitedLodestone Investments 2 Proprietary LimitedLodestone Investments 3 Proprietary LimitedPause Express CCZK Properties CCSpear Edge Investments Proprietary Limited

Grindrod Index TrackerManagers Proprietary Limited

42


Spiro Noussis* African Ivory Holdings Proprietary LimitedCalbar Investments Proprietary LimitedCorporate Codes Proprietary LimitedCradle of Man Proprietary LimitedGenia Capital Proprietary LimitedMotswiri Mining Industry Supplies Proprietary LimitedNorthriding Shopping Centre Proprietary LimitedNoussis Investments Proprietary LimitedPaycom Xpress Connect Proprietary LimitedResilient Property Income Fund LimitedRichtrau No 178 Proprietary LimitedSheperd’s Tree Game Lodge Proprietary LimitedSmartec Holdings Proprietary LimitedTop-It-Up Prepaid Proprietary LimitedUnibeck Investments Proprietary Limited

Havenfield Investments Proprietary LimitedLodestone Investments Proprietary LimitedLodestone Investments 2 Proprietary LimitedLodestone Investments 3 Proprietary LimitedSmartec Technologies Proprietary LimitedSwanvest 367 Proprietary LimitedWild Fig Country Estate Home Owners AssociationLodestone REIT Limited

(previously Lodestone Properties Limited)

Andrew Teixeira**

Bands Properties Proprietary LimitedBrowndesk Property Investments Proprietary LimitedCapital Property Fund LimitedCaprohold 1 Proprietary LimitedCaprohold Proprietary LimitediFour Properties LimitediFour Properties SA Proprietary LimitediFour Properties Three Proprietary LimitediFour Properties Two Proprietary LimitedInforced Property and Investments Proprietary LimitedIronmail Investments Proprietary LimitedJean Avenue Property Investments Proprietary LimitedLibrary Park Investments Proprietary LimitedLovtex Investments CCMontague Park Owners AssociationMonyetla Property Holdings Proprietary LimitedN1 Business Park Owners AssociationPangbourne Investments Proprietary LimitedPangbourne Properties LimitedPanhold Proprietary LimitedPrepaid Direct Proprietary LimitedProperty Fund Managers LimitedRaceway Industrial Park Phase IV Proprietary LimitedRaceway Industrial Park Proprietary LimitedRaceway Industrial Warehouse Proprietary LimitedRaceway Property Owners AssociationRealty Dynamix 73 Proprietary LimitedSipan 1 Proprietary LimitedStarship Props One CC

Fortress Income 4 Proprietary LimitedMonyetla Property Fund LimitedLodestone REIT Limited

(previously Lodestone Properties Limited)

43


Craig Hallowes Lodestone REIT Limited (previously Lodestone Properties Limited)

Antediluvian Investments Proprietary LimitedAPR Property Company Proprietary LimitedAtlantis Property Company Proprietary LimitedBellador Properties Proprietary LimitedNuman Investments CCRandjespark Extension 13 Proprietary LimitedVenturon Property Company Proprietary LimitedTemuko Investments CCBoston Tea Party Investments Proprietary LimitedGrindrod Index Tracker Managers (Rf ) Proprietary LimitedFortress Income Fund LimitedFortress Income 2 Proprietary LimitedFortress Income 3 Proprietary LimitedFortress Income 4 Proprietary LimitedFortress Income 5 Proprietary LimitedEvaton Plaza Share Block Proprietary LimitedIntaba Investments 6 Proprietary LimitedMantraweb Investments Proprietary Limited

Caprohold 1 Proprietary LimitedCaprohold Proprietary LimitediFour Properties LimitediFour Properties SA Proprietary LimitediFour Properties Three Proprietary LimitediFour Properties Two Proprietary LimitedInforced Property and Investments Proprietary LimitedIronmail Investments Proprietary LimitedLibrary Park Investments Proprietary LimitedPangbourne Properties LimitedPanhold Proprietary LimitedPort Ferry 48 Proprietary LimitedPrepaid Direct Proprietary LimitedRaceway Industrial Park Phase IV Proprietary LimitedRaceway Industrial Park Proprietary LimitedRaceway Industrial Warehouse Proprietary LimitedRaceway Industrial Park Owners AssociationSipan 1 Proprietary LimitedPangbourne Investments Proprietary LimitedBenrose Holdings Proprietary LimitedBirkenruth Estates Proprietary LimitedGoy Investments Proprietary LimitedWhitworth Road Properties Proprietary LimitedSage Property Trust Managers LimitedErf 17 Anchorville Shareblock Proprietary LimitedCombined Investments Four Proprietary LimitedPangbourne Services Proprietary LimitedCapensis Investments 41 Proprietary LimitedPangbourne Asset Management Proprietary LimitedSiyathenga Property Fund LimitedSipan 2 Proprietary LimitedSiyapan 1 Proprietary LimitedDream World Investments 452 Proprietary LimitedSalamax 1554 Proprietary LimitedSiyathenga Properties One Proprietary LimitedSiyathenga Properties Three Proprietary LimitedSiyathenga Properties Two Proprietary LimitedSiyathenga Investments Proprietary LimitedFortress Asset Managers Proprietary LimitedDiesel Road Properties Proprietary LimitedErf 85 Hyde Park Proprietary LimitedStrydom Park Gardens Investments Proprietary LimitedSeidwolp Property Investments Proprietary LimitedJ and M Investments Proprietary LimitedMiketom Property Company Proprietary LimitedRandjespark Extension 13 Proprietary LimitedNoursepack Property Company Proprietary LimitedNelspruit Corner Proprietary LimitedNortrusco Pinetown Proprietary LimitedAlfeskor Eiendomme Proprietary LimitedDGL Investments Proprietary LimitedSix Way Properties Proprietary Limited

44


Annalese Manickum

Lodestone REIT Limited (previously Lodestone Properties Limited)

Adam and Eve Properties CCPromops CCAnnacar Properties Proprietary LimitedDola Hill Junction Proprietary LimitedEncobiz Proprietary Limited

Pangbourne Properties Limited

Ndhlabole Shongwe


Shongwe Hiring CCKo-Pheli Property Holdings Proprietary LimitedAfrican Spirit Trading 71 Proprietary LimitedFalcon Forest Trading 89 Proprietary LimitedMogwele Trading 278 Proprietary LimitedUniversal Pulse Trading 222 Proprietary LimitedK2013081858 Proprietary LimitedPetla-Ndila Investment Holdings Proprietary LimitedQuick Leap Investments 391 Proprietary LimitedIdada Trading 111 Proprietary LimitedPacific Eagle Properties 156 Proprietary LimitedHawk’s Landing Investments 25 Proprietary LimitedWarm Autumn Investments 4 Proprietary LimitedMaphumulo Investments Proprietary LimitedLeather Legacy Proprietary LimitedShongwe Superama Investments Proprietary Limited

Pangbourne Properties Limited Celtic Rose Investments 10 Proprietary LimitedBFMJ Proprietary LimitedTMBC Proprietary Limited

Michael McNamara


Agmac Construction CCPeakstar 190 Proprietary LimitedBefore Sunset Properties Proprietary LimitedCladagh Property CCCopper Lake Investments 26 Proprietary LimitedMantraweb Investments Proprietary LimitedAgmac Plant Proprietary LimitedStalph 191 CCBravopix 587 CCAgmac Construction Nigeria Limited

Intaba Investments 6 Proprietary LimitedChamber Lane Properties 11 Proprietary Limited

45


Jacques van Wyk Lodestone REIT Limited iFour Properties Limited(previously Lodestone Properties Limited) Benrose Holdings Proprietary Limited

Birkenruth Estates Proprietary LimitedCapensis Investments 410 Proprietary LimitedCaprohold 1 Proprietary LimitedCombined Investments Four Proprietary LimitedDream World Investments 452 Proprietary LimitedErf 17 Anchorville Shareblock Proprietary LimitedGoy Investments Proprietary LimitediFour Properties Three Proprietary LimitediFour Properties Two Proprietary LimitedInforced Property and Investments Proprietary LimitedIronmail Investments Proprietary LimitedLibrary Park Investments Proprietary LimitedPangbourne Asset Management Proprietary LimitedPangbourne Investments Proprietary LimitedPangbourne Properties LimitedPangbourne Services Proprietary LimitedPanhold Property SPV Proprietary LimitedPanhold Proprietary LimitedPort Ferry 48 Proprietary LimitedPrepaid Direct Proprietary LimitedSage Property Trust Managers LimitedSalamax 1554 Proprietary LimitedSipan 1 Proprietary LimitedSipan 2 Proprietary LimitedSiyapan 1 Proprietary LimitedSiyathenga Investments Proprietary LimitedSiyathenga Properties One Proprietary LimitedSiyathenga Properties Three Proprietary LimitedSiyathenga Properties Two Proprietary LimitedSiyathenga Property Fund LimitedWhitworth Road Properties Proprietary LimitedMonyetla Realty Holdings Proprietary LimitedFortress Asset Managers Proprietary LimitedKristabel Developments Proprietary LimitedInterfusion Finance Proprietary LimitedPrime Realty Obligors Packaged Securities

Proprietary LimitedPrime Realty Obligors Packaged Securities Series 1

Guarantor Proprietary LimitedMonyetla Property Holdings Proprietary LimitedPanya Investments Proprietary LimitedAmber Peek Investments Proprietary LimitedRealty Dynamix 73 Proprietary LimitedSilver Blade Investments 40 Proprietary LimitedFortress Income Fund LimitedSeventy Sage Road Proprietary LimitedCarlajane Properties Proprietary LimitedJonvid Properties Proprietary LimitedMonyetla Property Fund LimitedCresta Developments Share Block Proprietary LimitedDiligence Properties Proprietary LimitedElderberry Investments 115 Proprietary Limited

* Spiro Noussis resigned on 6 February 2014 from the boards of Lodestone, Lodestone Investments and Lodestone Investments 2.** Andrew Teixera resigned on 17 October 2014 from the board of Lodestone.

46

Annexure 5

SERVICE CONTRACTS

The salient features of the current service contracts for the executive directors are:

1. SERVICE CONTRACT ENTERED INTO BETWEEN JASON SCOTT COOPER AND LODESTONE INVESTMENTS PROPRIETARY LIMITED EFFECTIVE 26 AUGUST 2014

1.1 Commencement date and termination

1.1.1 Jason has been an employee of the company since 1 June 2010.

1.1.2 The service agreement may be terminated by the company or Jason on written notice.

1.1.3 The notice periods required will be consistent with Section 37 of the Basic Conditions of Employment Act No 75 of 1997, as amended and are as follows:

1.1.3.1 one week if Jason has been employed for six months or less;

1.1.3.2 two weeks if Jason has been employed for more than six months but not more than one year; or

1.1.3.3 four weeks if Jason has been employed for more than one year.

1.1.4 The service agreement may be terminated by the company summarily where justified in law.

1.2 Duties and responsibilities

Jason is the managing director reporting directly to the board of directors of Lodestone.

1.3 Remuneration

1.3.1 Jason is paid an annual cost to company package of R1 500 000.00, which excludes the company’s contributions to unemployment insurance fund and other statutory charges.

1.3.2 Subject to the discretion of the company, Jason may request the company to vary the components of the total cost of his remuneration from time to time.

1.3.3 Remuneration increments are considered annually at the sole discretion of the company’s remuneration committee.

2. SERVICE CONTRACT ENTERED INTO BETWEEN INGE FRANCES PICK AND LODESTONE INVESTMENTS PROPRIETARY LIMITED EFFECTIVE 26 AUGUST 2014


2.1.1 Inge has been an employee of the company since 17 October 2014.

2.1.2 The service agreement may be terminated by the company or Inge on written notice.


2.1.3.1 one week if Inge has been employed for six months or less;

2.1.3.2 two weeks if Inge has been employed for more than six months but not more than one year; or

2.1.3.3 four weeks if Inge has been employed for more than one year.



Inge is the financial director and performs the duties of a financial director.

47

2.3 Remuneration

Inge is paid an annual cost to company of R600 000.00.

3. SERVICE CONTRACT ENTERED INTO BETWEEN GIDON TROPE AND LODESTONE INVESTMENTS PROPRIETARY LIMITED EFFECTIVE 26 AUGUST 2014


3.1.1 Gidon has been an employee of the company since 1 June 2010.

3.1.2 The service agreement may be terminated by the company or Gidon on written notice.


3.1.3.1 one week if Gidon has been employed for six months or less;

3.1.3.2 two weeks if Gidon has been employed for more than six months but not more than one year; or

3.1.3.3 four weeks if Gidon has been employed for more than one year.



Gidon is an executive director and performs the duties of an executive director.

3.3 Remuneration

Gidon is paid an annual cost to company package of R1 173 000.00.

4. SERVICE CONTRACT ENTERED INTO BETWEEN HERMAN ALLAN ZOLTY AND LODESTONE INVESTMENTS PROPRIETARY LIMITED EFFECTIVE 26 AUGUST 2014


4.1.1 Herman has been an employee of the company since 1 June 2010.

4.1.2 The service agreement may be terminated by the company or Herman on written notice.


4.1.3.1 one week if Herman has been employed for six months or less;

4.1.3.2 two weeks if Herman has been employed for more than six months but not more than one year; or

4.1.3.3 four weeks if Herman has been employed for more than one year.



Herman is an executive director and performs the duties of an executive director.

4.3 Remuneration

Herman is paid an annual cost to company package of R1 173 000.00.

48

Annexure 6

EXTRACTS FROM THE MOI

The MOI of the company contains, inter alia, provisions with the effect of providing for the appointment, qualification, remuneration and borrowing powers, interests of directors and dividends as set out in the extracts below:

“4. POWERS OF THE COMPANY

4.1 The Company has all of the legal powers and capacity contemplated in the Act, and no provision contained in this Memorandum of Incorporation should be interpreted or construed as negating, limiting, or restricting those powers in any way whatsoever.

4.2 The legal powers and capacity of the Company are not subject to any restrictions, limitations or qualifications, as contemplated in section 19(1)(b)(ii) of the Act.”

“7. ISSUE OF SHARES AND VARIATION OF RIGHTS

7.1 The Company is authorised to issue 1 000 000 000 (one billion) Ordinary Shares, each of which ranks pari passu (which shall have the meaning ascribed thereto in paragraph 3.29 of the Listings Requirements or any amendment paragraph in the Listings Requirements) in respect of all rights conferred on the Ordinary Shareholders in terms of the provisions of this Memorandum of Incorporation, and each of which entitles the holder to –

7.1.1 vote on any matter to be decided by the Shareholders and to 1 (one) vote in the case of a vote by means of a poll;

7.1.2 participate proportionally in any distribution made by the Company; and

7.1.3 receive proportionally the net assets of the Company upon its liquidation.

7.2 Without prejudice to any special rights previously conferred on the holders of any existing Shares or class of Shares in the Company, any Shares whether in the initial or in any increased capital may be issued with such preferred, deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Company may from time to time determine provided, however, that there shall be no restriction on the transfer of Shares.

7.3 The Board shall not have the power to –

7.3.1 create any class of Shares; or

7.3.2 increase or decrease the number of authorised Shares of any class of the Company’s Shares; or

7.3.3 consolidate and reduce the number of the Company’s issued and authorised Shares of any class; or

7.3.4 subdivide its Shares of any class by increasing the number of its issued and authorised Shares of that class without an increase of its capital; or

7.3.5 convert one class of Shares into one or more other classes, save where a right of conversion attaches to the class of Shares created; or

7.3.6 reclassify any classified Shares that have been authorised but not issued; or

7.3.7 classify any unclassified Shares that have been authorised but not issued; or

7.3.8 change the name of the Company; or

49

7.3.9 vary any preference rights, limitations or other terms attaching to any class of Shares,

and, subject to the provisions of clause 7.4 below, such powers shall only be capable of being exercised by the Shareholders by way of a special resolution of the Shareholders and amendment to this Memorandum of Incorporation, save if such an amendment is ordered by a court in terms of sections 16(1)(a) and 16(4), subject to the requirements of the Act.

7.4 Each Share issued by the Company has associated with it an irrevocable right of the Shareholder to vote on any proposal to amend the preferences, rights, limitations and other terms associated with that Share. The variation of any preferences, rights, limitations and other terms associated with any class of Shares as set out in this Memorandum of Incorporation may be enacted only by an amendment of this Memorandum of Incorporation and such amendments shall not be implemented without a special resolution adopted by the holders of the Shares of that class at a separate meeting.

7.5 No Shares may be authorised in respect of which the preferences, rights, limitations or any other terms of any class of Shares may be varied in response to any objectively ascertainable external fact or facts as provided for in sections 37(6) and 37(7) of the Act.

7.6 The Company may only issue Shares which are fully paid up and freely transferable and only within the classes and to the extent that those Shares have been authorised by or in terms of this Memorandum of Incorporation.

7.7 The Board may, subject to clause 7.12 and the further provisions of this clause 7.7, resolve to issue Shares of the Company at any time, but:

7.7.1 only within the classes and to the extent that those Shares have been authorised by or in terms of this Memorandum of Incorporation; and

7.7.2 only to the extent that such issue has been approved by the Shareholders in general meeting, either by way

of a general authority (which may be either conditional or unconditional) to issue Shares in its discretion or a specific authority in respect of any particular issue of Shares, in accordance with the JSE Listings Requirements, provided that, if such approval is in the form of a general authority to the Directors, it shall be valid only until the next annual general meeting of the Company or for 15 (fifteen) months from the date of the ordinary resolution, whichever is the earlier, and it may be varied or revoked by any general meeting of the Shareholders prior to such annual general meeting.

7.8 Alterations of share capital, authorised shares and rights attaching to a class/es of Shares, all issues of Shares for cash and all issues of options and convertible securities granted or issued for cash must, in addition to the aforegoing provisions, be in accordance with the JSE Listings Requirements.

7.9 All Securities of the Company for which a listing is sought on the JSE and all Securities of the same class as Securities of the Company which are listed on the JSE must, notwithstanding the provisions of section 40(5) of the Act, but unless otherwise required by the Act, only be issued after the Company has received the consideration approved by the Board for the issuance of such Securities.

7.10 Subject to sections 40(5) to 40(7) of the Act, when the Company has received the consideration approved by the Board for the issuance of any Shares:

7.10.1 those Shares are fully paid up; and

7.10.2 the Company must issue those Shares and cause the name of the holder to be entered onto the Company’s Securities Register in accordance with sections 49 to 56 of the Act.

7.11 Subject to what may be authorised by the Act and the JSE Listings Requirements and at meetings of Shareholders in accordance with clause 7.13 and subject to clause 7.14, the Board may only issue unissued Shares if such Shares have first been offered to existing Shareholders in proportion to their shareholding on such terms and in accordance with such procedures as the Board may determine, unless such Shares are issued for the acquisition of assets by the Company.

50

7.12 Notwithstanding the provisions of clauses 7.8, 7.13 and 7.14, any issue of Shares, Securities convertible into Shares, or rights exercisable for Shares in a transaction, or a series of integrated transactions shall, in accordance with the provisions of section 41(3) of the Act, require the approval of the Shareholders by special resolution if the voting power of the class of Shares that are issued or are issuable as a result of the transaction or series of integrated transactions will be equal to or exceed 30% (thirty percent) of the voting power of all the Shares of that class held by Shareholders immediately before that transaction or series of integrated transactions.

7.13 Notwithstanding the provisions of clause 7.11, the Shareholders may at a general meeting authorise the Directors to issue Shares of the Company at any time and/or grant options to subscribe for Shares as the Directors in their discretion think fit, provided that such transaction(s) has/have been approved by the JSE, if so required under the JSE Listings Requirements, and comply with the JSE Listings Requirements.

7.14 Except to the extent that any such right is specifically included as one of the rights, preferences or other terms upon which any class of Shares is issued or as may otherwise be provided in this Memorandum of Incorporation (as is set out in clause 7.11), no Shareholder shall have any pre-emptive or other similar preferential right to be offered or to subscribe for any additional Shares issued by the Company.”

“20. VOTES OF SHAREHOLDERS

20.1 Subject to any special rights or restrictions as to voting attached to any Shares by or in accordance with this Memorandum of Incorporation, at a meeting of the Company –

20.1.1 every Shareholder present and entitled to exercise voting rights shall be entitled to 1 (one) vote on a show of hands, irrespective of the number of voting rights that Shareholder would otherwise be entitled to exercise; and

20.1.2 on a poll, a member who is present in person or represented by proxy and entitled to exercise voting rights shall be entitled to 1 (one) vote in respect of each Share he holds and is entitled to exercise voting rights on. No objection shall be raised to the admissibility of any vote except at the meeting or adjourned meeting at which the vote objected to is or may be given or tendered and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection shall be referred to the chairperson of the meeting, whose decision shall be final and conclusive.”

“22. SHAREHOLDER RESOLUTIONS

22.1 For an ordinary resolution to be approved it must be supported by more than 50% (fifty percent) of the voting rights of Shareholders exercised on the resolution by all Shareholders present in person, or represented by proxy, as provided in section 65(7). Notwithstanding the aforegoing, to the extent that the JSE Listings Requirements requires the support of a higher percentage of voting rights to be exercised in respect of any ordinary resolution, the Company shall not implement such ordinary resolution unless such ordinary resolution is supported by the higher percentage of voting rights of Shareholders required to be exercised on that resolution in terms of the JSE Listings Requirements.

22.2 For a special resolution to be approved it must be supported by the holders of at least 75% (seventy five percent) of the voting rights exercised on the resolution by all Shareholders present in person, or represented by proxy, as provided in section 65(9).

22.3 No matters, except:

22.3.1 those matters set out in section 65(11);

22.3.2 any other matter required by the Act or this Memorandum of Incorporation to be resolved by means of a special resolution; or

22.3.3 for so long as the Company’s Securities are listed on the JSE, any other matter required by the JSE Listings Requirements to be resolved by means of a special resolution in terms of the JSE Listings Requirements,

require a special resolution adopted at a Shareholders’ meeting of the Company.”

51

“24. COMPOSITION AND POWERS OF THE BOARD OF DIRECTORS

24.1 In addition to the minimum number of Directors, if any, that the Company must have to satisfy any requirement in terms of the Act to appoint an audit committee, and a social and ethics committee, the Board must comprise at least 4 (four) Directors and not more than 15 (fifteen) Directors. The Shareholders shall be entitled by ordinary resolution to amend such maximum number of Directors as they from time to time shall consider appropriate.

24.2 Subject to clauses 24.3, 24.4 and 24.5, all Directors shall be elected by an ordinary resolution of the Shareholders.

24.3 Subject to the requirements of the Act, the chairman of the Board or the chief executive officer shall be entitled, subject to the written approval of the majority of the Directors, to appoint any person as a Director in terms of section 66(4)(a)(i), provided that such appointment must be approved by the Shareholders at the next Shareholders’ meeting or annual general meeting.

24.4 The authority of the Board to fill a vacancy on the Board on a temporary basis, as set out in section 68(3) is not limited or restricted by this Memorandum of Incorporation provided that any Directors so appointed must resign at the next annual general meeting of the Company and may make themselves available for election.

24.5 Accordingly, the Board shall have the power at any time and from time to time to appoint any person as a Director, either to fill a casual vacancy or as an addition to the Board.

24.6 Until 1 (one) or more Directors have been so elected, each incorporator of the Company shall, in terms of section 67(1), serve as a Director of the Company.

24.7 In any election of Directors –

24.7.1 the election is to be conducted as a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy or to confirm an additional appointment, with the series of votes continuing until all vacancies on the Board have been filled or all additional appointments have been confirmed; and

24.7.2 in each vote to fill a vacancy –

24.7.2.1 each vote entitled to be exercised may be exercised once; and

24.7.2.2 the vacancy is filled or the additional appointment confirmed only if a majority of the votes exercised support the candidate,

provided only that, in the event that the Company only has 1 (one) Shareholder, the provisions of this clause 24.7 will not apply and the election of Directors shall take place in such manner as the Shareholder shall determine.

24.8 The Company shall only have elected Directors and there shall be no appointed or ex offıcio Directors as contemplated in section 66(4).

24.9 Apart from satisfying the qualification and eligibility requirements set out in section 69, a person need not satisfy any eligibility requirements or qualifications to become or remain a Director or a Prescribed Officer of the Company.

24.10 A Director shall cease to hold office as such if –

24.10.1 he becomes insolvent, or assigns his estate for the benefit of his creditors, or suspends payment or files a petition for the liquidation of his affairs, or compounds generally with his creditors;

24.10.2 he becomes of unsound mind;

24.10.3 in the case of an executive Director who is an employee of the Company, his employment relationship with the Company is terminated for whatsoever reason, including but not limited to, resignation, retirement, misconduct or otherwise;

52

24.10.4 he is prohibited from being, is removed as or is disqualified from acting as a director of a company in terms of the Act;

24.10.5 he is required to do so in terms of the JSE Listings Requirements;

24.10.6 subject to section 71 of the Act, he absents himself from meetings of the Board for 6 (six) consecutive months without the leave of the other Directors and is not represented at such meetings during such 6 (six) months by an alternate Director, and the Directors resolve that his office shall be vacated, provided that the Directors shall have the power to grant any Director leave of absence for an indefinite period;

24.10.7 he has given 1 (one) month’s (or with the permission of the Directors, a lesser period) notice in writing of his intention to resign;

24.10.8 he is removed under clause 24.11; or

24.10.9 the Board resolved to remove him in accordance with section 71(3).

24.11 The Company may by ordinary resolution in accordance with clause 24.10.8 and section 71(2), remove any Director before the expiration of his period of office and by an ordinary resolution elect another person in his stead. The person so elected shall hold office until the next annual general meeting of the Company and shall then retire and be eligible for re-election.

24.12 No Director shall be appointed for life or for an indefinite period and the Directors shall rotate in accordance with the following provisions –

24.12.1 at each annual general meeting referred to in clause 18.4, 1/3 (one third) of the Directors for the time being, or if their number is not three or a multiple of three, the number nearest to 1/3, but not less than 1/3, shall retire from office, provided also that at least 1/3 (one third) of the non-executive Directors for the time being, or if their number is not three or a multiple of three, the number nearest to 1/3, but not less than 1/3, shall retire from office;

24.12.2 the Directors to retire in every year are, firstly those who have been appointed to fill a casual vacancy or an additional appointment to the Board, and secondly those who have been longest in office since their last election, but as between persons who were elected as Directors on the same day, those to retire shall, unless they otherwise agree among themselves, be determined by lot. Notwithstanding the aforegoing, if at the date of any annual general meeting, any –

24.12.2.1 Director will have held office for a period of 3 (three) years since his last election or appointment;

24.12.2.2 Director will have reached the age of 75 (seventy five) years or older; and/or

24.12.2.3 non-executive Director will have held office for an aggregate period of 9 (nine) years since his first election or appointment,

then such Director shall retire at such annual general meeting, either as one of the Directors to retire in pursuance to the aforegoing or additionally thereto;

24.12.3 a retiring Director may be re-elected, provided he is eligible for election. If elected or re-elected he shall be deemed not to have vacated his office;

24.12.4 a retiring Director shall act as a Director throughout the annual general meeting at which he retires;

24.12.5 the Company, at the annual general meeting at which a Director retires in the above manner, or at any other general meeting, may fill the vacancy by electing a person thereto, provided that the Company shall not be entitled to fill the vacancy by means of a resolution passed in accordance with the provisions of section 60 of the Act as set out in clause 23; and

53

24.12.6 if at any meeting at which an election of Directors ought to take place the offices of the retiring Directors are not filled, unless it is expressly resolved not to fill such vacancies, the meeting shall stand adjourned and the further provisions of this Memorandum of Incorporation, including clauses 18.13 to 18.16 (inclusive) will apply mutatis mutandis to such adjournment, and if at such adjourned meeting the vacancies are not filled, the retiring Directors, or such of them as have not had their offices filled, shall be deemed to have been re-elected at such adjourned meeting.

24.13 The Board shall, through its nomination committee (if so constituted in terms of clause 30.1), provide the Shareholders with a recommendation in the notice of the meeting at which the re-election of a retiring Director is proposed, as to which retiring Directors are eligible for re-election, taking into account that Director’s past performance and contribution. Any Shareholder shall have the right to nominate Directors.

24.14 The Board has the power to exercise all of the powers and perform any of the functions of the Company, as set out in section 66(1), and the powers of the Board in this regard are only limited and restricted as contemplated in this clause 24.

24.15 The Directors may at any time and from time to time by power of attorney appoint any person or persons to be the attorney or attorneys and agent(s) of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors in terms of this Memorandum of Incorporation) and for such period and subject to such conditions as the Directors may from time to time think fit. Any such appointment may, if the Directors think fit, be made in favour of any company, the members, directors, nominees or managers of any company or firm, or otherwise in favour of any fluctuating body of persons, whether nominated directly or indirectly by the Directors. Any such power of attorney may contain such provisions for the protection or convenience of persons dealing with such attorneys and agents as the Directors think fit. Any such attorneys or agents as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them.

24.16 Save as otherwise expressly provided herein, all cheques, promissory notes, bills of exchange and other negotiable or transferable instruments, and all documents to be executed by the Company, shall be signed, drawn, accepted, endorsed or executed, as the case may be, in such manner as the Directors shall from time to time determine.

24.17 All acts performed by the Directors or by a committee of Directors or by any person acting as a Director or a member of a committee shall, notwithstanding that it shall afterwards be discovered that there was some defect in the appointment of the Directors or persons acting as aforesaid, or that any of them were disqualified from or had vacated office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director or member of such committee.

24.18 If the number of Directors falls below the minimum number fixed in accordance with this Memorandum of Incorporation, the remaining Directors must as soon as possible and in any event not later than 3 (three) months from the date that the number falls below such minimum, fill the vacancy/ies, provided that such Director/s are elected by the Shareholders at the next annual general meeting or call a general meeting for the purpose of filling the vacancy/ies.

24.19 The failure by the Company to have the minimum number of Directors during the said 3 (three) month period does not limit or negate the authority of the board of Directors or invalidate anything done by the board of Directors while their number is below the minimum number fixed in accordance with this Memorandum of Incorporation.

24.20 The Directors in office may act notwithstanding any vacancy in their body, but if, after the expiry of the 3 (three) month period contemplated in clause 24.18 above, and for so long as their number is reduced below the minimum number fixed in accordance with this Memorandum of Incorporation, they may act only for the purpose of filling vacancies in their body in terms of section 68(3) or of summoning general meetings of the Company for that purpose provided that if there is no Director able or willing to act, then any Shareholder may convene a general meeting for that purpose, but not for any other purpose.

54

24.21 A Director may hold any other office or place of profit under the Company (except that of auditor or Company Secretary) or any subsidiary of the Company in conjunction with the office of Director, provided that the appointment, duration and remuneration (in addition to the remuneration to which he may be entitled as a Director) in respect of such other office must be determined by a disinterested quorum of Directors.

24.22 A Director of the Company may be employed in any other capacity in the Company or as a director or employee of a company controlled by or itself a major subsidiary of the Company and, in such event, his appointment and remuneration in respect of such other office must be determined by a disinterested quorum of Directors.

24.23 Each Director and each alternate Director, Prescribed Officer and member of any committee of the Board (whether or not such latter persons are also members of the Board) shall, subject to the exemptions contained in section 75(2) and the qualifications contained in section 75(3), comply with all of the provisions of section 75 in the event that they (or any person who is a related person to them) have a personal financial interest in any matter to be considered by the Board.

24.24 A Director may not vote on any resolution pertaining to any matter in which he has a personal financial interest as contemplated in section 75. However, notwithstanding his interest in any matter, such Director may be counted for the purposes of determining a quorum for a Board meeting.

24.25 The Board may authorise the payment of such donations by the Company to such religious, charitable, public or other bodies, clubs, funds, associations or persons as may seem desirable in the interests of the Company, provided that any donations to any political parties or associations shall require prior approval of Shareholders in a general or annual general meeting.”

“27. DIRECTORS’ COMPENSATION AND FINANCIAL ASSISTANCE

27.1 The Company may pay remuneration to the Directors for their services as Directors in accordance with a special resolution approved by the Company’s Shareholders within the previous 2 (two) years, as set out in section 66(8) and (9), and the power of the Company in this regard is not limited or restricted by this Memorandum of Incorporation.

27.2 Any Director who –

27.2.1 serves on any executive or other committee;

27.2.2 devotes special attention to the business of the Company;

27.2.3 goes or resides outside South Africa for the purpose of the Company;

27.2.4 otherwise performs or binds himself to perform services which, in the opinion of the Directors, are outside the scope of the ordinary duties of a Director,

may be paid such extra remuneration or allowances in addition to or in substitution of the remuneration to which he may be entitled as a Director, as a disinterested quorum of the Directors may from time to time determine.

27.3 The Directors may also be paid all their travelling and other expenses necessarily incurred by them in connection with –

27.3.1 the business of the Company; and

27.3.2 attending meetings of the Directors or of committees of the Directors of the Company.

27.4 The Board may, as contemplated in and subject to the requirements of section 45, authorise the Company to provide financial assistance to a Director, Prescribed Officer or other person referred to in section 45(2), and the power of the Board in this regard is not limited or restricted by this Memorandum of Incorporation.”

55

“29. BORROWING POWERS

29.1 Subject to this Memorandum of Incorporation, the Directors may from time to time exercise all of the powers of the Company to –

29.1.1 borrow for the purposes of the Company such sums as they think fit;

29.1.2 secure the payment or repayment of any such sums, or any other sum, as they think fit, whether by the creation and issue of Securities, mortgage or charge upon all or any of the property or assets of the Company.

29.2 For the purposes of clause 29.1, at the time that any new borrowing is authorised by the Company –

29.2.1 the total consolidated liabilities as reflected in the Company’s latest published interim or annual consolidated IFRS financial statements;

29.2.2 less any capital repayments made on those liabilities after the balance sheet date;

29.2.3 plus the nominal value of the new debt;

shall not be more than 60% of the total consolidated assets as reflected in the Company’s latest published interim or annual consolidated IFRS financial statements or pro forma consolidated balance sheet.”

“33. DISTRIBUTIONS

33.1 Subject to the provisions of the Act, and particularly section 46, the Company may make a proposed distribution if such distribution:

33.1.1 is pursuant to an existing legal obligation of the Company, or a court order; or

33.1.2 is authorised by resolution of the Board,

and in compliance with the JSE Listings Requirements.

33.2 The Company, to the extent required, shall comply with the JSE Listings Requirements as regards Real Estate Investment Trusts.

33.3 Distributions may be declared either free of or subject to the deduction of income tax and any other tax or duty in respect of which the Company may be chargeable.

33.4 No distribution shall bear interest against the Company, except as otherwise provided under the conditions of issue of the Shares in respect of which such distribution is payable.

33.5 The Directors may from time to time declare and pay to the Shareholders such interim distributions as the Directors consider to be appropriate.

33.6 All unclaimed monies due to Shareholders will be held by the Company in trust for the benefit of the Shareholder concerned until claimed, provided that, subject to the provisions of the Prescription Act, 68 of 1969, as amended from time to time and any other applicable laws of prescription, monies unclaimed for a period of 3 (three) years from the date on which they were declared (or such longer period as may be required under the laws of prescription) may be declared forfeited by the Directors for the benefit of the Company. The Directors may at any time annul such forfeiture upon such conditions (if any) as they think fit.”

56

Annexure 7

MATERIAL CONTRACTS

1. In addition to the loan agreements described in Annexure 11, the following are details of material contracts, being (i) contracts entered into otherwise than in the ordinary course of business, within the two years prior to the date of this prospectus or at any time containing an obligation or settlement that is or may be material to the company or its subsidiaries at the last practical date; and (ii) contracts that are otherwise considered material by the company.

1.1 THE MAKHADO SQUARE ACQUISITION AGREEMENT

1.1.1 Lodestone Investments entered into an agreement with Municipal Employees Pension Fund (the “seller”) for the acquisition of the letting enterprise conducted by the seller in respect of and including the property known as Makhado Square which comprises Portion 0 and Portion 1 of Erf 289 Louis Trichard (the “property”) but excluding all the liabilities of the seller relating to the property (the “acquisition”).

1.1.2 In terms of the Makhado Square acquisition agreement, Lodestone Investments purchased the property from the seller for a purchase consideration of R37 500 000 (the “purchase consideration”).

1.1.3 The purchase consideration was payable to the seller against registration of transfer of the property into the name of Lodestone Investments (“transfer”).

1.1.4 The effective date of the acquisition was the date of registration of transfer of the property into the name of Lodestone Investments.

1.1.5 On 20 June 2014, Lodestone Investments and the seller entered into the Makhado Square addendum agreement in terms of which Lodestone Investments and the seller agreed to the extension of the due diligence period.

1.1.6 The property transferred on 12 December 2014.

1.2 THE AUCTION AGREEMENT

1.2.1 Lodestone Investments (the “seller”) instructed Aucor (the “auctioneer”) to dispose of the property by public auction, including any lease agreements in force and effect and all improvements of permanent nature, known as Siyabuswa, comprising Erf 1618, Siyabuswa-A, measuring 5 743m2 and situated in Mpumalanga (the “property”) (the “disposal”).

1.2.2 In terms of the auction agreement, the property was sold to Ebrahim Ghood, acting on behalf of New Order Investments 90 Proprietary Limited (the “purchaser”) on 14 March 2014 by public auction for a purchase consideration of R31 364 000 (the “purchase consideration”).

1.2.3 The purchase consideration was payable to the seller against registration of transfer of the property into the purchaser’s name.

1.2.4 The purchaser was liable for the auctioneer’s commission of 10% of the purchase consideration.

1.2.5 In terms of a resolution dated 5 May 2014, the property transferred to New Order Investments 90 Proprietary Limited.

1.2.6 The effective date of the disposal was the transfer date, which was 14 August 2014.

1.3 THE SIYABUSWA LAND DISPOSAL AGREEMENT

1.3.1 Aucor Corporate Proprietary Limited t/a Aucor Properties (the “agent”), Lodestone Investments (the “seller”) and Broad Brush Inv 207 Proprietary Limited (the “purchaser”) have, on 9 June 2014, entered into the Siyabuswa Land disposal agreement in terms of which the agent, acting on behalf of the seller, disposed of the immovable property, including any lease agreements of force and effect and all improvements of a permanent nature, known as Siyabuswa Land (the “property”) to the purchaser (the “acquisition”).

57

1.3.2 The property is situated in Mpumalanga and comprises Erven 1671, 1672, 1673, 1674, 1675, 1676, 1667, 1668, 1669 and 1670 Siyabuswa-A.

1.3.3 The purchase consideration payable by the purchaser to the seller for the property was R4 000 000 (the “purchase consideration”).

1.3.4 The purchase consideration was payable to the seller against registration of transfer of the property into the purchaser’s name.

1.3.5 The property transferred on 17 November 2014 (the “transfer date”).

1.3.6 The effective date of the acquisition was the transfer date.

1.4 THE REDEMPTION AGREEMENT

1.4.1 The A linked unitholders and B linked unitholders (collectively, “the linked unitholders”) have entered into a redemption and repurchase agreement with the company (collectively, “the parties”), in terms of which, inter alia, the A linked unitholders and the B linked unitholders agreed to the redemption and repurchase of their respective A linked units and B linked units (the “redemption agreement”) (“the transaction”).

1.4.2 The A debentures were be redeemed and the A shares were repurchased for an aggregate amount of R17.9022 per A linked unit (“A unit redemption amount”), which amount was allocated as follows:

1.4.2.1 in respect of the A debenture, an amount equal to the face value thereof was offset against the loan account with the relevant shareholder; and

1.4.2.2 in respect of the A share, the balance of the A unit redemption amount.

1.4.3 The B debentures were redeemed and the B shares were repurchased for an aggregate amount of R44.9492 per B linked unit (“B unit redemption amount”), which amount was allocated as follows:

1.4.3.1 in respect of the B debenture, an amount equal to the face value thereof; and

1.4.3.2 in respect of the B share, the balance of the B unit redemption amount.

1.4.4 All parties acknowledged that the balance of the A unit redemption amount and the B unit redemption amount would not result in a reduction of the contributed tax capital of the company as such term is defined in the Income Tax Act.

1.4.5 All of the suspensive conditions to the redemption agreement were fulfilled on 23 January 2015 (“the closing date”).

1.4.6 The transaction was implemented on the closing date.

1.4.7 Prior to the closing date, the company declared a distribution to the linked unitholders out of the profits of the company up to 30 November 2014.

1.4.8 The company warranted and undertook that no other dividend or other distribution had been or will be declared by the company other than the distribution contemplated above.

1.5 THE A LINKED UNIT SUBSCRIPTION AGREEMENT

1.5.1 In terms of the redemption agreement, after setting off an amount equal to the face value of each A debenture against the equivalent amount owed by such A linked unitholder to the company on loan account, the balance of R7.9322 per A linked unit remained owing by the company to A linked unitholders (“A unit balance”).

1.5.2 The A linked unitholders and the company entered into a subscription agreement in terms of which each A linked unitholder subscribed (“subscription”) for such number of ordinary shares of no par value in the share capital of the company (“subscription shares”), as was equal to the A unit balance divided by the subscription price per ordinary share of R5.00 (“subscription price”) (“the A linked unit subscription agreement”).

1.5.3 All of the suspensive conditions to the A linked unit subscription agreement were fulfilled on23 January 2015.

1.5.4 The subscription agreement was implemented on 23 January 2015.

58

1.6 THE B LINKED UNIT SUBSCRIPTION AGREEMENT

1.6.1 In terms of the redemption agreement, and payment to the B debenture holders of an amount equal to the face value of the B debentures in cash, the balance of R44.9492 per B linked unit remained owing by the company to the B linked unitholders (“B unit balance”).

1.6.2 The B linked unitholders and the company entered into a subscription agreement in terms of which each B linked unitholder subscribed (“subscription”) for such number of ordinary shares of no par value in the share capital of the company (“subscription shares”), as was equal to the B unit balance divided by the subscription price per ordinary share of R5.00 (“subscription price”) (“the B linked unit subscription agreement”).

1.6.3 All of the suspensive conditions to the B linked unit subscription agreement were fulfilled on 23 January 2015.

1.6.4 The subscription agreement was implemented on 23 January 2015.

59

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61

Annexure 9

INDEPENDENT PROPERTY VALUER’S SUMMARY VALUATION REPORT ON THE PROPERTY PORTFOLIO

23 January 2015

The DirectorsLodestone REIT Limited3rd FloorRivonia VillageRivonia BoulevardRivonia

Dear Sirs

RE: INDEPENDENT PROPERTY VALUERS’ REPORT OF THE PROPERTY PORTFOLIO FOR LODESTONE REIT LIMITED (“LODESTONE”) AS DETAILED IN THE SUMMARY SCHEDULE ATTACHED AND FOR WHICH THERE ARE DETAILED VALUATION REPORTS HELD BY LODESTONE

In accordance with your instruction of 8 September 2014, I confirm that I have visited and inspected the 22 properties listed in the attached schedule (“the properties”) during June 2014 (Section 13.23(a)(iii)) and have received all necessary details required to perform a valuation in order to provide you with my opinion of the properties’ market values as at 1 December 2014 (Section 13.23(c)).

1. INTRODUCTION

The valuation of the properties has been carried out by the valuer who has carefully considered all aspects of all the properties. These properties each have a detailed valuation report which has been given to the management of Lodestone. The detailed reports include commentary on the current economy, nature of the properties, locality, tenancy, risk profile, forward rent and earning capability and exposure to future expenses and property risk.

All these aspects have been considered in the individual valuation reports of the properties. The detailed reports have further addressed the tenancy income capability and expenditure for each property and tenant. Historic expenditure profile as well as future expenditure increases have been considered. The value therefore indicates the fair market value for each property which is detailed in the attached report and which has been summarised on a schedule as attached hereto, for each property. There are 22 properties in total comprising the portfolio. All essential aspects of information of all the properties have been summarised in the attached schedule.

2. BASIS OF VALUATION

The valuation is based on market value.

Market value is “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.” (IVS 7th edition).

Furthermore the principals of fair value measurement have been applied in the determination of value which is defined as “The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” (IFRS 13)

Note that the values and calculation methodology have been sensitivity tested by way of quantitative analysis by analysing the capitalisation rates, discount rates, rental growth potential, expenditure increase, risk consideration and other inputs in various discounted cash flow models.

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3. VALUE CALCULATION

The calculation of the current market value of these properties has been based on income capitalisation. This is the fundamental basis on which most commercial income producing properties are traded on the South Africa market. This is due to there being strong supporting evidence of market rental rates, appropriate expenses and therefore accurate net revenue potential determination. Consequently capitalisation rates are frequently reported when details are given on transactions. This rate may also be determined by simple analysis of sales in the market (Section 13.23(d)).

Properties traded in the current market reflect a yield rate relationship between revenue and capital value. This rate is an accurate determinant of the capitalisation rate.

The discounted cash flow value has also been calculated for each property as a check and a balance with reference to fair value reporting in order to ensure that the capitalised value calculated is tested against and is consistent with the market.

The considerations for the valuations are as follows:

3.1 calculating the forward cash flow of all contractual and other income derived from the properties;

3.2 calculating the forward contractual and other expenditure as well as provisions for various expenses in order to provide for void or future capital expenditure to which the property may be exposed;

3.3 the current area vacancy as a percentage of the properties is approximately 3.68%. In order to apply a conservative approach, I have deducted approximately 1.08% of the gross income as a provision for rental that may not be collected as a consequence of vacancy, tenant failure or tenant refitting during the course of the coming year. This has penalised the property in perpetuity. Management should be able to improve substantially on this aspect in future indicating good internal growth potential from the properties themselves if managed aggressively. The current vacancy is less than the market average (weighted at approximately 6.3%) for this nature of property type. The void provision used in the valuation is therefore adequate.

3.4 I have further deducted a capital amount of R582 633.00 in respect of income lost due to time delays before new tenants occupy premises. This is deducted from the post capitalised figure. (Section 13.23(f)(i));

3.5 there is no loss of rental due to renovations or refurbishments currently being carried out on the buildings. There is some external maintenance work on various buildings and some tenant installation fitting that is currently in progress. There is no loss of rental as a result of these activities. (Section 13.23(f)(ii));

3.6 generally the rentals are market related. Some rentals are lower than market. There are no leases with rentals that are higher than market. This has been determined by comparing similar buildings in comparable areas to the properties valued, in terms of rental per square metre. The rental rate has also been checked against various published indices including the South African Property Owners Association (SAPOA) index. There are no properties that are over-rented, or that cannot be re-rented at the same or higher rental rate should such property become vacant. There is therefore minimal potential for rental flow reversion. There is, however, a positive upside potential for real growth in rental, given the low base off which the average rentals flow. This is provided that the economy remains in a slow recovery pattern as currently being experienced as that there are no major economic fluctuations which may upset the economy. Current growth rate of approximately 1.7% for 2014. ((Section 13.23(f)(iii));

3.7 capitalising the net contractual income derived from the properties for a period of one year in advance, calculated from 1 December 2014;

3.8 the valuation has considered published market statistics regarding rental rates and expenditure for the different types of properties. It has also considered numerous other portfolios of similar properties in order to benchmark and determine if any properties are over rented or have excessive expenditure; and

3.9 various provisions for capital contingencies were deducted from the capitalised value of all the properties. This amount totals R6 781 314.67, or 0.69% of the total portfolio value.

4. SPARE LAND

There is one property with tracts of vacant zoned and serviced spare land.

Union Park Alberton has prime highway frontage land for industrial development. The Union land portion has had minimal value attached as it is to be held for a while before being developed. It has excellent development potential and has sufficient municipal services and zoning which allows for future development.

Various projects are possible due to the potential of the land. Currently it is unknown as to when development may commence. No planning permission has been applied for in respect of the spare land. (Section 13.26)

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5. BRIEF DESCRIPTION

7 and 9 Watkins Street, Denver – This is a B grade, industrial property. Footprint is a long rectangular steel structure. There is double volume factory space and offices are two floors of ground and first. Building is used as industrial and warehousing with enclosed yard.

Selby Mini Units – This is a B grade mini-factory. Layout is a rectangular warehouse divided into several smaller units. Each unit has its own toilets and ablutions. Offices are generally on an upper level. The buildings are constructed using steel framework support beams on the sides mounted on concrete foundation columns. All have own roller shutter and common yardage.

Prolecon Industrial Park – This is a B grade mini-factory. Footprint is eleven rectangles of mini units adjoining each other in two blocks of six and five units. Large common yard fronting each set of units. The building is constructed using steel column support beams on the sides mounted on concrete foundation columns.

Westar Park Stormill – This is a B grade mini factory. Layout is various rectangles comprising approximately two large buildings divided into 10 mini factories on either side of the property. This has a large central hard topped driveway and parking area and turning circle for all the different vehicles.

Van Riebeeck Mall – This is a B grade, neighbourhood shopping centre. Footprint is a square shape with an additional annex, positioned on three street frontages. The main centre is a rectangle being the main retailers alongside smaller shops opposite a rectangular strip of shops with a walkway between the two buildings on the L-angle. The building fronts directly onto a large parking lot.

Protea Centre – This is a B grade, neighbourhood shopping centre. Design is a long rectangular shape with a small additional parking annex as well as a parkade building constructed on the south side of the building and reasonably well positioned on three street frontages.

Kingsburgh Shopping Centre – This is a B grade, neighbourhood shopping centre. Shape is a square with rectangular shape fronting a parking area adjoining petrol garage site which is part of the property on the far north side of the parking yard area. The main building fronts the entrance to the centre off the open walkway fronting directly onto the parking lot.

8 and 16 Harry Street, Robertsham – This is a B grade, industrial property. Configuration is a rectangle of five separate buildings comprising mainly industrial warehouse and manufacturing with front section generally offices with one building being an office block style unit located on each footprint with offices and external storage and yard. Large modern office mezzanine level.

Groblersdal – This is a B grade, local convenience shopping centre. Layout is a L-shape of rectangular building with one small part upper floor. The building comprises approximately four shop unit sections. There is generally one level of building being shops.

Crocker Road, Wadeville – This is a B grade, industrial property. Footprint is basically six long rectangular steel structures. Each is subdivided by firewalls into approximately 60 small industrial mini units. The buildings front onto a concrete topped yardage and driveway on both warehouse sides.

Rudo Nel Jet Park (Huges) – This is a B grade, industrial property. Design is two square structures. There are two levels of office at the front of the building. The building has concrete topped yardage and driveway on both warehouse sides.

Cambridge Randburg – This is a B grade, retail property. Shape is one long rectangular concrete and brick structure. There are two levels of building being, ground floor offices and retail floor and some office space on the upper floor. The building fronts a concrete topped parking yardage and driveway.

Kimberley Junction – This is a B grade, neighbourhood shopping centre. Design is a relatively rectangular building with several angular projections. The building fronts a hard topped parking yardage and driveway on the west side and roadway and large parkade on the west side of the building.

Tembi Mall – This is a B grade, neighbourhood shopping centre. Footprint is two basic square buildings close to the town centre fronting a large parking area just off Main Street with rear parking area and large taxi parkade on the central portion of the land fronting the shops.

4 6th Street, Wynberg – This is a B grade, industrial property. Layout is one long rectangular steel structure. There are two levels of building constructed in an L-shape comprising ground and upper floor offices and ground floor warehouse, factory section. The building fronts a concrete topped yardage and driveway on both warehouse sides. Some dock bays for loading on south side of building.

64

Elliot Avenue, Epping – This is a B grade, industrial property. Development is basically one long rectangular steel structure. The building is made up of approximately seven sections. There are two levels of offices at the front of the building. The building fronts onto a concrete topped yardage and driveway on south side.

Union Park, Alberton – This is a B grade, industrial park. Factory comprises eight rectangular steel structures. There are two levels of offices at the main factory and single level offices in the other smaller units. Building has prime highway frontage. The buildings front onto a concrete topped yardage and driveway on both warehouse sides.

Shoprite Bela Bela – This is a B grade, local convenience shopping centre. Building has no general definition other than being a relatively rectangular shopping centre building with several angular projections constructed with two entrances. There is hard topped parking yardage to the west of the property.

Station Road, Mafikeng – This is a B grade, neighbourhood shopping centre. Layout is a long rectangle L-shape with diagonal configurations positioned on three street frontages. The main centre is a rectangle being the main retailers alongside smaller shops opposite a rectangular strip of shops with a central mall walkway and a double storey office block on the northern side with management offices.

Moody Avenue, Epping – This is a B grade, industrial property. Layout is two long rectangular steel structures. There are two levels of offices at the front of the building. The building fronts onto a concrete topped yardage and driveways.

Isando – This is a B grade, industrial property. Footprint is a rectangle configuration for the warehouse with a double storey offices and ablutions. The building fronts onto a hard topped parking yardage and driveway.

Makhado Square – This is a B grade, convenience shopping centre. The centre is situated in the CBD at Louis Trichardt. Layout is a rectangle shape positioned on two street frontages with offices situated at the back of the shop.

6. VALUATION QUALIFICATIONS

Qualifications are usually detailed as a consequence of:

Leases under negotiation that have not yet been formalised; leases of a large nature where the premises are difficult to re-let; specialised properties; large exposure to a single tenant; potential tenant failure due to over-rent; expenses required for major repairs; maintenance or other exposure to maintain the lettability of the building; contingent expropriations or servitudes that may be enforced; poor lease recordals whereby the lease may be disputed or rendered invalid.

I have, to the best of my knowledge, considered all of these aspects in the valuation of all the properties. There are no properties that are prejudiced in value by the influence of the above factors.

I am, however, not responsible for the competent daily management of these properties that will ensure that this status is maintained, or for the change of any laws, services by local authority or economic circumstances that may adversely impact on the integrity of the buildings or the tenant profile, or legal dispute which may result in any cash flow hiatus. (Section 13.23(e)).

OPTIONS OR BENEFIT/DETRIMENT OF CONTRACTUAL ARRANGEMENTS

To my knowledge there are no contractual arrangements on the properties other than the leases as detailed in the report that have a major benefit or are detrimental to the fundamental value base of the properties. (Section 13.23(g)).

To the best of my knowledge, there are no options in favour of any parties for any purchase arrangement on any of the properties. (Section 13.23(h)).

7. INTRA-GROUP OR RELATED PARTY LEASES (SECTION 13.23(A)(XI))

Having inspected all the tenant schedules and leases it is noted that there are no intra-group or related party leases.

8. CURRENT STATE OF DEVELOPMENT

There are no properties which are currently being developed. Note, however, that there is spare land capacity for expansion on certain properties. (Section 13.24, 13.25 and 13.26).

9. EXTERNAL PROPERTY

None of the properties are situated outside the Republic of South Africa. (Section 13.28).

10. RENTALS USED IN VALUATIONS

Note that all these properties are generally rented out. The current annual rental and future annual rentals have been calculated in a separate discounted cash flow schedule. It is noted that there are no material rental reversions and that the rentals for all the properties increase on average by approximately 6.72% compounding per annum.

65

11. OTHER GENERAL MATTERS AND VALUATION SUMMARY (SECTIONS 13.30 AND 13.31)

A full valuation report is available on a property by property basis detailing tenancy, town planning, valuer’s commentary, expenditure and other details. This has been given to the directors of Lodestone. Note that Van Riebeeck Mall and Station Road Mafikeng are leasehold properties which value has been detailed separately.

12. ALTERNATIVE USE FOR A PROPERTY (13.27)

The properties have all been valued in accordance with their existing use which represents their best use and market value. No alternative uses for the properties have been considered in determination of their value.

13. OTHER COMMENTS

Our valuation excludes any amounts of Value-added Tax, transfer duty, or securities transfer duty.

14. CAVEATS

14.1 Source of information and verification (Section 13.23(a)(xiii))

Information on the properties regarding rental income, recoveries, turnovers and other income detail has been provided to me by the current owners and their managing agents.

I have received copies of all of the leases of the existing properties where such leases are the major tenant or tenants comprising anything higher than 5% occupancy of the property. The leases have been read to check against management detail records, in order to ensure that management has correctly captured tenant information as per the contractual agreements. This has been done to test management information accuracy against the underlying lease agreements.

I have further compared certain expenditures given to me, to the market norms of similar properties. This has also been compared to historic expenditure levels of the properties themselves. Historical contractual expenditures and municipal utility services were compared to the past performance of the properties in order to assess potential expenditure going forward. The municipal values on the properties are generally market related and reasonable with little potential to increase dramatically.

14.2 Full disclosure

This valuation has been prepared on the basis that full disclosure of all revenue and expenditure information and factors that may affect the valuation have been made to myself.

I have to the best of my ability researched the market as well as taken the steps detailed in paragraph 14.3 below.

14.3 Leases (Section 13.23(a)(ix))

Our valuation has been based on a review of actual tenants’ leases (which includes material terms such as repair obligations, escalations, break options etc.) and other pertinent details which have been supplied to us by the managing agents and by Lodestone. These have been detailed in the tenant schedules attached to each individual valuation report.

All recovery details in respect of the existing leases e.g. utility cost and other recoveries as provided for in the leases have been disclosed by way of the monthly tenant invoices and summary schedule supplied to us. Option terms and other lease information have been supplied to us by the owners and managing agents and we are familiar with such documents.

14.4 Lessee’s credibility

In arriving at our valuation, cognizance has been taken of the lessee’s security and rating. In some cases this has influenced the capitalisation rate by way of a risk consideration.

14.5 Mortgage bonds, loans, etc.

The properties have been valued as if wholly-owned with no account being taken of any outstanding monies due in respect of mortgage bonds, loans and other charges. No deductions have been made in our valuation for costs of acquisition.

The valuation is detailed in a completed state and no deductions have been made for retention or any other set-off or deduction for any purposes which may be made at the discretion of the purchaser when purchasing the properties.

66

14.6 Calculation of areas

All areas quoted within the detailed valuation reports are those stated in the information furnished and verified where plans were available. To the extent that plans were not available, reliance was placed on the information submitted by the managing agents and lease information.

Updated plans were not available for all the properties in respect of internal configuration. The properties generally appear to have the stated square meterage as per lease, which could only be more accurately determined if remeasured by a professional.

14.7 Structural condition

The properties have been valued in their existing state. I have not carried out any structural surveys, nor inspected those areas that are unexposed or inaccessible, neither have I arranged for the testing of any electrical or other services.

14.8 Contamination

The valuation assumes that a formal environmental assessment is not required and further that none of the properties are environmentally impaired or contaminated, unless otherwise stated in our report.

14.9 Town planning (Section 13.23(a)(vi) and (vii))

Full town planning details and title deeds have been noted in the detailed valuation reports including conditions and restrictions and the properties have been checked against such conditions. This is to ensure that they comply with town planning regulations and title deeds. There do not appear to be any infringements of local authority regulations or deeds by any of the properties.

The valuation has further assumed that the improvements have been erected in accordance with the relevant Building and Town Planning Regulations and on inspection it would appear that the improvements are in accordance with the relevant town planning regulations for these properties.

There is no contravention of any statutory regulation, or town planning local authority regulation or contravention of title deed relating to any of the properties which infringement could decrease the value of the properties as stated as at current date of local authority legislation.

15. MARKET VALUE

I am of the opinion that the aggregate market value of the properties as at 1 December 2014 is R979 030 000.00 (excluding VAT). A summary of the individual valuations and details of each of the properties is attached.

To the best of our knowledge and belief there have been no material changes in circumstances between the date of the valuation and the date of the valuation report which would affect the valuation.

I have more than 30 years’ experience in the valuation of all nature of property and I am qualified to express an opinion on the fair market value of the properties.

I trust that I have carried out all instructions to your satisfaction and thank you for the opportunity of undertaking this valuation on your behalf.

Yours faithfully,

Peter ParfittQuadrant Properties (Pty) Ltd

Dunkeld Court16 North Road, corner Jan Smuts AvenueDunkeld West, 2196Professional Associated ValuerDip. Val. MIV(SA)Registered Professional Property Valuer (No. 2712/2)(Registered without restriction in terms of the Property Valuers Act, No. 47 of 2000)

67

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71

Annexure 10

CAPITAL STRUCTURE

1. AUTHORISATIONS

1.1 The following resolutions were adopted by shareholders on 17 December 2014:

1.1.1 “Special resolution number 1: Change of name to Lodestone REIT Limited

Resolved that, the name of the company be and is hereby changed from Lodestone Properties Limited to Lodestone REIT Limited, with effect from the date set out in the amended registration certificate issued by the Companies and Intellectual Property Commission.

In order for special resolution number 1 to be adopted, the support of at least 75% of the total number of votes exercised by shareholders on the resolution was required.”

1.1.2 “Special resolution number 2: Increase in authorised share capital

Resolved that, in accordance with section 36(2) of the Companies Act and the company’s existing memorandum of Incorporation, the authorised share capital of the company comprising 500 000 000 A ordinary par value shares of R0.01 each, and 500 000 000 B ordinary par value shares of R0.01 each, be and is hereby increased by the creation of 1 000 000 000 ordinary shares of no par value, having the preferences, rights, limitations and other terms set out in the new Memorandum of Incorporation to be adopted in terms of special resolution number 7, so that after such increase the authorised share capital shall comprise:

• 500 000 000 A ordinary par value shares of R0.01 each;• 500 000 000 B ordinary par value shares of R0.01 each; and• 1 000 000 000 ordinary shares of no par value.


1.1.3 “Special resolution number 3: Redemption and repurchase of A linked units

Resolved that, in accordance with section 48(8)(b) of the Companies Act and the debenture trust deed, the redemption of the 10 000 000 A debentures, and the repurchase of the 10 000 000 A shares in issue, at an aggregate amount of R17.90 per A linked unit, subject to the terms and conditions set out in the redemption and repurchase agreement entered into between the Company and the shareholders, be and is hereby approved.


1.1.4 “Special resolution number 4: Redemption and repurchase of B linked units

Resolved that, in accordance with section 48(8)(b) of the Companies Act and the debenture trust deed, the redemption of the 10 000 000 B debentures, and the repurchase of the 10 000 000 B shares in issue, at an aggregate amount of R44.94 per B linked unit, subject to the terms and conditions set out in the redemption and repurchase agreement entered into between the Company and the shareholders, be and is hereby approved.


1.1.5 “Special resolution number 5: Issue of shares in terms of the subscription agreement

Resolved that, subject to the adoption of special resolutions number 1 to 4 above, and in accordance with sections 41(1) and 41(3) of the Companies Act, the issue by the Company to the shareholders of such number of ordinary no par value shares created in terms of special resolution number 2, and at such subscription price and other terms and conditions as are set out in the subscription agreements entered into between the Company and the A linked unitholders, and the Company and the B linked unitholders, be and is hereby approved, if and to the extent that such approval may be required because

72

such shares (i) are issued to a person related or inter-related to the Company, or to a director, future director, prescribed officer or future prescribed officer, or their respective nominee, and/or (ii) equals to or exceeds 30% of the Company’s issued ordinary share capital immediately before the issue of such shares in any transaction or series of integrated transactions.

In order for this special resolution number 5 to be adopted, the support of at least 75% of the total number of votes exercisable by shareholders, present in person or by proxy, was required to pass this resolution.”

1.1.6 “Special resolution number 6: Reduction of authorised share capital

Resolved that, subject to the adoption of special resolutions number 1 to 6 above, and in accordance with section 36(2) of the Companies Act and the company’s existing Memorandum of Incorporation, the authorised share capital of the company comprising 500 000 000 A ordinary par value shares of R0.01 each, 500 000 000 B ordinary par value shares of R0.01 each and 1 000 000 000 ordinary shares of no par value, be and is hereby decreased by the cancellation of the 500 000 000 A ordinary par value shares of R0.01 each, and the 500 000 000 B ordinary par value shares of R0.01 each, from the authorised share capital of the company, with effect from the date of filing the company’s new Memorandum of Incorporation to be adopted in terms of special resolution number 7, so that after such reduction, the authorised share capital of the company shall comprise 1 000 000 000 ordinary shares of no par value.


1.1.7 “Special resolution number 7: Adoption of new Memorandum of Incorporation

Resolved that, subject to the adoption of special resolutions numbers 1 to 6 above, the company’s existing Memorandum of Incorporation be and is hereby replaced in its entirety with a new memorandum of incorporation annexed hereto as Annexure 2 (“Memorandum of Incorporation”).


1.1.8 “Special resolution number 8: Approval of provision of financial assistance for the purchase of shares

Resolved that, subject to compliance with the requirements of the Memorandum of Incorporation, the Companies Act and the JSE Listings Requirements, the company, either as lender or as surety or guarantor for a lender or otherwise, is hereby authorised, from time to time, to provide financial assistance as contemplated in section 44 of the Companies Act for the purchase of or subscription for any shares issued or to be issued by the company to any company or trust, the majority of whose shareholders or beneficiaries (directly or indirectly) are ‘black persons’ as defined in the Broad-based Black Economic Empowerment Act, 2003 (or any successor thereto) on the following terms:

• the maximum capital amount (excluding interest, costs, charges, fees and expenses) of any such amounts lent or for which suretyships or guarantees are given may not exceed R150 million;

• the maximum period for the repayment of any loan provided or for which suretyships or guarantees are given in terms hereof may not exceed 10 years; and

• the minimum interest rate to be applied to any loan provided may not be less than the prime overdraft rate of interest from time to time publicly quoted as such by The Standard Bank of South Africa Limited,

such authority to endure for a period of not more than two years from the passing of this resolution or until its renewal, whichever is the earliest.


1.1.9 “Special resolution number 9: Approval of provision of financial assistance to related or inter-related companies

Resolved that, in terms of section 45(3) of the Companies Act, but subject to compliance with the requirements of the company’s Memorandum of Incorporation, the Companies Act and the JSE Listings Requirements, each as presently constituted and amended from time to time, the company be and is hereby authorised to provide direct or indirect financial assistance as contemplated in section 45 of the Companies Act by way of loans, guarantees, the provisions of security or otherwise, to any of its present or future subsidiaries and/or any other company or corporation that is or becomes related or inter-related (as defined in the Companies Act) to the company for any purpose or in connection with any matter,

73

such authority to endure for a period of not more than two years from the passing of this resolution or until its renewal, whichever is the earliest.


1.1.10 “Special resolution number 10: Approval of share repurchases

Resolved that, subject to compliance with the requirements of the company’s Memorandum of Incorporation, the Companies Act and the JSE Listings Requirements, each as presently constituted and amended from time to time, and the restrictions set out below, the repurchase of shares of the company, either by the company or by any subsidiary of the company is hereby authorised, on the basis that:

• this authority will only be valid until the company’s annual general meeting or for 15 months from the date of adoption of this resolution, whichever period is shorter;

• the number of shares which may be acquired pursuant to this authority in any financial year may not in the aggregate exceed 20% per class of shares, or 10% per class of shares where such acquisitions are effected by a subsidiary, of the company’s share capital as at the date of this resolution;

• the repurchase of shares must be effected through the order book operated by the JSE trading system and done without any prior arrangement between the company and the counterparty;

• the repurchase of shares may not be made at a price greater than 10% above the weighted average of the market value for the shares for the five business days immediately preceding the date on which the transaction is effected;

• at any point in time, the company will only appoint one agent to effect repurchases on its behalf;• the company or its subsidiary may not repurchase shares during a prohibited period as defined in

paragraph 3.67 of the JSE Listings Requirements unless there is a repurchase programme in place and the dates and quantities of shares to be repurchased during the prohibited period are fixed and full details thereof have been disclosed in an announcement over SENS prior to commencement of the prohibited period;

• a resolution by the board of directors is passed that the board of directors authorises the repurchase, that the company and the relevant subsidiaries have passed the solvency and liquidity test as set out in section 4 of the Companies Act and that, since the test was performed, there have been no material changes to the financial position of the group; and

• the company’s designated advisor will confirm the adequacy of the company’s working capital, for the purposes of undertaking share repurchases, in writing to the JSE prior to the repurchase of any shares.

In accordance with the JSE Listings Requirements the directors record that although there is no immediate intention to effect a repurchase of the shares of the company, the directors will utilise this general authority to repurchase shares as and when suitable opportunities present themselves, which opportunities may require expeditious and immediate action.

The directors, after considering the effect of the maximum repurchase, are of the opinion that for a period of 12 months after the passing of this resolution:

• the company and the group will, in the ordinary course of business, be able to pay its debts;• the assets of the company and the group will be in excess of the liabilities of the company and the

group;• the share capital and reserves of the company and the group will be adequate for ordinary business

purposes; and• the working capital of the company and the group will be adequate for ordinary business purposes.After the company or its subsidiaries have cumulatively repurchased 3% of the initial number of shares (the number of shares in issue at the time that the general authority from shareholders is granted) and for each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will be made in terms of the JSE Listings Requirements.


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1.1.11 “Special resolution number 11: Approval of directors’ remuneration for their services as directors

Resolved that, in accordance with section 66 of the Companies Act, the fees payable by the company to non-executive directors for their services as directors be and are hereby approved, for a period of two years from the date of passing this resolution or until its renewal, whichever is the earliest, as follows:

For the For the 4 months ended year ended

30 March 30 March2015 2016Rand Rand

Chairman 54 167 175 500Non-executive director 37 500 121 500Audit committee member (including chairman) 16 667 54 000Investment committee member (including chairman) 16 667 54 000Remuneration committee member (including chairman) 16 667 54 000Nomination committee member (including chairman) 8 333 27 000Risk committee member (including chairman) 8 333 27 000Social and ethics committee member (including chairman) 8 333 27 000


1.1.12 “Ordinary resolution number 1: Waiver of notice period

Resolved that, the required minimum notice period for this meeting be and is hereby waived in accordance with section 62(2A) of the Companies Act.

In order for ordinary resolution number 1 to be adopted, the support of 100% of the total number of votes exercised by shareholders on the resolution was required.”

1.1.13 “Ordinary resolution number 2: Authority to issue shares

Resolved that, in accordance with the Memorandum of Incorporation, the entire authorised but unissued share capital be and is hereby placed under the control and authority of the directors of the company, which directors are hereby authorised and empowered to allot, issue and otherwise dispose of such share capital to such person or persons on such terms and conditions and at such times as the directors of the company may from time to time and in their discretion deem fit, provided that:

• it is subject to a maximum discount of 5% (five percent) of the weighted average traded price on the JSE of those shares over the 10 (ten) business days prior to the date of allotment, issue or disposal as the case may be; and

• the company’s Memorandum of Incorporation, the Companies Act, 2008 and the JSE Listings Requirements, each as presently constituted and amended from time to time, have been complied with.

In order for ordinary resolution number 2 to be adopted, the support of more than 50% of the total number of votes exercised by shareholders on the resolution was required.”

1.1.14 “Ordinary resolution number 3: Re-election of Jason Cooper as a director of the company

Resolved that, Jason Cooper who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.15 “Ordinary resolution number 4: Re-election of Gidon Trope as a director of the company

Resolved that, Gidon Trope who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


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1.1.16 “Ordinary resolution number 5: Re-election of Herman Zolty as a director of the company

Resolved that, Herman Zolty who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.17 “Ordinary resolution number 6: Re-election of Inge Pick as a director of the company

Resolved that, Inge Pick who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.18 “Ordinary resolution number 7: Re-election of Ndhlabole Shongwe as a director of the company

Resolved that, Ndhlabole Shongwe who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.19 “Ordinary resolution number 8: Re-election of Craig Hallowes as a director of the company

Resolved that, Craig Hallowes who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.20 “Ordinary resolution number 9: Re-election of Annalese Manickum as a director of the company

Resolved that, Annalese Manickum who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.21 “Ordinary resolution number 10: Re-election of Jacques van Wyk as a director of the company

Resolved that, Jacques van Wyk who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.22 “Ordinary resolution number 11: Re-election of Mike McNamara as a director of the company

Resolved that, Mike McNamara who was appointed as a director of the company on 17 October 2014, be and is hereby re-elected as a director of the company.


1.1.23 “Ordinary resolution number 12: Appointment of Jacques van Wyk as member of the Audit Committee

Resolved that, in accordance with section 94(2) of the Companies Act, Jacques van Wyk, who is an independent non-executive director, be and is hereby appointed as a member and the Chairman of the company’s audit committee, with effect from date of adoption of this resolution.


1.1.24 “Ordinary resolution number 13: Appointment of Craig Hallowes as member of the Audit Committee

Resolved that, in accordance with section 94(2) of the Companies Act, Craig Hallowes, who is an independent non-executive director, be and is hereby appointed as a member of the company’s audit committee, with effect from the date of adoption of this resolution.

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1.1.25 “Ordinary resolution number 14: Appointment of Michael McNamara as member of the Audit Committee

Resolved that, in accordance with section 94(2) of the Companies Act, Michael McNamara, who is an independent non-executive director, be and is hereby appointed as a member of the company’s audit committee, with effect from the date of adoption of this resolution.


1.1.26 “Ordinary resolution number 15: Appointment of auditors

Resolved that, the appointment of Deloitte & Touche as the auditors of the company, with Mr P Kleb being the designated audit partner, be and is hereby approved.”


1.1.27 “Ordinary resolution number 16: Authorising directors to determine auditor’s remuneration

Resolved that, the directors be and are hereby authorised to determine the remuneration payable to the auditor.”

In order for ordinary resolution number 16 to be adopted, the support of more than 50% of the total number of votes exercisable by shareholders, present in person or by proxy, was required to pass this resolution.”

1.1.28 “Ordinary resolution number 17: Signature of documentation

Resolved that, any director of the company or the company secretary be and is hereby authorised to sign all such documentation and do all such things as may be necessary for or incidental to the implementation of ordinary resolution numbers 1 to 16 and special resolution numbers 1 to 11 which are passed by the shareholders in accordance with and subject to the terms thereof.”

In order for ordinary resolution number 17 to be adopted, the support of more than 50% of the total number of votes exercisable by shareholders, present in person or by proxy, was required to pass this resolution.”

1.2 The following resolutions were adopted by shareholders on 26 January 2015:

1.2.1 “Special resolution number 1: Approval to issue private placement shares in terms of sections 41(1) and 41(3) of the Companies Act

Resolved that, in accordance with sections 41(1) and 41(3) of the Companies Act, the issue by the company of up to 24 million ordinary shares, at a subscription price of R5.10 per share, in terms of the private placement to be undertaken by the company in accordance with the prospectus to be issued by the company during or about February 2015, be and is hereby approved, if and to the extent that such approval may be required because such shares (i) are issued to a director, future director, prescribed officer or future prescribed officer of the company, or to a person related or inter-related to the company, or to a person related or inter-related to a director or prescribed officer of the company, or to any nominee of such person, and/or (ii) equals to or exceeds 30% of the company’s issued ordinary share capital immediately before the issue of such shares in any transaction or series of integrated transactions.

In order for this special resolution to be adopted, the support of at least 75% of the total number of votes exercised by the shareholders was required to pass this resolution.”

1.2.2 “Ordinary resolution number 1: Approval to issue private placement shares in terms of the Memorandum of Incorporation

Resolved that the issue by the company of up to 24 million ordinary shares, at a subscription price of R5.10 per share, in terms of the private placement to be undertaken by the company in accordance with the prospectus to be issued by the company during or about February 2015, be and is hereby approved as a specific authority in terms of clause 7.7.2 of the Memorandum of Incorporation of the company, such issue of shares to be effected in terms of this approval, and not in terms of the general authority to issue shares for cash in terms of ordinary resolution number 3.


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1.2.3 “Ordinary resolution number 2: Control over unissued shares

Resolved that, in accordance with the Memorandum of Incorporation, the entire authorised but unissued share capital be and is hereby placed under the control and authority of the directors of the company, which directors are hereby authorised and empowered to allot, issue and otherwise dispose of such share capital to such person or persons on such terms and conditions and at such times as the directors of the company may from time to time and in their discretion deem fit, provided that the company’s Memorandum of Incorporation, the Companies Act and (once the listing has taken place) the JSE Listings Requirements, each as presently constituted and amended from time to time, have been complied with.


1.2.4 “Ordinary resolution number 3: General authority to issue shares for cash

Resolved that, the directors of the company be and are hereby authorised by way of a general authority, to issue shares in the capital of the company for cash, as and when they in their discretion deem fit, subject to the Companies Act, 2008, the Memorandum of Incorporation of the company, the JSE Listings Requirements, when applicable, and the following limitations, namely that:

• the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue;

• once listed any such issue will be made to “public shareholders” and not “related parties”, all as defined in the JSE Listings Requirements, unless the JSE otherwise agrees;

• the total aggregate number of ordinary shares which may be issued for cash in terms of this authority may not exceed 15 864 410 shares, being 15% of the aggregate number of ordinary shares in issue as at the date of this notice, excluding the 24 million shares to be issued in terms of the private placement separately authorised in special resolution number 1.

• in the event of a sub-division or consolidation of shares prior to this authority lapsing, the existing authority shall be adjusted accordingly to represent the same allocation ratio;

• this authority shall be valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given;

• the maximum discount at which the shares may be issued is 10% (ten percent) of the weighted average traded price of those shares over the 30 (thirty) business days prior to the date that the price of the issue is determined or agreed to between the company and the party/ies subscribing for the shares. The JSE should be consulted for a ruling if the company’s shares have not traded in such 30 (thirty) business day period; and

• upon any issue of ordinary shares which, together with prior issues of ordinary shares within the period that this authority is valid, constitute 5% (five percent) or more of the total number of ordinary shares is issue prior to that issue, the company shall publish an announcement in terms of section 11.22 of the JSE Listings Requirements, giving full details hereof, including (i) the number of ordinary shares issued, (ii) the average discount to weighted average traded price of the ordinary shares over the 30 (thirty) business days prior to the date that the issue is agreed in writing between the company and the party/ies subscribing for the shares; and (iii) an explanation (if any) of the intended use of the funds.”

In order for ordinary resolution number 3 to be adopted, the support of 75% of the total number of votes exercised by shareholders on the resolution was required.”

1.2.5 “Ordinary resolution number 4: Signature of documentation

Resolved that, any director of the company or the company secretary be and is hereby authorised to sign all such documentation and do all such things as may be necessary for or incidental to the implementation of special resolution number 1 and ordinary resolutions numbers 1 to 4 which are passed by the shareholders in accordance with and subject to the terms thereof.”


78

2. ALTERATIONS TO AUTHORISED SHARE CAPITAL

2.1 The company was incorporated as a public company on 27 August 2010 with authorised share capital of 500 million A ordinary shares of par value R0.01 each and 500 million B ordinary shares of par value R0.01 each.

2.2 On 23 January 2015, the company’s authorised share capital was increased to 1 billion ordinary shares of no par value, such that the company’s authorised share capital comprised 500 million A ordinary shares of par value R0.01 each, 500 million B ordinary shares of par value R0.01 each and 1 billion ordinary shares of no par value.

2.3 On 26 January 2015, the A and B debentures were redeemed at their face value.

2.4 On 26 January 2015, the A shares were repurchased and the ordinary shares were issued as consideration in the ratio of 1.586441 ordinary shares for every one A share held.

2.5 On 26 January 2015, the B shares were repurchased and the ordinary shares were issued as consideration in the ratio of 8.98983 ordinary shares for every one B shares held.

2.6 On 26 January 2015, the authorised share capital of the company was decreased by the cancellation of 500 million A ordinary shares of par value R0.01 each and 500 million B ordinary shares of par value R0.01 each from the authorised share capital of the company, such that the company’s authorised share capital comprises 1 billion ordinary shares of no par value.

2.7 There have been no sub-divisions or consolidations of shares during the preceding three years.

2.8 Other than as provided in this paragraph, there have been no other alterations to the authorised share capital of the company in the three years preceding the last practical date.

3. ISSUES AND REPURCHASES OF SHARES

3.1 Other than as set out in the table below and in paragraph 2 above, there have been no other issues, repurchases or offers of securities of the company in the three years preceding the last practical date.

Date Nature CounterpartyNumber of shares

Price per

share Reason

26 January2015

Issue of considerationshares

Jean Avenue Property Investments Proprietary Limited

11 554 579 R5.00 Issue ofsubscription

sharesDusty Gold Investments 4 Proprietary Limited 11 554 579Genia Capital Proprietary Limited 10 576 268Twenty Eight Twelve Investment Properties cc 10 047 468Redspiced Investments Proprietary Limited 9 783 050Spear Edge Investments Proprietary Limited 9 783 050Blue Dot Properties 456 Proprietary Limited 8 513 900Hollyrood Investments Proprietary Limited 8 513 900Numigraph Proprietary Limited 6 081 358Motrade 145 Proprietary Limited 4 759 325Eaglelet Investments Proprietary Limited 3 040 679Rumae Holdings Proprietary Limited 2 432 543Elderberry Investments 115 Proprietary Limited 2 432 543Kibera Investments Proprietary Limited 2 432 543Antediluvian Investments Proprietary Limited 2 432 544Wild Break 250 Proprietary Limited 1 216 271Limit 26 Investments One Proprietary Limited 608 136

105 762 736

3.2 There were no assets acquired or to be acquired out of the proceeds of any issues.

3.3 The entire authorised but unissued share capital of the company is placed under the control of the directors of the company, who are authorised and empowered to issue, allot and dispose of such share capital.

4. STATEMENT AS TO LISTING ON STOCK EXCHANGE

The shares of Lodestone are not listed on any other stock exchange.

79

Ann

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82

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84

Ann

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86

Annexure 13

FINANCIAL INFORMATION REQUIRED IN RESPECT OF LODESTONE IN TERMS OF REGULATION 79 OF THE COMPANIES ACT

In terms of Regulation 79 of the Companies Act, Annexure 13 includes the historical profits of the company and the Lodestone group for the preceding three financial periods being the years ended 30 June 2014, 30 June 2013 and 30 June 2012 as well as its statements of financial position as at 30 June 2014, 30 June 2013 and 30 June 2012.

Extract from statement of comprehensive income of the group

30 June 30 June 30 June2014 2013 2012

R’000 R’000 R’000

Recoveries and contractual rental revenue 132 921 107 155 62 082Straight-lining of rental revenue adjustment 6 209 10 663 5 611

Rental revenue 139 130 117 818 67 693Property operating expenses (53 922) (48 997) (25 674)

Net rental and related revenue 85 208 68 821 42 019Income from investments 2 383 – –Fair value gain on investments and

investment propertyFair value gain on investment properties 107 271 174 181 64 920

Adjustment resulting from straight-lining of rental revenue 98 685 184 844 70 531Fair value gain on investments (6 209) (10 663) (5 611)

14 795 – –

Administrative expenses (6 249) (6 200) (4 821)

Profit before net finance costs 188 613 236 802 102 118Net finance costs (44 951) (44 614) (41 087)Finance income 6 283 11 343 9 725

Interest from loans 3 603 3 999 9 725Fair value adjustment on interest rate derivatives 2 680 7 344 –

Finance costs (51 234) (55 957) (50 812)

Interest on borrowings (38 960) (31 064) (23 725)Capitalised interest 700 462 24Fair value adjustment on interest rate derivatives – – (9 500)Interest to linked debenture holders (12 974) (25 355) (17 611)

Profit before income tax 143 662 192 188 61 031Income tax expense (22 003) (44 538) (7 320)

Profit for the year 121 659 147 650 53 711

Total comprehensive income for the year 121 659 147 650 53 711

Dividends declaredLodestone Investments Proprietary Limited 6 721 – –Lodestone Properties Limited 27 503 – –

87

Extract from statement of comprehensive income of the company

30 June 30 June 30 June2014 2013 2012

R’000 R’000 R’000

Recoveries and contractual rental revenue – –Straight-lining of rental revenue adjustment – –

Rental revenue – –Property operating expenses – –

Net rental and related revenue – –Income from investments 6 723 – –Fair value gain on investments andinvestment propertyFair value gain on investment properties – – –

Adjustment resulting from straight-lining of rental revenue – – –Fair value gain on investments – – –

– – –

Administrative expenses – – –

Profit before net finance costs 6 723 – –Net finance costs 20 840Finance income 33 814 25 355 17 611

Interest from loans – – –Finance income from group companies 33 814 25 355 17 611Fair value adjustment on interest rate derivatives – – –

Finance costs (12 974) (25 355) 17 611

Interest on borrowings – – –Capitalised interest – – –Fair value adjustment on interest rate derivatives – – –Interest to linked debenture holders (12 974) (25 355) (17 611)

Profit before income tax 27 563 – –Income tax expense – – –

Profit for the year 27 563 – –

Total comprehensive income for the year 27 563 – –

Dividends declaredLodestone Investments Proprietary Limited – – –Lodestone Properties Limited – – –

88

Extract from the statement of financial position of the company and the group

GROUP COMPANY

30 June 2014

30 June 2013

30 June 2012

30 June 2014

30 June 2013

30 June 2012

R’000 R’000 R’000 R’000 R’000 R’000

ASSETSNon-current assetsInvestment property 876 103 784 735 496 752 – – –Straight-lining of rental revenue

adjustment 23 869 17 660 6 997 – – –Investment property under

development 14 718 6 955 3 832 – – –Investments 66 105 – – – – –Lodestone Unit Purchase Trust loans 8 778 – – – – –

989 573 809 350 507 581 – – –

Current assetsInvestment property held for sale 33 835 – – – – –Loans to linked unitholders 102 215 17 489 51 353 102 215 – –Trade and other receivables 10 413 11 116 5 434 – – –Amounts owing by group

companies – – – 50 100 115 249 108 433Current tax receivable – 370 – – – –Cash and cash equivalents 1 906 3 393 14 952 – – –

148 369 32 368 71 739 152 315 115 249 108 433

Total assets 1 137 942 841 718 579 320 152 315 115 249 108 433

EQUITY AND LIABILITIESTotal equity attributable to equity holdersShare capital 200 200 200 200 200 200Retained earnings – – – 60 – –Non-distributable reserves 390 117 295 961 148 311 – – –

390 317 296 161 148 511 260 200 200

Non-current liabilitiesInterest-bearing borrowings 498 916 346 965 126 113 30 567 – –Linked debentures 99 800 99 800 99 800 99 800 99 800 99 800 Deferred tax 88 377 66 433 21 895 – – –

687 093 513 198 247 808 130 367 99 800 99 800

Current liabilitiesInterest-bearing bearings 14 920 17 110 19 024 – – –Interest-bearing borrowings 23 924 – 155 544 – – –Linked debenture interest payable 12 974 15 249 8 433 12 974 15 249 8 433Dividends payable 8 714 – – 8 714 – –

60 532 32 359 183 001 21 688 15 249 8 433

Total equity and liabilities 1 137 942 841 718 579 320 152 315 115 249 108 433

89

Extract from the statements of changes in equity of the company and the group

Non-Share distributable Retained

capital reserves earnings TotalR’000 R’000 R’000 R’000

GROUP Balance at 30 June 2012 200 148 311 – 148 511Total comprehensive income for the year 147 650 147 650Transfer to non-distributable reserves 147 650 (147 650) –

Balance at 30 June 2013 200 295 961 – 296 161Total comprehensive income for the year 121 659 121 659Transfer to non-distributable reserves 94 156 (94 156) –Dividend declared (27 503) (27 503)

Balance at 30 June 2014 200 390 117 – 390 317

COMPANYBalance at 30 June 2012 200 – – 200Total comprehensive income for the year – –

Balance at 30 June 2013 200 – – 200Total comprehensive income for the year 27 563 27 563Dividend declared (27 503) (27 503)

Balance at 30 June 2014 200 – 60 260

90

Extract from the statements of cash flows of the company and the group

GROUP COMPANY

30 June 2014

30 June 2013

30 June 2014

30 June 2013

R’000 R’000 R’000 R’000

Operating activitiesCash generated from operations 78 582 52 714 6 723 –Interest from loans 3 603 3 999Finance income from group companies – – 33 814 25 355Interest on borrowings (38 960) (31 064)Interest paid to linked debenture holders (6 535) (18 539) (6 535) (18 539)Dividends paid (27 503) – (27 503) –Tax refunded 311 206 – –

Cash inflow from operating activities 9 498 7 316 6 499 6 816

Investing activitiesDevelopment and improvement of investment property (18 046) (20 826) – –Acquisition of investment property (24 000) (103 020) – –Proceeds on disposal of investment property – 5 799 – –Acquisition of investments (51 310) – – –Lodestone Unit Purchase Trust loans advanced (8 778) – – –Loans to linked unitholder (advanced)/repaid (84 726) 33 864 (102 215) –Decrease/(increase) in amounts owing by group companies – – 65 149 (6 816)

Cash outflow from investing activities (186 860) (84 183) (37 066) (6 816)

Financing activitiesIncrease in interest-bearing borrowings 175 875 65 308 30 567 –

Cash outflow from investing activities 175 875 65 308 30 567 –

Decrease in cash and cash equivalents (1 487) (11 559) – –Cash and cash equivalents at beginning of year 3 393 14 952 – –

Cash and cash equivalents at end of year 1 906 3 393 – –

Cash and cash equivalents consist of: Bank overdraft/current accounts 1 906 3 393 – –

91

Annexure 14

REPORT BY THE AUDITOR IN TERMS OF REGULATION 79 OF THE COMPANIES ACT IN RESPECT OF LODESTONE

“The DirectorsLodestone REIT Limited3rd Floor, Rivonia VillageRivonia BoulevardRivonia2191

23 January 2015

Dear Sirs

INDEPENDENT AUDITOR’S REPORT IN TERMS OF REGULATION 79 OF THE COMPANIES ACT OF SOUTH AFRICA ON THE FINANCIAL INFORMATION INCLUDED IN THE PROSPECTUS

Introduction

Deloitte & Touche are the appointed auditors of Lodestone REIT Limited (“the Company”) and Lodestone Investments Proprietary Limited and Lodestone Investments 2 Proprietary Limited (“the subsidiaries”). Regulation 79 of the Companies Act of South Africa requires us to report on the following financial information (“financial information”), which is included in the prospectus of Lodestone REIT Limited to be issued on or about 11 February 2015:

• the separate profits or losses of the company and the subsidiaries in respect of the years ended 30 June 2014, 30 June 2013 and 30 June 2012 as set out in Annexure 13 of the prospectus;

• the separate assets and liabilities of the company and the subsidiaries as at 30 June 2014, 30 June 2013 and 30 June 2012, as set out in Annexure 13 of the prospectus;

• the dividends paid by the company and the subsidiaries in respect of each class of securities for the years ended 30 June 2014, 30 June 2013 and 30 June 2012 as set out in Annexure 13 of the prospectus, including particulars of each class of share on which dividends were paid and cases where no dividends were paid in respect of a particular class of shares.

The financial information has been extracted from the audited financial statements of the company and the subsidiaries for the years ended 30 June 2014, 30 June 2013 and 30 June 2012, which were prepared in accordance with International Financial Reporting Standards and the Companies Act of South Africa. We expressed an unqualified audit opinion on those audited financial statements in our reports dated 24 November 2014 based on our audit which was conducted in accordance with International Standards on Auditing.

This financial information does not reflect the effects of events that may have occurred subsequent to the date of our audit report on those audited annual financial statements. Furthermore, the financial information does not contain all the disclosures required by the International Financial Reporting Standards and the requirements of the Companies Act of South Africa and therefore reading the financial information is not a substitute for reading the audited consolidated financial statements of the subsidiaries.

Extraction of financial information

As a result of the financial information being extracted from the audited financial statements, we can report that in the context of the audit performed on these financial statements:

• the financial information is not materially misstated and is prepared on a basis consistent with the Companies Act of South Africa;

• the debtors and creditors included in the financial information did not include any material amounts that were not trade accounts;

• the provision for doubtful debts included in the financial information did not appear to be materially misstated; and

• in respect of the financial information, the intercompany profits have been eliminated.

92

Responsibility of the directors for the financial information

The directors are responsible for the audited financial statements, the extraction of the financial information therefrom, and the presentation of the financial information in accordance with the requirements of the Companies Act of South Africa.

REPORT OF FACTUAL FINDINGS ON THE MATERIAL CHANGES IN THE ASSETS AND LIABILITIES

In accordance with Regulation 79 (4)(b)(v) we are required to include a statement in our report, as to whether there have been any material changes in the assets and liabilities of the Company and its subsidiaries since the financial statements for the year ended 30 June 2014.

As a result, we have performed the following procedures which were agreed with you:

• we reviewed the latest management accounts including the management accounts of the subsidiaries and compared the categories of assets and liabilities to the statement of financial position dated 30 June 2014. Where movements in the assets and liabilities were in excess of 20%, these have been reported in the findings below;

• we reviewed minutes of meetings of the board of directors of the Company and its subsidiaries since 30 June 2014 to identify any matters regarding material changes in the assets and liabilities, such as the sale or purchase of a significant asset; and

• we obtained a letter of representation from management confirming that there have been no material changes in the assets and liabilities of the Company and its subsidiaries since 30 June 2014.

Our engagement was undertaken in accordance with the International Standard on Related Services (ISRS) 4400: Engagements to Perform Agreed-Upon Procedures Regarding Financial Information. The procedures were performed solely to assist you in complying with Regulation 79 (4)(b)(v) of the Companies Act of South Africa.

Responsibilities of the directors

The directors have the responsibility for the accuracy and completeness of the records, documents, explanations and other information provided to us for the purpose of performing the procedures and for determining whether the nature and scope of our work specified in this factual findings report is sufficient for the purposes of evaluating the material changes in the assets and liabilities of the Company and its subsidiaries.

Responsibilities of the auditor

An agreed upon procedure engagement involves applying our expertise to perform procedures as agreed by us and the directors and reporting the factual findings from the procedures performed. We have complied with relevant ethical requirements, including the principles of integrity, objectivity, professional competence and due care.

Since an agreed upon procedure engagement is not an assurance engagement, we are not required to verify the accuracy or completeness of the information management has provided to us to complete the agreed upon procedure engagement. Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the material changes in the assets and liabilities of the Company and its subsidiaries. Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our attention that would have been reported.

Findings

We report our findings as follows:

• On 1 December 2014, we compared the below categories of assets and liabilities per the management accounts of the Company and the subsidiaries as at 30 September 2014 to the statement of financial position for the year ended 30 June 2014:

– non-current assets; – current assets; – non-current assets classified as held for sale; – non-current liabilities; – current liabilities; – non-current liabilities directly associated with assets classified as held for sale; and – no movement exceeding 20% in assets and liabilities were noted.

• On 1 December 2014, we reviewed minutes of meetings of the board of directors of the Company and its subsidiaries since 30 June 2014 and did not identify any matters regarding material changes in the assets and liabilities, such as the sale or purchase of a significant asset;

93

• On 1 December 2014, we obtained a letter of representation from management confirming that there have been no material changes in the assets and liabilities of the Company and its subsidiaries since 30 June 2014.

Our findings relate only to the accounts and items specified above and do not extend to any financial statements of the Company taken as a whole.

Consent

We consent to the inclusion of this report, which will form part of the prospectus to the shareholders of Lodestone REIT Limited, to be issued on or about 11 February 2015, in the form and context in which it appears. Our report should not to be used for any other purpose or be distributed to any other parties.

Deloitte & ToucheRegistered Auditors

Per P KlebPartner

Deloitte & ToucheDeloitte PlaceThe WoodlandsWoodlands DriveWoodmead2196

National Executive: LL Bam Chief Executive AE Swiegers Chief Operating Officer GM Pinnock Audit DL Kennedy Risk Advisory NB Kader Tax & Legal Services TP Pillay Consulting K Black Clients & Industries JK Mazzocco Talent & Transformation MJ Jarvis Finance M Jordan Strategy S Gwala Managed Services TJ Brown Chairman of the Board MJ Comber Deputy Chairman of the Board

A full list of partners and directors is available on request.”

94

Annexure 15

FORECAST STATEMENTS OF COMPREHENSIVE INCOME OF THE LODESTONE GROUP

Set out below are the forecast statements of comprehensive income of the Lodestone group (“forecasts”) for the period ending 31 March 2015 and year ending 31 March 2016 (“forecast periods”). The results for the period ending 31 March 2015 includes 3 months of actual results to 30 September 2014 and forecast results from 1 October 2014 to 31 March 2015.

The forecasts, including the assumptions on which they are based and the financial information from which they are prepared, are the responsibility of the directors. The forecasts must be read in conjunction with the Independent Reporting Accountant’s limited assurance report thereon which is attached as Annexure 16. The forecasts have been prepared in compliance with IFRS and in accordance with the group’s accounting policies as set out in Annexure 22.

FORECAST STATEMENTS OF COMPREHENSIVE INCOME OF THE LODESTONE GROUP

Forecast for the 9 months ending

31 March 2015

Forecast for the year ending

31 March 2016

R’000 R’000

Recoveries and contractual rental revenue 104 806 147 748Straight-lining of rental revenue adjustment 301 1 784

Rental revenue 105 107 149 532Property operating expenses (39 074) (55 096)

Net rental and related income 66 033 94 436Distributable income from investments 850 –Operating expenses (6 254) (11 003)Listing expenses (5 250) –Fair value gain on investment property 30 640 –Fair value adjustment resulting from straight lining of rental income (301) (1 784)Fair value gain on investments 12 870 –

Net operating profit before interest and taxation 98 588 81 649Interest received on loans 603 845Interest paid on borrowings (28 032) (28 754)

Net profit before taxation 71 159 53 740Taxation (5 245) –

Net profit for the period 65 914 53 740

Amount available to be declared as dividend 32 899 53 740

Clean out dividend to be declared on 1 December 2014 16 067 –Amount available to be declared as dividend post listing 16 832 53 740

Reconciliation of net profit for the period to headline earnings

Basic earnings – Profit for the period attributable to equity holders 71 159 53 740Fair value gain on investment property (30 640) –Fair value adjustment resulting from straight-lining of rental income 301 1 784Fair value gain on investments (12 870) –

Headline earnings 27 950 55 524

95

Forecast for the 9 months ending

31 March 2015

Forecast for the year ending

31 March 2016

R’000 R’000

Weighted average ordinary shares in issue and to be issued 116 429 403 129 762 736Basic earnings per ordinary share (cents) 61.12 41.41Headline earnings per ordinary share (cents) 24.01 42.79Dividend per ordinary share – pre-listing (cents) 15.19 –Dividend per ordinary share – post listing (cents) 12.97 41.41Annualised yield on ordinary shares based on R5.00 issue price per ordinary share 7.5% 8.3%

Notes and assumptions

The forecasts incorporate the following material assumptions in respect of revenue and expenses that can be influenced by the directors:

• Lodestone’s management forecasts for the period ending 31 March 2015 and year ended 31 March 2016 are based on information derived from the property managers, historical information and work performed by the valuer;

• Lodestone will not acquire or dispose of any properties during the period of the forecasts other than those detailed in Annexure 12 and Annexure 23;

• contracted revenue is based on existing lease agreements;

• uncontracted revenue amounts to 5.3% of rental revenue for the period ending 31 March 2015 and 14.7% of rental revenue for the period ending 31 March 2016;

• all existing lease agreements are valid;

• turnover rental (rental income based on the actual turnover of the tenant) has only been forecast for those tenants who have previously been subject to turnover rental clauses;

• in considering the re-letting of expiring leases, the property managers and asset managers consider the expiring rental, the market related rental in the area in which the property is located and the opportunities for re-letting. The forecast also assumes a lag between expiration of the lease and the re-letting if it is assumed that the tenant will not renew. Provision has been included for letting commission and tenant installation;

• leases expiring during the periods have been forecast on a lease-by-lease basis, and in circumstances where discussion with the lessee has proven positive are forecast to be let at current market rates;

• Lodestone management’s forecast property operating expenditure has been determined based on their review of historical expenditure, where available, and discussion with the property managers;

• the properties have been fair valued at 1 December 2014;

• this profit forecast has been compiled utilising the accounting policies of the Lodestone group as set out in Annexure 22;

• Other than electricity consumption and rates and taxes, there have been no material expenditure items, there have been no changes of more than 15% between historical expenses and forecast expenses relating to material expenditure items and all adjustments are expected to have a continuing effect.

The forecasts incorporate the following material assumptions in respect of revenue and expenses that cannot be influenced by the directors:

1. the effective date for determining income attributable to the shareholders post listing is 1 December 2014;

2. the issue price of R5.10 per private placement share is assumed to include a dividend amount of 10 cents per share relating to the period from 1 December 2014 to 25 February 2015, being the date the shares are anticipated to be issued. Accordingly, the forward yield in respect of the period ending 31 March 2015 and the year ending 31 March 2016 has been calculated with a clean issue price of R5.00 per private placement share, being the issue price excluding the dividend amount of 10 cents.

3. variable rate borrowings of R323 million incur interest at 1.90% above Jibar;

4. there will be no unforeseen economic factors that will affect the lessees’ abilities to meet their commitments in terms of existing lease agreements;

5. other income is in respect of the interest earned on loans advanced to the directors to purchase shares in Lodestone; and

6. consumption based recoveries are consistent with the valuer’s property income statements.

The forecast has been prepared in full compliance with Lodestone’s IFRS accounting policies and has been prepared on an aggregated basis for the property portfolios.

96

Annexure 16

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE PROPERTY FORECAST STATEMENTS OF COMPREHENSIVE INCOME OF THE LODESTONE GROUP


23 January 2015

Dear Sirs

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE PROPERTY FORECAST INCLUDED IN THE PROSPECTUS

We have examined the property forecast statements of comprehensive income and the underlying assumptions of Lodestone REIT Limited (“the company”), Lodestone Investments Proprietary Limited and Lodestone Investments 2 Proprietary Limited (“the subsidiaries”) collectively, (“the group”) for the period ending 31 March 2015 and financial year ending 31 March 2016, as set out in Annexure 15 of the prospectus to be dated on or around 11 February 2015 (the “prospectus”), and the forecast vacancy profile, by sector and by gross lettable area and the forecast lease expiry profile based on existing lease agreements, as set out in paragraph 3.4.1 of the prospectus (collectively “forecast information”).

The forecast information has been prepared and presented in accordance with the JSE Listings Requirements. In terms of the JSE Listings Requirements, the forecast statements of comprehensive income must be prepared on an aggregated basis for the property portfolio on the basis of the future accounting policies of the group which must be in accordance with International Financial Reporting Standards.

Directors’ responsibility

The directors are responsible for the preparation and presentation of the forecast information in accordance with the JSE Listings Requirements, including the assumptions set out in Annexure 15, on which it is based, and for the financial information from which it has been prepared. This responsibility includes determining whether:

• the assumptions, barring unforeseen circumstances, provide a reasonable basis for the preparation of the forecast information;

• the forecast information has been properly compiled on the basis stated;

• the forecast information has been properly presented and that all material assumptions are adequately disclosed; and

• the forecast information is presented on a basis consistent with the accounting policies of the group.

Reporting accountant’s responsibility

Our responsibility is to express a limited assurance conclusion on the reasonableness of the assumptions used in the forecast information and whether the forecast information has been prepared on the basis of those assumptions and is presented in accordance with the JSE Listings Requirements, based on the procedures we have performed and the evidence we have obtained.

We conducted our assurance engagement in accordance with the International Standard on Assurance Engagement (“ISAE”) 3400: The Examination of Prospective Financial Information (“ISAE 3400”), issued by the International Auditing and Assurance Standards Board and the SAICA circular entitled “The reporting accountant’s reporting responsibilities in terms of section 13 of the Listings Requirements of the JSE Limited”. This standard requires that we plan and perform the engagement to obtain sufficient appropriate evidence on which to base our limited assurance conclusion as to whether or not:

97

• management’s best-estimate assumptions on which the forecast information is based are not unreasonable and are consistent with the purpose of the information;

• the forecast information is properly prepared on the basis of the assumptions;

• the forecast information is properly presented and all material assumptions are adequately disclosed;

• the forecast information is prepared and presented on a basis consistent with the accounting policies of the group in question for the period concerned; and

• the property forecast reflects a profit before taxation of more than R16 million for the period ending 31 March 2015 and R54 million for the year ending 31 March 2016 after taking into account the headline earnings adjustments and before any distributions to security holders as required by JSE Listings Requirement 13.3(a).

In a limited assurance engagement, the evidence-gathering procedures vary in nature from, and are less in extent than for a reasonable assurance engagement and, therefore, less assurance is obtained than in a reasonable assurance engagement. We believe that the evidence obtained is sufficient and appropriate to provide a basis for our limited assurance conclusion.

Information and sources of information

In arriving at our conclusion, we have relied upon forecast financial information prepared by management of the group and other information from various public, financial and industry sources.

The principal sources of information used in arriving at our conclusion are as follows:

• the audited historical financial information of the company and the subsidiaries for the year ended 30 June 2014;

• management prepared forecasts for the period ending 31 March 2015 and year ending 31 March 2016;

• discussions with the management of the group regarding the forecasts presented;

• discussions with management of the group regarding the prevailing market and economic conditions;

• discussions with the property managers with regard to the forecast expenses;

• lease agreements for a sample of the leases as set out below;

• valuation reports in respect of some of the properties;

• property management agreements, acquisition agreements and agreements with promoters, where applicable;

• term sheets and loan agreements from bankers.

Procedures

In arriving at our limited assurance conclusion we performed the following procedures and evaluated the overall presentation of the forecast information:

Rental income

• The forecast contracted rental income streams per the profit forecast, were selected for a sample of properties and agreed to the underlying lease agreements. The total coverage obtained was 70.4% for the period ending 31 March 2015 and 70.7% for the year ending 31 March 2016 of the forecast contracted rental income.

• The rental income streams from the above sample were recalculated to test the accuracy of the information contained in the profit forecast.

• For that same sample of properties, forecast recoveries were compared to historical recoveries and the forecast operating expenditure to test for reasonableness. The terms of the leases were considered so as to test that the basis of the recoveries was correct.

• Forecast rental income resulting from profit warranties provided by the seller was agreed to the relevant purchase agreement, where applicable.

• Existing lease agreements that will expire during the period under review were discussed individually with asset managers. Unless the existing tenant has indicated that it intends to vacate the premises, it has been assumed that the existing tenant will renew the lease agreement and the resultant uncontracted rental income has been included in the forecast.

• Space that is currently empty has been excluded from the forecast except where the property manager has demonstrated that the vacant space is in the process of being let but that the lease agreement in that regard had not been signed on the date of posting the prospectus.

98

• The vacancy levels per the forecast model were compared to the historical vacancy levels to test for reasonableness. Uncontracted rental income comprises 10% and 28% of the total forecast revenue for the period ending 31 March 2015 and year ending 31 March 2016 respectively.

Expenses

For a sample of properties, forecast expenses were compared to the historical expenses and explanations were obtained for any significant differences. The total expenses tested amounted to 41% and 43% of the total forecast expenses for the period ending 31 March 2015 and year ending 31 March 2016 respectively.

The detailed forecast expenditure was reviewed and the following expenses were noted that exceed 10% of total expenditure, as required by paragraph 13.14 of the JSE Listings Requirements:

• rates and taxes of R5 922 414 (17%) for the period ending 31 March 2015 and R9 073 234 (16%) for the year ending 31 March 2016;

• electricity consumption of R18 694 343 (47%) for the period ending 31 March 2015 and R24 349 748 (44%) for the year ending 31 March 2016.

Portfolio expenses

The forecast interest income, interest expense, property management fees and other portfolio expenses were assessed for reasonableness and, where applicable, recalculated.

Application of accounting policies

We ascertained that the accounting policies to be applied by the group in the future were applied consistently in arriving at forecast income and that they are in compliance with International Financial Reporting Standards.

Model review

We determined that the assumptions tested in the procedures described above were those used in the forecast model.

Vacancy profile and lease expiry profile

We reviewed the individual property worksheets to ascertain that the vacancy profile and the lease expiry profile included in the model were derived from the correct sources. We compared the vacancy profile and lease expiry profile included in paragraph 3.4 of the prospectus to the vacancy profile and lease expiry profile in the model and found them to be in agreement.

Inherent limitations

Achievability of the results

The forecast information is based on assumptions about events that may occur in the future and possible actions by the group. It is highly subjective in nature and its preparation requires the exercise of considerable judgement. While evidence may be available to support the assumptions on which the forecast information is based, such evidence is itself generally future oriented and, therefore, speculative in nature. Therefore we are unable to express an opinion as to whether the results shown in the forecast information will be achieved.

Accuracy of the information

The objective of our engagement is to provide a limited assurance conclusion on the reasonableness of the assumptions used in the forecast information, whether the forecast information has been prepared on the basis of those assumptions and is presented in accordance with the JSE Listings Requirements. We have relied upon and assumed the accuracy and completeness of the information provided to us in writing, or obtained through discussions from the management of the group. While our work has involved an analysis of historical financial information and consideration of other information provided to us, our assurance engagement does not constitute an audit or review of historical financial information conducted in accordance with International Standards on Auditing or International Standards on Review Engagements. Accordingly, we do not express an audit or review opinion thereon and assume no responsibility and make no representations in respect of the accuracy or completeness of any information provided to us, in respect of the property forecast and relevant information included in the prospectus.

99

Limited Assurance Conclusion

Based on our examination of the evidence obtained, nothing has come to our attention that causes us to believe that:

• the assumptions, barring unforeseen circumstances, do not provide a reasonable basis for the preparation of the forecast information;

• the forecast information has not been properly compiled on the basis stated;

• the forecast information has not been properly presented in accordance with the JSE Listings Requirements and all material assumptions are not adequately disclosed; and

• the forecast information is not presented on a basis consistent with the accounting policies of the company or group in question.

Actual results are likely to be different from the forecast, since anticipated events frequently do not occur as expected and the variation may be material.

Restriction on Distribution

Our report and the conclusion contained herein is provided solely for the benefit of the directors of the company and existing and prospective shareholders of the group for the purpose of their consideration of the listing of the company on the Johannesburg Stock Exchange. This letter is not addressed to and may not be relied upon by any other third party for any purpose whatsoever.

Consent

We consent to the inclusion of this report, which will form part of the prospectus to the shareholders of the company, to be issued on or about 11 February 2015, in the form and context in which it appears.


Per P KlebPartner




100

Annexure 17

CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL POSITION OF THE LODESTONE GROUP

Set out below is the consolidated pro forma statement of financial position of the Lodestone group based on the audited statement of financial position of Lodestone as at 30 June 2014. The consolidated pro forma statement of financial position has been prepared to reflect the financial position of the Lodestone group after adjusting for (collectively, “the adjustments”), on the assumption that the adjustments took place on 30 June 2014 and on the basis set out in the notes to the consolidated pro forma statement of financial position below.

The consolidated pro forma statement of financial position is the responsibility of the directors of Lodestone and has been prepared for illustrative purposes to illustrate the effects of the adjustments on Lodestone’s financial position at 30 June 2014. Due to the nature of the consolidated pro forma statement of financial position, it may not give a fair reflection of the financial position, changes in equity, and results of operations or cash flows of Lodestone after the adjustments.

The independent reporting accountant’s report on the consolidated pro forma statement of financial position is set out in Annexure 18. The independent reporting accountant’s report on the value and existence of the assets and liabilities to be acquired by the company is set out in Annexure 19.

The consolidated pro forma financial information has been prepared in terms of IFRS, The Guide on Pro forma Financial Information issued by SAICA and the accounting policies of the company set out in Annexure 22.

101

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103

1. The amounts in the Lodestone column have been extracted, without adjustment, from the audited consolidated financial statements of Lodestone Properties Limited (renamed Lodestone REIT Limited) as at 30 June 2014 included as Annexure 20 of the prospectus. The financial statements were audited by Deloitte & Touche who issued an unqualified audit opinion which is included as Annexure 21 and will be available for inspection as set out in paragraph 36.

2. Represents the reduction in deferred tax due to Lodestone’s REIT status which no longer requires the provision of deferred tax on the revaluation of investment property.

3. On listing 24 000 000 ordinary shares will be issued at an issue price of R5.10 per share as a result of the private placement and the proceeds will be used to settle interest-bearing borrowings. The share price for listing and the private placement were determined using the net asset value at 1 December 2014, being the effective date of the capital restructure, further details of which are set out in Annexure 10, which included the revaluation of investment property to R979 million.

4. Estimated private placement and listing costs of R5.25 million have been assumed to be paid in cash. R0.15 million of the estimated private placement and listing costs which relate to the listing of Lodestone shares, was deducted against the stated capital of Lodestone in accordance with IAS 32 (Financial Instruments: Presentation) and the balance of R5.1 million were expensed.

5. The directors are not aware of any other matters or circumstances arising subsequent to 30 June 2014 that require any additional disclosure or adjustment to the pro forma statement of financial position.

6. Siyabuswa was assumed to have transferred on 30 June 2014 and the proceeds of R34 million were offset against the interest-bearing borrowings.

7. The Rockcastle shares were assumed to have been sold at 30 June 2014 at an average of R21.15 per share for R82.08 million. Capital gains tax of R5.8 million on the sale has been raised. The proceeds of the sale have been offset against interest-bearing borrowings.

8. Makhado Square is assumed to transfer on 30 June 2014 for R37.5 million assumed to be funded using interest-bearing borrowings. The property was adjusted to its fair value in terms of IFRS.

9. In preparation for listing, the A and B linked units were redeemed. The debentures were repaid using bank funding. Ordinary shares were issued as consideration for the A and B shares.

10. The Siyabuswa land was assumed to be sold on 30 June 2014 for R4 million. The proceeds were offset against interest-bearing borrowings.

11. Lodestone applies all net rental income received against its interest-bearing borrowings. The interest-bearing borrowings have been refinanced with Standard Bank facilities maturing in 2017 details of which are set out in Annexure 11. Lodestone has sufficient unutilised facilities to settle its obligations under current liabilities.

104

Annexure 18

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF THE CONSOLIDATED PRO FORMA STATEMENT OF FINANCIAL POSITION OF THE LODESTONE GROUP


23 January 2015

Dear Sirs

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA STATEMENT OF FINANCIAL POSITION INCLUDED IN THE PROSPECTUS

We have completed our assurance engagement to report on the compilation of pro forma financial information of Lodestone REIT Limited by the directors. The pro forma financial information, as set out in Annexure 17 of the prospectus, to be dated on or about 11 February 2015 (“prospectus”), consists of the statement of financial position and related notes. The pro forma financial information has been compiled on the basis of the applicable criteria specified in the JSE Limited (“JSE”) Listings Requirements.

The pro forma financial information has been compiled by the directors to illustrate the impact of the transaction, described in paragraph 16 of the prospectus, being the private placement, on the company’s financial position as at 30 June 2014, being the last day of the financial year for the purposes of the statement of financial position. As part of this process, information about the company’s financial position has been extracted by the directors from the company’s financial statements for the year ended 30 June 2014, on which an unqualified auditor’s report was issued on 24 November 2014.

Directors’ responsibility for the pro forma financial information

The directors are responsible for compiling the pro forma financial information on the basis of the applicable criteria specified in the JSE Listings Requirements and described in Annexure 17 of the prospectus.

Reporting Accountants’ responsibility

Our responsibility is to express an opinion about whether the pro forma financial information has been compiled, in all material respects, by the directors on the basis specified in the JSE Listings Requirements based on our procedures performed. We conducted our engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the Compilation of Pro forma Financial Information Included in a Prospectus which is applicable to an engagement of this nature. This standard requires that we comply with ethical requirements and plan and perform our procedures to obtain reasonable assurance about whether the pro forma financial information has been compiled, in all material respects, on the basis specified in the JSE Listings Requirements.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

As the purpose of pro forma financial information included in a prospectus is solely to illustrate the impact of a significant corporate action or event on unadjusted financial information of the entity as if the transaction had occurred or had been undertaken at an earlier date selected for purposes of the illustration, we do not provide any assurance that the actual outcome of the transaction at 1 December 2014 would have been as presented.

105

A reasonable assurance engagement to report on whether the pro forma financial information has been compiled, in all material respects, on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used in the compilation of the pro forma financial information provides a reasonable basis for presenting the significant effects directly attributable to the corporate action or event, and to obtain sufficient appropriate evidence about whether:

• the related pro forma adjustments give appropriate effect to those criteria; and

• the pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

Our procedures selected depend on our judgment, having regard to our understanding of the nature of the company, the corporate action or event in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

Our engagement also involves evaluating the overall presentation of the pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the pro forma financial information has been compiled, in all material respects, on the basis of the applicable criteria specified by the JSE Listings Requirements and described in Annexure 17 of the prospectus.


Per P KlebPartner




106

Annexure 19

INDEPENDENT REPORTING ACCOUNTANT’S REVIEW REPORT ON THE VALUATION AND EXISTENCE OF THE ASSETS AND LIABILITIES ACQUIRED


23 January 2015

Dear Sirs

REVIEW CONCLUSION ON THE VALUATION AND EXISTENCE OF THE ASSETS AND LIABILITIES ACQUIRED BY LODESTONE REIT LIMITED (“LODESTONE”)

Introduction

We have reviewed the assets and liabilities acquired by Lodestone as reflected in the acquisition adjustment column of the pro forma statement of financial position included in Annexure 17 of the prospectus to be issued on or about 11 February 2015 (“the prospectus”) relating to the assets and liabilities to be acquired by Lodestone prior to the listing on the JSE Limited. The directors are responsible for the compilation, contents and preparation of the adjustment columns of the pro forma statement of financial position in accordance with International Accounting Standards on Interim Financial Reporting (IAS 34) and the requirements of the Companies Act of South Africa. Our responsibility is to express a review conclusion on the valuation and existence of the assets and liabilities acquired as reflected in the adjustment columns in accordance with the accounting policies adopted by Lodestone and the recognition and measurement criteria of International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act of South Africa.

Scope of review

We conducted our review in accordance with International Standards on Review Engagements 2410: Review of Interim Financial Information Performed by the independent auditor of the entity. This standard requires that we plan and perform the review to obtain moderate assurance on the valuation and existence of the assets and liabilities acquired by Lodestone as reflected in the adjustment columns of the pro forma statement of financial position. Our review conclusion is included in this prospectus in accordance with paragraph 13.16(e) of the JSE Listings Requirements.

A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the assets and liabilities acquired by Lodestone as reflected in the adjustment column of the pro forma statement of financial position included in Annexure 17 of the prospectus are not fairly valued, do not exist or are not fairly presented, in all material respects, in accordance with the accounting policies adopted by Lodestone, IFRS and in the manner required by the Companies Act of South Africa.


Per P KlebPartner

107




108

Annexure 20

HISTORICAL FINANCIAL INFORMATION

Set out below are extracts from the audited consolidated financial statements (“financial statements”) of Lodestone REIT Limited (“Lodestone”) for the years ended 30 June 2014 and 30 June 2013. These extracts are the responsibility of Lodestone’s directors. The independent reporting accountants’ report on the historical financial information is presented in Annexure 21.

The financial statements for the years ended 30 June 2014 and 30 June 2013, from which the information below was extracted, were prepared in accordance with the International Financial Reporting Standards and interpretations adopted by the International Accounting Standards Board and which were audited by Deloitte & Touche in accordance with International Standards on Auditing, who issued an unqualified audit opinion on the financial statements for the years ended 30 June 2014 and 30 June 2013.

The audited financial statements for the year ended 30 June 2014 and 30 June 2013 are available for inspection at the company’s registered address.

Nature of business

The company and the group is involved in the investment in and letting of properties. The financial statements were prepared under the supervision of Jason Cooper, director.

Incorporation

The company was incorporated on 27 August 2010.

Results of operations

The results of operations are set out in the following pages.

Dividends

No dividends were declared during the current period or prior year.

Share capital

There are no changes in the authorised or issued share capital during the year.

Shareholders

The shareholders are:

Number of A ordinary

shares

Number of B ordinary

shares

Dusty Gold Investments 4 Proprietary Limited 1 900 000 950 000Jean Avenue Property Investments Proprietary Limited 1 900 000 950 000Blue Dot Properties 456 Proprietary Limited 1 400 000 700 000Hollyrood Investments Proprietary Limited 1 400 000 700 000Numigraph Proprietary Limited 1 000 000 500 000Eaglelet Investments Proprietary Limited 500 000 250 000Antediluvian Investments Proprietary Limited 400 000 200 000Elderberry Investments 115 Proprietary Limited 400 000 200 000Kibera Investments Proprietary Limited 400 000 200 000Rumae Holdings Proprietary Limited 400 000 200 000Wild Break 250 Proprietary Limited 200 000 100 000Limit 26 Investments One Proprietary Limited 100 000 50 000Genia Capital Proprietary Limited – 1 176 470Twenty Eight Twelve Investment Properties cc – 1 117 648Redspiced Investments Proprietary Limited – 1 088 235Spear Edge Investments Proprietary Limited – 1 088 235Motrade 145 Proprietary Limited – 529 412

10 000 000 10 000 000

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STATEMENT OF FINANCIAL POSITION as at 30 June 2014

Group 30 June

2014

Group 30 June

2013

Company 30 June

2014

Company 30 June

2013Notes R’000 R’000 R’000 R’000

ASSETSNon-current assetsInvestment property 2 876 103 784 735 – –Straight-lining of rental revenue adjustment 2 23 869 17 660 – –Investment property under development 2 14 718 6 955 – –Investments 3 66 105 – * *Loans to directors 4 8 778 – – –

989 573 809 350 – –

Current assetsInvestment property held for sale 2 33 835 – – –Loans to linked unitholders 5 102 215 17 489 102 215 –Trade and other receivables 6 10 413 11 116 – –Amounts owing by group companies 7 – – 50 100 115 249Current tax receivable – 370 – –Cash and cash equivalents 1 906 3 393 – –

148 369 32 368 152 315 115 249

TOTAL ASSETS 1 137 942 841 718 152 315 115 249

EQUITY AND LIABILITIESTotal equity attributable to equity holdersShare capital 8 200 200 200 200Retained earnings – – 60 –Non-distributable reserves 9 390 117 295 961 – –

390 317 296 161 260 200

Non-current liabilitiesInterest-bearing borrowings 10 498 916 346 965 30 567 –Linked debentures 11 99 800 99 800 99 800 99 800Deferred tax 12 88 377 66 433 – –

687 093 513 198 130 367 99 800

Current liabilitiesTrade and other payables 13 14 920 17 110 – –Interest-bearing borrowings 10 23 924 – – –Linked debenture interest payable 12 974 15 249 12 974 15 249Dividends payable 8 714 – 8 714 –

60 532 32 359 21 688 15 249

TOTAL EQUITY AND LIABILITIES 1 137 942 841 718 152 315 115 249

Net asset value per combined linked unit 19.52 14.81 7.43 –Tangible net asset value per combined linked unit 19.52 14.81 7.43 –

110

SUMMARY OF ACCOUNTING POLICIESFor the year ended 30 June 2014

Reporting entity

Lodestone REIT Limited (the “company”) is a company domiciled in South Africa. The consolidated financial statements of the company for the years ended 30 June 2014 and 30 June 2013 comprise the company and its subsidiaries (together referred to as the “group”).

Basis of preparation

Basis of measurement

The annual financial statements are prepared on the historical cost basis, except for investment properties, derivative financial instruments and financial instruments classified as “financial instruments measured at fair value through profit or loss” which are carried at fair value.

Statements of compliance

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the Independent Accounting Standards Board and the requirements of the Companies Act of South Africa. The accounting policies adopted are consistent with those applied in the prior years with the exception of the adoption of new and revised standards which became effective during the year. The adoption of these standards did not have a material effect on the financial statements.

Functional and presentation currency

The annual financial statements are presented in Rand, which is also the functional currency of the group, rounded to its nearest thousand (R’000) unless otherwise indicated.

Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or the year of the revision and future years if the revision affects both current and future years.

1. ACCOUNTING POLICIES

1.1 Basis of consolidation

Subsidiaries

The consolidated annual financial statements incorporate the annual financial statements of the company and entities controlled by the company and its subsidiaries. Control is achieved when the company:

• has power over the investee;• is exposed, or has rights, to variable returns from its involvement with the investee; and• has the ability to use its power to affect its returns.The company reassesses whether or not it controls an investee if the facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The company considers all relevant facts and circumstances in assessing whether or not the company’s voting rights in an investee are sufficient to give it power, including:

• the size of the company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the company, other vote holders or other parties;

111

• rights arising from other contractual arrangements; and• any additional facts and circumstances that indicate that the company may have the current ability to direct

the relevant activities at the time that decisions need to be made.The group financial statements incorporate the assets, liabilities, operating results and cash flows of the company and its subsidiaries. The results of subsidiaries acquired or disposed of during the period are included from the effective dates of acquisition and up to the effective dates of disposal.

The accounting policies of the subsidiaries are consistent with those of the holding company.

In the company’s separate financial statements, investments in subsidiaries are stated at cost less accumulated impairment losses.

Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

1.2 Investment property

Investment property

Investment properties are those held either to earn rental income or for capital appreciation or both but not for sale in the ordinary course of business or for administration purposes.

The cost of investment property comprises the purchase price and directly attributable expenditure. Subsequent expenditure relating to investment property is capitalised when it is probable that there will be future economic benefits from the use of the asset. All other subsequent expenditure is recognised as an expense in the year in which it is incurred.

After initial recognition, investment properties are measured at fair value. Fair values are determined annually by external independent professional valuers with appropriate and recognised professional qualifications and recent experience in the location and category of property being valued. Valuations are done on the open market value basis and the valuers use either the discounted cash flow method or the capitalisation of net income method or a combination of the methods. Gains or losses arising from changes in the fair values are included in profit or loss for the year in which they arise. Unrealised gains, net of deferred tax, are transferred to a non-distributable reserve in the statements of changes in equity. Unrealised losses, net of deferred tax, are transferred to a non-distributable reserve to the extent that the decrease does not exceed the amount held in the non-distributable reserve.

Immediately prior to disposal of investment property, the investment property is revalued to the net proceeds and such revaluation is recognised in profit or loss in the year in which it occurs.

When the group redevelops an existing investment property for continued future use as investment property, the property remains classified as investment property. The investment property is not reclassified as investment property under development during the redevelopment.

Investment property under development

Property that is being constructed or developed for future use as investment property is classified as investment property under development and is measured at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property. At the date of reclassification, the difference between fair value and cost is recorded in profit or loss for the year.

All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs, are capitalised.

Borrowing costs are capitalised to the extent that they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of development cost financed out of general funds, the weighted average cost of borrowings.

Investment property held for sale

Immediately before classification as held for sale, the measurement of the investment property is brought up to date in accordance with applicable IFRS. Then, on initial classification as held for sale, the investment property continues to be recognised at fair value.

112

Leased property

Leases in terms of which the group assumes substantially all the risks of ownership are classified as finance leases. The property acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease.

The property held under finance leases and leased out under operating leases is classified as investment property and stated at fair value.

Leases in terms of which the group does not assume substantially all the risks and rewards of ownership are classified as operating leases.

1.3 Financial instruments

Financial instruments include cash and cash equivalents, investments in listed property securities, trade and other receivables, and trade and other payables.

Recognition

Financial instruments are initially measured at fair value which, except for financial instruments measured at fair value through profit and loss, includes directly attributable transaction costs.

Subsequent to initial recognition, financial instruments are measured as follows:

Cash and cash equivalents – Carried at amortised cost.Investments – Carried at fair value, being the quoted closing price at the

statements of financial position date through profit or loss.Loans – Stated at amortised cost using the effective interest method net of

impairment losses.Trade and other receivables – Stated at amortised cost using the effective interest method net of

impairment losses.Amounts owing by group companies – Stated at amortised cost using the effective interest method net of

impairment losses.Trade and other payables – Carried at amortised cost using the effective interest method.Amounts owing to group companies – Carried at amortised cost using the effective interest method.Interest-bearing borrowings – Carried at amortised cost using the effective interest method.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the contractual rights to receive cash flows from the asset have expired;• the group or company has transferred its rights to receive cash flows from the asset and either has transferred

substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position when the group and/or company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

113

1.4 Derivative financial instruments

The group uses derivative financial instruments to hedge its exposure to interest rate risks arising from financing activities. In accordance with its treasury policy, the group does not hold or issue derivative financial instruments for trading purposes. Derivatives used as hedges which do not qualify as such in terms of hedge accounting rules, are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are accounted for through profit or loss. Directly attributable transaction costs are recognised in profit and loss when incurred.

The fair value of interest rate swaps is the estimated amount that the group would receive or pay to terminate the swap at the statements of financial position date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

1.5 Impairment

Non-financial assets

The carrying amounts of the group’s non-financial assets, other than investment property and deferred tax assets, are reviewed at each statements of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount is estimated at each statements of financial position date for goodwill and intangible assets that have an indefinite useful life and intangible assets that are not yet available for use.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount and is recognised in profit or loss.

Impairment losses recognised are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

The recoverable amount of an asset or a cash-generating unit is the greater of their fair value less cost to sell and their value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using the original effective pre-tax discount rate. For any asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and there is an indication that the impairment loss no longer exists.

An impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in companies that share similar credit characteristics.

All impairment losses are recognised in profit and loss.

An impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

114

1.6 Cash and cash equivalents

Cash and cash equivalents include cash balances, call deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash management, are included as a component of cash and cash equivalents for the purpose of the cash flow statements.

1.7 Share capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the proceeds.

1.8 Provisions

Provisions are recognised when the group has legal or constructive obligations arising from past events, from which outflows of economic benefits are probable, and where reliable estimates can be made of the amounts of the obligations. Where the effect of discounting is material, provisions are discounted. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

1.9 Related parties

Related parties in the case of the group include any shareholder who is able to exert a significant influence on the operating policies of the group. Directors, their close family members and any employee who is able to exert significant influence on the operating policies of the group are also considered to be related parties. In the case of the company, related parties would also include subsidiaries.

115

Group 30 June 2014

Group 30 June 2013

Company 30 June 2014


R’000 R’000 R’000 R’000

2. INVESTMENT PROPERTYInvestment in property comprises:Investment property 876 103 784 735 – –Straight-lining of rental revenue adjustment 23 869 17 660 – –

899 972 802 395 – –Investment property held for sale 33 835 – – –

933 807 802 395 – –Investment property under development 14 718 6 955 – –

Total investment property 948 525 809 350 – –

Details of investment property are as follows:At cost 455 191 446 593 – –Cumulative revaluation 420 912 338 142 – –Straight-lining of rental revenue adjustment 23 869 17 660 – –

Investment property at fair value 899 972 802 395 – –

The movement in the carrying value of investment property is as follows:Carrying value at beginning of year 802 395 503 748 – –Additions 24 000 103 020 – –Disposals – (5 799) – –Transfer to investment property held for sale (33 835) – – –Capital expenditure 7 556 16 582 – –Revaluation 93 647 174 181 – –Straight-lining of rental revenue adjustment 6 209 10 663 – –

Carrying value at end of year 899 972 802 395 – –

Details of investment property held for sale are as follows:At cost 22 957 – – –Cumulative revaluation 10 878 – – –

Investment property held for sale at fair value 33 835 – – –

Details of investment property under development are as follows:Carrying value at beginning of year 6 956 3 832 – –Cost capitalised 8 234 2 661 – –Interest capitalised 700 462 – –Revaluation (1 172) – – –

Carrying value at end of year 14 718 6 955 – –

A register of investment property is available for inspection at the registered office of the company.

There are no restrictions on the ability of the group to realise its investment property. Investment property with a market value of R900.0 million (2013: R802.4 million) is mortgaged to secure borrowing facilities (refer to note 10).

Borrowing costs are capitalised at the weighted average cost of funding of the group, being 9.38% (2013: 9.24%) at year-end.

Investment properties were externally valued by Peter Parfitt of Quadrant Properties Proprietary Limited, a professional associated valuer (Dip Val MIV (SA)). The valuations were done on an open-market basis and with consideration to the future earnings potential and an appropriate capitalisation rate for each property. The fair value of all investment property determined is supported by market evidence.

116

The valuation of investment property is classified as a level 3 fair value measurement and there has been no transfer between levels in the current year (refer to note 21 for the estimates used and judgements made).

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

3. INVESTMENTSListed securities 66 105 – – –Unlisted securities – – * *

66 105 – * *

* Less than R1 000.

Investments in listed securities comprise:

Rockcastle Global Real

Estate Company

Limited Total

30 June 2014Holding 0.55%Price at 30 June 2014(cents per unit) 1 695Historical cost 51 310 51 310Revaluation 14 795 14 795

66 105 66 105

A portion of the investment in listed securities is pledged to secure borrowing facilities (refer to note 10).

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

4. LOANS TO DIRECTORSSecuredLoans to directors to purchase shares 8 778 – – –

Loans bear interest at the weighted average cost of funding of the group, being 9.38% (2013: 9.24%) at year-end. The loans are secured by linked units in Lodestone Properties Limited. The value of security held for each individual loan exceeds the amount of the related loan.

5. LOANS TO LINKED UNITHOLDERSLoans to linked unitholders 102 215 17 489 102 215 –

The loans to linked unitholders bear interest at a rate of 13% per annum and are receivable on demand.

117

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

6. TRADE AND OTHER RECEIVABLESTrade and other receivables include the following:Service deposits 1 543 1 176 – –Tenant arrears 2 620 3 856 – –Fair value of interest rate swaps 3 259 3 109 – –Other receivables 2 991 2 975 – –

10 413 11 116 – –



R’000 R’000

7. AMOUNTS OWING BY GROUP COMPANIESLodestone Investments Proprietary Limited 39 337 109 022Lodestone Investments 2 Proprietary Limited 10 763 6 227

50 100 115 249

The amounts owing by group companies bear interest at rates agreed from time to time and the terms of repayment have not been determined.

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

8. SHARE CAPITALAuthorised500 000 000 A ordinary shares of R0.01 5 000 5 000 5 000 5 000500 000 000 B ordinary shares of R0.01 5 000 5 000 5 000 5 000

10 000 10 000 10 000 10 000

Issued10 000 000 A ordinary shares of R0.01 100 100 100 10010 000 000 B ordinary shares of R0.01 100 100 100 100

200 200 200 200

Each A ordinary share is linked to an A debenture which together comprise an A linked unit and each B ordinary share is linked to a B debenture which together comprise a B linked unit. Refer to note 11.

Unissued share capital is under the control of the directors until the next annual general meeting.

9. NON-DISTRIBUTABLE RESERVES

Non-distributable reserves comprise those profits and losses that are not distributable to unitholders and are made up of mainly revaluation adjustments on investment property and investments, profits or losses on the disposal of investment property and investments, straight-lining adjustments and other non-distributable balances.

118

10. INTEREST-BEARING BORROWINGS

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

Maturity date

Investec Bank Limited– Prime less 0.50% May 2015 23 924 24 059 – –– Prime less 0.50% September 2015 15 986 16 008 – –– Prime less 0.50% September 2015 270 057 234 171 – –– Prime less 0.50% October 2015 49 371 10 965 – –– Prime less 0.50% November 2015 20 287 – – –– Prime less 0.50% May 2016 13 664 13 685 – –– Prime less 0.50% May 2016 53 755 – – –– Prime less 0.50% June 2016 17 060 17 938 – –– Prime less 0.50% January 2017 20 406 21 459 – –– Prime less 0.50% September 2020 7 763 8 680 – –Blue Dot Properties 456

Proprietary Limited– 13% per annum Not determined 11 941 – 11 941 –Hollyrood Investments

Proprietary Limited– 13% per annum Not determined 18 626 – 18 626 –Less: Current portion of

long-term borrowings (23 924) – – –

498 916 346 965 30 567 –

Interest-bearing borrowings are repayable as follows:

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

2014 – – – –2015 23 924 24 059 – –2016 440 180 292 767 – –2017 20 406 21 459 – –2020 – – – –2021 7 763 8 680 – –Not determined 30 567 – 30 567 –

522 840 346 965 30 567 –

Investment property serves as collateral against loans from banks (refer to note 2). The group will have most of its investments in properties pledged to funding banks at any time.

119

11. LINKED DEBENTURES

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

Subordinated variable rate A debentures of R9.97 each 99 700 99 700 99 700 99 700

Subordinated variable rate B debentures of R0.01 each 100 100 100 100

99 800 99 800 99 800 99 800

Debentures Debentures Debentures Debentures

Total A debentures in issue 10 000 000 10 000 000 10 000 000 10 000 000Total B debentures in issue 10 000 000 10 000 000 10 000 000 10 000 000

The debentures bear interest at a rate of not less than 99% of the distributable earnings as defined in the Debenture Trust Deed.Each A debenture is indivisibly linked to an A ordinary share in the share capital of the company and each B debenture is indivisibly linked to a B ordinary share in the share capital of the company.

12. DEFERRED TAX

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

Deferred tax comprises timing differences on the following:Revaluation of investment property 87 498 66 350 – –Revaluation of interest rate swaps 311 (439) – –Capitalised interest on investment properties

under development 3 3 – –Capitalised tenant installations and letting

commissions 1 886 1 545 – –Building allowances claimed 491 287 – –Assessed loss (1 812) (1 313) – –

88 377 66 433 – –

The movement in the deferred tax liability is as follows:

Balance at beginning of year 66 433 21 895 – –Charge to the statement of

comprehensive income 21 944 44 538 – –

Balance at end of year 88 377 66 433 – –

Deferred tax is provided at 18.6% (2013: 18.6%) on investment property, at 28% (2013: 28%) on interest rate derivatives and at 28% (2013: 28%) on investments. There are no unrecognised deferred tax assets and liabilities.

13. TRADE AND OTHER PAYABLES

Trade and other payables include the following:

Group 30 June 2014

Group 30 June 2013



R’000 R’000 R’000 R’000

Accrued expenses 7 452 7 496 – –Tenant deposits 4 785 4 429 – –Fair value of interest rate swaps 2 147 4 677 – –VAT creditor 536 508 – –

14 920 17 110 – –

120

Annexure 21

INDEPENDENT REPORTING ACCOUNTANTS’ REPORT ON THE HISTORICAL FINANCIAL INFORMATION OF LODESTONE


23 January 2015

Dear Sirs

INDEPENDENT REPORTING ACCOUNTANTS’ REPORT ON THE HISTORICAL FINANCIAL INFORMATION INCLUDED IN THE PROSPECTUS

Introduction

We have audited the historical financial information of Lodestone REIT Limited (“the company”) in respect of the preceding two financial years ended 30 June 2013 and 30 June 2014, set out in Annexure 20. The historical financial information in respect of the period comprises the statement of financial position as at the period-end date, and the notes, comprising a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the historical financial information

The group’s directors are responsible for the preparation and fair presentation of the historical financial information in accordance with the requirements of the JSE Listings Requirements, and for such internal control as the directors determine is necessary to enable the preparation of historical financial information that is free from material misstatement, whether due to fraud or error.

The JSE Listings Requirements require the historical financial information in respect of each period to be prepared in accordance with the conceptual framework, the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and also, as a minimum, to be presented and contain the disclosures required by the JSE Listings Requirements.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the historical financial information based on our audit.

We conducted our audit of the historical financial information in accordance with International Standards on Auditing (ISAs). This standard requires that we comply with ethical requirements.

We plan and perform the audit to obtain reasonable assurance about whether the historical financial information is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the historical financial information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the group’s preparation of the historical financial information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the historical financial information.

We believe that the evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our opinion.

121

Opinion

In our opinion, the historical financial information in respect of the years ended 30 June 2013 and 30 June 2014 is prepared, in all material respects, in accordance with the requirements of the JSE Listings Requirements and the International Financial Reporting Standards, as set out in the notes to the historical financial information.

Other information in the prospectus

As required by paragraph 8.53 of the JSE Listings Requirements, we have read the prospectus in which the historical financial information is contained, for the purpose of identifying whether there are material inconsistencies between the prospectus and the historical financial information which has been subject to audit. The prospectus is the responsibility of the directors. Based on reading the prospectus we have not identified material inconsistencies between this report and the historical financial information which has been subject to audit. However, we have not audited the prospectus and accordingly do not express an opinion on it.

Consent

We consent to the inclusion of this report, which will form part of the prospectus to the shareholders of Lodestone REIT Limited, to be issued on or about 11 February 2015, in the form and context in which it appears.


Per P KlebPartner




122

Annexure 22

LODESTONE GROUP ACCOUNTING POLICIES

BASIS OF PREPARATION

Basis of measurement

The consolidated and separate financial statements (“financial statements”) are prepared on the historical-cost basis, except for investment property, derivative financial instruments and financial instruments, designated as financial instruments at fair value through profit or loss, which are measured at fair value.

Statement of compliance

The annual financial statements have been consistently prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the Independent Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act, 2008 (“the Act”) of South Africa.

FUNCTIONAL AND PRESENTATION CURRENCY

The financial statements are presented in rand, which is also the functional currency of the group, rounded to its nearest thousand (R’000) unless otherwise indicated.

USE OF ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under circumstances, the results of which form the basis of making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or the period of the revision and future periods if the revision affects both current and future periods.

1. ACCOUNTING POLICIES

1.1 Basis of consolidation

Subsidiaries

The consolidated annual financial statements incorporate the annual financial statements of the company and entities controlled by the company and its subsidiaries. Control is achieved when the company:

– has power over the investee; – is exposed, or has rights, to variable returns from its involvement with the investee; and – has the ability to use its power to affect its returns.

The company reassesses whether or not it controls an investee if the facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The company considers all relevant facts and circumstances in assessing whether or not the company’s voting rights in an investee are sufficient to give it power, including:

– the size of the company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

– potential voting rights held by the company, other vote holders or other parties;

123

– rights arising from other contractual arrangements; and

– any additional facts and circumstances that indicate that the company may have the current ability to direct the relevant activities at the time that decisions need to be made.

The group financial statements incorporate the assets, liabilities, operating results and cash flows of the company and its subsidiaries. The results of subsidiaries acquired or disposed of during the period are included from the effective dates of acquisition and up to the effective dates of disposal.

The accounting policies of the subsidiaries are consistent with those of the holding company.

In the company’s separate financial statements, investments in subsidiaries are stated at cost less accumulated impairment losses.

Investment in associates and joint ventures

An associate is an entity over which the group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

Associates are accounted for using the equity method. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the group’s share of the profit or loss and other comprehensive income of the associate.

The results and assets and liabilities of associates and joint ventures are incorporated into these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the group’s share of losses of an associate or a joint venture exceeds the group’s interest in that associate or joint venture, the group discontinues recognising its share of further losses.

An investment in an associate or joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or joint venture, any excess of the cost of the investment over the group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale.

Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

1.2 Investment property

Investment property

Investment properties are those held either to earn rental income or for capital appreciation or both but not for sale in the ordinary course of business or for administration purposes.

The cost of investment property comprises the purchase price and directly attributable expenditure. Subsequent expenditure relating to investment property is capitalised when it is probable that there will be future economic benefits from the use of the asset. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

After initial recognition, investment properties are measured at fair value. Fair values are determined annually by external independent professional valuers with appropriate and recognised professional qualifications and recent

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experience in the location and category of property being valued. Valuations are done on the open market value basis and the valuers use either the discounted cash flow method or the capitalisation of net income method or a combination of the methods. Gains or losses arising from changes in the fair values are included in profit or loss for the period in which they arise. Unrealised gains, net of deferred tax, are transferred to a non-distributable reserve in the statement of changes in equity. Unrealised losses, net of deferred tax, are transferred to a non-distributable reserve to the extent that the decrease does not exceed the amount held in the non-distributable reserve.

Immediately prior to disposal of investment property the investment property is revalued to the net sales proceeds and such revaluation is recognised in profit or loss during the period in which it occurs.

When the group redevelops an existing investment property for continued future use as investment property, the property remains classified as investment property. The investment property is not reclassified as investment property under development during the redevelopment.

Investment property under development

Property that is being constructed or developed for future use as investment property is classified as investment property under development until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property. To the extent that developments can be accurately fair valued, developments are carried at fair value.

All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs, are capitalised.

Borrowing costs are capitalised to the extent that they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs may continue until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of development cost financed out of general funds, the weighted average cost of borrowings.

Investment property held for sale

Immediately before classification as held for sale, the measurement of the investment property is brought up to date in accordance with applicable IFRS. Then, on initial classification as held for sale, the investment property continues to be recognised at fair value.

Leased property

Leases in terms of which the group assumes substantially all the risks of ownership are classified as finance leases. The property acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease.

The property held under finance leases and leased out under operating leases is classified as investment property and stated at fair value.

Leases in terms of which the group does not assume substantially all the risks and rewards of ownership are classified as operating leases.

1.3 Financial instruments

Financial instruments include cash and cash equivalents, investments in listed property securities, trade and other receivables, trade and other payables and interest-bearing borrowings.

Recognition

Financial instruments are initially measured at fair value which, except for financial instruments measured at fair value through profit and loss, include directly attributable transaction costs.

125

Subsequent to initial recognition, financial instruments are measured as follows:Cash and cash equivalents – Carried at amortised cost.Investments – Carried at fair value, being the quoted closing price at the statement of

financial position date, through profit and loss.Loans – Carried at amortised cost using the effective interest method net of

impairment losses.Trade and other receivables – Carried at amortised cost using the effective interest method net of

impairment losses.Trade and other payables – Carried at amortised cost using the effective interest method.Interest-bearing borrowings – Carried at amortised cost using the effective interest method.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

– the contractual rights to receive cash flows from the asset have expired; and

– the group or company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when the group and/or company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

1.4 Derivative financial instruments

The group uses derivative financial instruments to hedge its exposure to interest rate risks arising from financing activities. In accordance with its treasury policy, the group does not hold or issue derivative financial instruments for trading purposes. Derivatives used as hedges which do not qualify as such in terms of hedge accounting rules, are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are accounted for through profit or loss. Directly attributable transaction costs are recognised in profit and loss when incurred.

The fair value of derivatives is the estimated amount that the group would receive or pay to terminate the derivative at the statement of financial position date, taking into account the current relevant market conditions.

1.5 Impairment

Non-financial assets

The carrying amounts of the group’s non-financial assets, other than investment property and deferred tax assets, are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount is estimated at each statement of financial position date for goodwill and intangible assets that have an indefinite useful life and intangible assets that are not yet available for use.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount and is recognised in profit or loss.

Impairment losses recognised are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

126

The recoverable amount of an asset or a cash-generating unit is the greater of their fair value less costs to sell and their value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using the original effective pre-tax discount rate. For any asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and there is an indication that the impairment loss no longer exists.

An impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit characteristics.

All impairment losses are recognised in profit and loss.

An impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

1.6 Cash and cash equivalents

Cash and cash equivalents include cash balances, call deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash management, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

1.7 Stated capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the proceeds.

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares and presented as a deduction from total equity.

1.8 Provisions

Provisions are recognised when the group has legal or constructive obligations arising from past events, from which outflows of economic benefits are probable, and where reliable estimates can be made of the amounts of the obligations. Where the effect of discounting is material, provisions are discounted. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

1.9 Revenue

Revenue comprises rental revenue and recovery of expenses, excluding VAT. Rental revenue from investment property is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental revenue over the lease period.

127

1.10 Expenses

Service costs and property operating expenses

Service costs for service contracts entered into and property operating expenses are expensed as incurred.

Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense on a straight-line basis.

1.11 Finance income and finance costs

Finance income comprises interest received on funds invested and loans advanced and is recognised in profit or loss as it accrues, taking into account the effective yield on the asset.

Finance costs comprise interest payable on borrowings calculated using the effective interest method.

1.12 Dividend/distribution income

Dividend/distribution income is recognised in the statement of comprehensive income on the date the group’s or company’s right to receive payment is established, which in the case of quoted securities is usually the ex-dividend date.

1.13 Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the statement of financial position method, based on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.

The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

1.14 Segmental reporting

A segment is a distinguishable component of the group that is engaged either in providing services (business segment), or in providing services within a particular economic environment (geographical segment), which is subject to risks and returns that are different from those of other segments. The group’s primary segment is based on business segments. There are no secondary segments. The business segments are determined based on the group’s management and internal reporting structure.

On a primary basis, the group operates in the following segments:

– Retail

– Industrial

The group will from time to time invest in/divest from certain primary segments, in which case segmental reporting will be adjusted to reflect only the relevant operating segments.

Segment results include revenue and expenses directly attributable to a segment and the relevant portion of group revenue and expenses that can be allocated on a reasonable basis to a segment. Segmental assets comprise those assets that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

128

1.15 Employee benefits

The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service on an undiscounted basis. The accrual for employee entitlements to salaries and annual leave represent the amount which the group has a present obligation to pay as a result of employees’ services provided to the statement of financial position date. The group does not provide any retirement or post-retirement benefits.

1.16 Related parties

Related parties in the case of the group include any shareholder who is able to exert a significant influence on the operating policies of the group. Directors, their close family members and any employee who is able to exert significant influence on the operating policies of the group are also considered to be related parties. In the case of the company, related parties would also include subsidiaries.

1.17 Earnings per share

The group presents basic and diluted earnings per share. It also presents headline and diluted headline earnings per share.

Basic earnings per share is calculated by dividing profit for the year attributable to equity holders by the weighted average number of shares in issue during the year.

Headline earnings per share is calculated by dividing headline earnings by the weighted average number of shares in issue during the year.

Diluted earnings per share is calculated by dividing profit for the year attributable to equity holders by the weighted average number of shares in issue, adjusted for the potential dilutive impact of outstanding shareholder options.

Diluted headline earnings per share is calculated by dividing headline earnings by the weighted average number of shares in issue, adjusted for the potential dilutive impact of outstanding shareholder options.

2. FINANCIAL RISK MANAGEMENT

The group has exposure to the following risks from its use of financial instruments:

– credit risk – liquidity risk – market risk

This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for measuring and managing risk, and the group’s management of capital.

The board of directors has overall responsibility for the establishment and oversight of the group’s risk management framework. The board has delegated the responsibility for developing and monitoring the group’s risk management policies to the risk committee. The committee reports to the board of directors on its activities. The group risk committee oversees how management monitors compliance with the group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the group.

The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the group’s activities.

Credit risk

Credit risk is the risk of financial loss to the group if a tenant or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the group’s receivables from tenants, loans and cash and cash equivalents.

Trade and other receivables

The group’s exposure to credit risk is influenced mainly by the individual characteristics of each tenant. The group’s wide-spread customer base reduces credit risk.

The majority of rental revenue is derived from retail properties situated in Gauteng, KwaZulu-Natal, Limpopo and Mpumalanga but there is no concentration of credit risk.

129

Management has established a credit policy under which each new customer is analysed individually for creditworthiness before the group’s standard payment terms and conditions are offered. When available, the group’s review includes external ratings.

Trade and other receivables relate mainly to the group’s tenants and deposits with municipalities. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, industry, size of business and existence of previous financial difficulties.

The group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures.

The group establishes an allowance for impairment that represents its estimate of specific losses to be incurred in the event of the borrowers’ inability to meet their commitments.

Investments

The group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that are listed on a recognised stock exchange.

Cash and cash equivalents

The group’s exposure to credit risk is limited through the use of financial institutions of good standing for investment and cash handling purposes.

Sureties

The group’s policy is to provide sureties with regards to subsidiaries to the extent required in the normal course of business. Such sureties are provided to enable the subsidiaries to obtain the funding necessary to enable them to acquire investment property or investments.

Liquidity risk

Liquidity risk is the risk that the group will not be able to meet its financial obligations comprising linked debentures, interest-bearing borrowings and trade and other payables, as they fall due. The group’s approach to managing liquidity is to ensure, as far as possible, that it always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.

The group receives rental on a monthly basis and uses it to reduce its borrowings. Typically the group ensures that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The group enters into derivatives and also incurs financial liabilities in order to manage market risks. All such transactions are carried out within the guidelines set by the risk committee.

Interest rate risk

The group is exposed to interest rate risk on its interest-bearing borrowings and cash and cash equivalents.

Interest-bearing borrowings and cash and cash equivalents bear interest at rates linked to prime/jibar. However, the group adopts a policy of ensuring that at least 50% of its exposure to interest rates on borrowings is hedged. This is achieved by entering into interest rate swaps and caps.

Equity price risk

The group is exposed to equity price risk on its investments. It limits its exposure to equity price risk by only investing in liquid securities that are listed on a recognised stock exchange and where the directors are in agreement with the business strategy implemented by such companies.

130

Fair values

A number of the group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Investment property

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the group’s investment property portfolio every year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows is then applied to the net annual cash flows to arrive at the property valuation.

Valuations reflect, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market’s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the group and the lessee; and the remaining economic life of the property.

Investments

The fair value of financial assets at fair value through profit or loss is determined by reference to their quoted closing price at the reporting date.

Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

Derivatives

The fair value of derivates is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.

Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

Capital management

The group considers the equity attributable to equity holders as the permanent capital of the group.

The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The board of directors also monitors the level of distributions to shareholders. The board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the group’s approach to capital management during the year. Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements.

131

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133

2. Set out below are the Lodestone directors direct and indirect beneficial interests in Rockcastle Global Real Estate Company Limited shares as at the last practicable date:

Rockcastle Global Real Estate Company Limited shareholdings

Director Direct Indirect Total % holdings

Jason Cooper – 1 242 037 1 242 037 –Gidon Trope – 178 640 178 640 –Herman Zolty – 210 000 210 000 –Inge Pick 1 830 – 1 830 –Jacques van Wyk – 4 814 857 4 814 857 1Craig Hallowes – 4 510 352 4 510 352 1Michael McNamara 338 602 359 000 697 602 –Annalese Manickum – – – –Ndhlabole Shongwe – – – –

Total 340 432 11 314 886 11 655 318 2%

134

Annexure 24

CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE REVIEW

The board of directors (“the board”) endorses the code of corporate practices and conduct as set out in the King III report and confirms that the group is compliant with the provisions thereof. The board has been addressed by independent consultants to ensure that all directors are fully conversant with best practice and current thinking with regard to corporate governance. Each director will make arrangements to attend the Director’s Induction Programme in 2015 as soon as the 2015 timetable for the Director’s Induction Programme is available. Until the directors have completed the Director’s Induction Programme, the designated advisor will work closely with the directors to ensure compliance with the JSE Listings Requirements. A list of all King III principles and the extent of the company’s compliance therewith will be available on Lodestone’s website at www.lodestoneproperties.co.za.

1. COMPOSITION OF THE BOARD OF DIRECTORS

The board comprises four executive directors and five independent non-executive directors. All directors serve for a maximum period of three years and are subject to retirement by rotation and re-election by members in general meeting. Board appointments are made in terms of the policy on nominations and appointments, such appointments are transparent and a matter for the board as a whole.

There are no fixed-term contracts for executive directors and the notice period for termination or resignation is one calendar month. There is no restraint of trade period for executive directors.

2. ROLE OF THE DIRECTORS

Ultimate control of the company rests with the board of directors while the executive management is responsible for the proper management of the company. To achieve this, the board is responsible for establishing the objectives of the company and setting a philosophy for investments, performance and ethical standards. Although quarterly board meetings are arranged every year, additional meetings are called should circumstances require it.

The chairman, with the assistance of the company secretary, will lead a formal review of the effectiveness of the board and its committees. Each director will complete a detailed evaluation questionnaire and an analysis of the findings will be presented to the board.

3. FUNCTIONS OF THE BOARD

The board acknowledges that it is responsible for ensuring the following functions as set out in the board charter:

• good corporate governance and implementation of the code of corporate practices and conduct as set out in the King III report;

• that the group performs at an acceptable level and that its affairs are conducted in a responsible and professional manner; and

• the board recognises its responsibilities to all stakeholders.

4. RESPONSIBILITIES OF THE BOARD

Although certain responsibilities are delegated to committees or management executives, the board acknowledges that it is not discharged from its obligations in regard to these matters.

The board acknowledges its responsibilities as set out in the board charter in the following areas:

• the adoption of strategic plans and ensuring that these plans are carried out by management;• monitoring of the operational performance of the business against predetermined budgets;• monitoring the performance of management at both operational and executive level;• ensuring that the group complies with all laws, regulations and codes of business practice; and• ensuring a clear division of responsibilities at board level to ensure a balance of power and authority in terms of

group policies.

135

5. INDEPENDENCE OF THE DIRECTORS

The board of directors’ independence from the executive management team is ensured by the following:

• separation of the roles of chairman and managing director, with the chairman being independent;• the board being dominated by independent non-executive directors;• the audit, investment, nomination, remuneration, risk and social and ethics committees having a majority of

independent directors;• non-executive directors not holding service contracts;• all directors having access to the advice and services of the company secretary; and• with prior agreement from the chairman, all directors are entitled to seek independent professional advice concerning

the affairs of the company at the company’s expense.

The following independent, non-executive directors chair the various sub-committees of the board:

• Audit Jacques van Wyk• Investment Ndhlabole Shongwe• Nomination Annalese Manickum• Remuneration Ndhlabole Shongwe• Risk Ndhlabole Shongwe• Social and ethics Craig Hallowes

The independence of the non-executive directors was assessed and all are considered independent in terms of the requirements of King III. Independence evaluations are done annually.

None of the directors have served for a term in excess of nine years.

6. DIRECTORS’ INTERESTS

A full list of directors’ interests is maintained and directors certify that the list is correct at each board meeting.

Directors recuse themselves from any discussion and decision on matters in which they have a material financial interest.

7. AUDIT COMMITTEE

The primary role of the audit committee is to ensure the integrity of financial reporting and the audit process. In pursuing these objectives, the audit committee oversees relations with the external auditors. The committee also assists the board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems and internal control processes, overseeing the preparation of accurate financial reports and statements in compliance with all applicable legal requirements and accounting standards, ensuring compliance with good governance practices and nomination of external auditors. The role of the audit committee has been codified in the audit committee charter which has been approved by the board. This charter has been aligned with the requirements of King III and the Companies Act.

The audit committee comprises Jacques van Wyk (chairman), Craig Hallowes and Michael McNamara. The managing director, financial director and company secretary attend meetings as invitees. The committee members have unlimited access to all information, documents and explanations required in the discharge of their duties, as do the external auditors.

The board, in consultation with the audit committee chairman, makes appointments to the committee to fill vacancies. Members of the audit committee are subject to re-election by members in general meeting on an annual basis. The board has determined that the committee members have the skills and experience necessary to contribute meaningfully to the committee’s deliberations. In addition, the chairman has the requisite experience in accounting and financial management.

The audit committee has satisfied itself that no breakdown in accounting controls, procedures and systems has occurred during the year under review.

In fulfilling its responsibility of monitoring the integrity of financial reports to shareholders, the audit committee will review accounting principles, policies and practices adopted in the preparation of financial information and examine documentation relating to the annual integrated report and interim financial report. The audit committee will consider, on an annual basis, and satisfy itself of the appropriateness of the expertise and experience of the financial director, Inge Pick.

136

It is the function of the committee to review and make recommendations to the board regarding interim financial results and the integrated report prior to approval by the board.

The number of audit committee meetings held will be disclosed in the company’s integrated annual report for March 2015.

8. EXTERNAL AUDIT

A key factor that may impair auditors’ independence is a lack of control over non-audit services provided by the external auditors. In essence, the external auditor’s independence is deemed to be impaired if the auditors provide a service which:

• results in auditing of own work by the auditor;• results in the auditor acting as a manager or employee of the group;• puts the auditor in the role of advocate for the group; or• creates a mutuality of interest between the auditor and the group.

The company addresses this issue through three primary measures, namely:

• disclosure of the extent and nature of non-audit services;• the prohibition of selected services; and• prior approval by the audit committee of non-audit services.

Other safeguards encapsulated in the policy include:

• the external auditor is required to assess periodically, in their professional judgement, whether they are independent of the group;

• the audit committee ensures that the scope of the auditor’s work is sufficient and that the auditor is fairly remunerated; and

• the audit committee has primary responsibility for making recommendations to the board on the appointment, re- appointment and removal of the external auditor.

The committee reviews audit plans for external audits and the outcome of the work performed in executing these plans. They further ensure that items identified for action are followed up. The external auditor’s report annually to the audit committee to confirm that they are and have remained independent from the group during the year.

The audit committee considers information pertaining to the balance between fees for audit and non-audit work for the group and concludes that the nature and extent of non-audit fees do not present a threat to the external auditor’s independence. Furthermore, after reviewing a report from the external auditor on all their relationships with the company that might reasonably have a bearing on the external auditor’s independence and the audit engagement partner and staff ’s objectivity, and the related safeguards and procedures, the committee assesses whether the external auditor’s independence was impaired. The audit committee approves the external auditor’s terms of engagement, scope of work, the annual audit and the applicable levels of materiality.

The audit committee must satisfy itself as to the suitability of the external auditor for re-appointment for the ensuing year.

9. INTERNAL AUDIT

The company does not have a formalised internal audit department. This is primarily due to the fact that the majority of the property management functions are outsourced to external property managers who are subjected to annual external audits. The audit committee continually examines the appropriateness of utilising independent internal auditors to periodically review activities of the company and service providers.

10. ETHICAL PERFORMANCE

The board of directors forms the core of the values and ethics subscribed to by the company through its various bodies and committees. These values and ethics are sustained by the directors’ standing and reputation in the business community and their belief in free and fair dealings in utmost good faith and respect for laws and regulations. Lodestone has a code of ethics communicated to all staff. The code of ethics stipulates, among other things, that all stakeholders are expected to act in good faith, that bribery in any form is not tolerated, all conflicts of interest need to be declared and that compliance with all legislation is of utmost importance. The code of ethics is reviewed by the social and ethics committee on an annual basis.

137

11. INTERNAL FINANCIAL AND OPERATING CONTROLS

A framework of financial reporting, internal and operating controls has been established by the board to ensure reasonable assurance as to accurate and timeous reporting of business information, safeguarding of group assets, compliance with laws and regulations, financial information and general operation.

The board will review the effectiveness of the internal financial and operating controls, the process of risk management and the monitoring of legal governance compliance within the company.

12. INVESTMENT COMMITTEE

All acquisitions, disposals and capital expenditure are considered by the investment committee. The investment committee approves acquisitions, disposals and capital expenditure up to pre-set limits.

The investment committee comprises Ndhlabole Shongwe (chairman), Michael McNamara and Jason Cooper. All members of this committee have extensive experience and technical expertise in the property industry.

The investment committee’s responsibilities and duties are governed by a charter.

13. NOMINATION COMMITTEE

The nomination committee is mandated by the board to identify suitable candidates to be appointed to the board, identify suitable board candidates in order to fill vacancies, ensure there is a succession plan in place for key management, assess the independence of non-executive directors and assess the composition of the board sub-committees. The nomination committee recommends the individuals to the board for appointment.

The nomination committee must constitute only non-executive directors of whom the majority must be independent, and may be chaired by the chairman of the board. In this regard the nomination committee comprises: Annalese Manickum (chairman), Craig Hallowes and Ndhlabole Shongwe.

The nomination committee’s responsibilities and duties are governed by a charter. The nomination committee was appointed in November 2014 and have not yet met. The number of meetings held will be disclosed in the integrated annual report for March 2015.

14. REMUNERATION COMMITTEE

The remuneration committee is mandated by the board to authorise the remuneration and incentivisation of all employees, including executive directors. In addition, the remuneration committee recommends directors’ fees payable to non-executive directors and members of board sub-committees.

The remuneration committee comprises: Ndhlabole Shongwe (chairman), Craig Hallowes and Jason Cooper.

The remuneration committee’s responsibilities and duties are governed by a charter. The remuneration committee was appointed in November 2014 and have not yet met. The number of meetings held will be disclosed in the integrated annual report for March 2015.

15. RISK COMMITTEE

The risk committee is mandated by the board to ensure that a sound risk management system is maintained, to assist the board in discharging its duties relating to the safeguarding of assets and to ensure that the company has implemented an effective plan for risk management that will enhance the company’s ability to achieve its strategic objectives.

The risk committee comprises: Ndhlabole Shongwe (chairman), Jason Cooper and Jacques van Wyk.

The risk committee’s responsibilities and duties are governed by a charter.

In accordance with the REIT provisions of the JSE Listings Requirements, the risk management policy adopted by the board is in accordance with industry practice and Lodestone may not enter into any derivative transactions that are not in the normal course of Lodestone’s business.

138

16. SOCIAL AND ETHICS COMMITTEE

The social and ethics committee is a statutory committee whose focus is to monitor compliance with labour legislation as well as the corporate social responsibilities and corporate citizenship.

The social and ethics committee comprises Craig Hallowes (chairman), Jacques van Wyk and Gidon Trope.

The social and ethics committee’s responsibilities and duties are governed by a charter.

17. COMPANY SECRETARY

The board of directors have direct access to the company secretary, Leonie Gindan, who provides guidance and assistance in line with the requirements outlined in the Companies Act, King III and the Listings Requirements.

The company secretary will be subjected to an annual evaluation by the board wherein the board will satisfy itself as to the competence, qualifications and experience of the company secretary. This will be disclosed in the company’s integrated annual report for March 2015.

The company secretary, where necessary, arranges training on changing regulations and legislation and could involve the group’s sponsors, auditors or organisations such as the Institute of Directors. The company secretary is not a member of the board and an arms-length relationship exists between the board of directors and the company secretary.

The board is satisfied that an arms-length relationship is maintained between the company and the company secretary through the provisions of a service agreement entered into between the company and the company secretary which limits the duties of the company secretary to only those related to the corporate governance of the company and the administration of company documentation.

18. INFORMATION TECHNOLOGY (“IT”) GOVERNANCE

The board is ultimately responsible for IT governance. The Lodestone IT function is outsourced to a third-party service provider and is governed by a service level agreement. Compliance with the service level agreement is monitored by management and the terms are reviewed on a regular basis. There is a dedicated member of the Lodestone management team who oversees the IT function, attends the executive committee meetings and reports to the managing director. The risks and controls over IT assets and data are considered by the risk committee.

19. DEALING IN SECURITIES BY THE DIRECTORS

Dealing in the company’s securities by directors and company officials is regulated and monitored as required by the JSE Listings Requirements. In addition, Lodestone maintains a closed period from the end of a financial period to the date of publication of the financial results.

139

20. COMMUNICATIONS WITH STAKEHOLDERS

Lodestone is committed to ensuring timeous, effective and transparent communication with shareholders and other stakeholders as set out below.

Stakeholder Communication

Shareholders Lodestone is committed to providing shareholders with timely access to applicable information. Communication with its shareholders is open, honest and transparent. Shareholders are provided with information via circulars and integrated and interim reports. Additional information is provided on Lodestone’s website, via SENS announcements and press releases.

Analysts Lodestone will hold semi-annual results presentations in Johannesburg.

Financiers Lodestone meets with its financiers on a regular basis to discuss its requirements and theirs. Information is provided through analyst presentations, road shows, integrated reports and interim reporting.

Tenants Lodestone strives to form mutually beneficial business relationships with its tenants. Lodestone’s asset managers and property managers meet with the tenants on a regular basis and conduct regular site visits to Lodestone’s properties.

Government Lodestone endeavours to have mutually beneficial relationships with government, its departments and parastatals. Lodestone engages with local authorities both directly and via its property managers and external consultants regarding utility issues, rates clearances, zoning, etc.

Industry associations Lodestone’s asset managers belong to various industry bodies including SAPOA and the SA Council of Shopping Centres and regularly attend industry conferences.

Business partners Lodestone maintains professional working relationships with its business partners at the same time as fostering a culture of teamwork. Lodestone ensures that all of its business partners fully understand its performance standards and requirements. Lodestone’s business partners include the property managers and both Lodestone’s asset managers and senior management meet with the property managers on a regular basis.

Communities and environment

Lodestone is committed to being a good corporate citizen and frequently evaluates the impact of its projects and developments on society and the environment.

Suppliers Lodestone maintains professional working relationships with all of its suppliers and ensures that its suppliers understand Lodestone’s performance standards and requirements. Where possible, Lodestone will have service level agreements or terms of reference for its relationships with suppliers, which include performance expectations.

140

Annexure 25

LODESTONE GROUP RISK ANALYSIS

A number of factors affect the result of operations, financial condition and prospects of the group and, accordingly, an investment in ordinary shares is subject to a number of risks. This section describes the risk factors which are considered by the directors to be material in relation to the group. However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. Additional risks not presently known to the company or that the directors currently consider to be immaterial may also adversely impact the group’s business operations. The business, growth prospects, financial condition and/or results of operations of the group could be materially adversely affected by any of these risks. The trading price of ordinary shares could decline due to any of these risks and investors could lose part or all of their investment.

Investing in and holding shares in the company involves a number of risks. Prior to making an investment decision in respect of ordinary shares, prospective investors should carefully consider all the information in this document, including the following risk factors and consult with their professional advisers.

Key risk Business impact Mitigation of the risk

South Africa is experiencing significant increases in administered prices including electricity, rates and municipal levies.

Lodestone is bearing the increased cost of utilities that cannot be recovered from tenants. This reduces distributable income.

Energy saving technologies are being implemented where possible in order to reduce utility costs. Rates objections are lodged where deemed necessary.

The ability of tenants to absorb the increasing cost of occupancy is limited.

The increased cost of occupancy may result in more tenant business failures and legal action leading to higher vacancies and increased legal costs and bad debts.

Tenant arrears are closely monitored. Asset managers meet with tenants on a regular basis in order to mitigate legal action and bad debts.

Local authorities’ service delivery is deteriorating and many local authorities are not billing correctly. A number of local authorities no longer read electricity or water meters.

Lodestone is not being billed the correct utility amounts on a monthly basis.

Lodestone has installed its own meters and employed third party meter readers. Recoveries from tenants are based on this information rather than billings received from local authorities.

The difficult economic climate makes the letting of vacant space challenging.

Vacant space reduces rental income and expenses are incurred regardless of whether the property is tenanted. This results in less distributable income.

Asset managers meet with tenants on a regular basis to ensure that their concerns are addressed. Rentals are offered at market related rates and incentives are offered to brokers in order to let the vacancies. Buildings are well maintained.

Deterioration in the company’s credit profile, a decline in debt market conditions or a general rise in interest rates could impact the cost and availability of borrowings.

The cost of financing increases substantially reducing distributable income.

The group monitors its key financial ratios. Interest rate risk is mitigated through the use of interest rate swaps.

The underperformance of property managers may result in inaccurate recovery of revenue and incorrect reporting.

Inaccurate billing of tenants and reporting.

Compliance with service level agreements is monitored regularly. Management reviews monthly reports and meets with the property managers on a regular basis.

141

Key risk Business impact Mitigation of the risk

Inability to refinance debt at acceptable rates and over-exposure to a single finance institution.

Higher finance costs result in lower distributable income.

Management reviews the debt profile and facilities on a regular basis. Regular meetings are held with financiers.

Business continuity risk. Business interruption may have a severe impact on the operations of the group and may reduce distributable income.

Lodestone has a business continuity plan which includes the daily backup of data which is tested regularly. The majority of property management functions are outsourced to third parties.

Significant volume of leases expiring in a specific period.

Rental income may be eroded due to new leases or renewals at lower rentals than previously achieved. Vacancies may not be let timeously thus reducing distributable income.

Asset and property managers closely monitor lease expiries and begin negotiations with tenants well in advance of the expiry. All rentals are done at market-related rates. Lodestone actively markets vacant space.

Retention of key staff. Skilled and experienced staff may not be retained.

Key staff are remunerated in line with market and through ad hoc bonuses.

Destruction of assets. Buildings destroyed due to force majeure, fire, etc. and as a result income cannot be generated from tenants.

Insurance cover is carefully monitored to ensure that it is sufficient. The insurable amount is based on replacement valuations obtained from an independent valuer. Lodestone uses reputable underwriters with sufficient financial backing to sustain the cover paid for.

Physical deterioration of properties rendering them untenantable.

Properties that have physically deteriorated will be untenantable and result in decreased distributable earnings.

Asset managers perform regular property inspections as do the property managers.

Non-compliance with REIT requirements.

If Lodestone no longer qualifies as a REIT in terms of the JSE Listings requirements, it will incur tax liabilities and the JSE will not recognise and/or maintain its REIT status.

Management monitors compliance with the REIT requirements on an ongoing basis. External consultants, are used as an independent check to ensure that the requirements of the REIT legislation are met.

Non-compliance with laws and regulations.

The dynamic South African legislative environment and volume of new legislation being passed, particularly in respect of environmental laws and social responsibility, leads to a greater risk of non-compliance which may result in reputational damage and financial penalties.

Lodestone engages both in-house and external legal advisors. Training is provided where relevant new legislation is introduced. Management and the auditors monitor compliance with the legal requirements. Lodestone is a member of various industry organisations. The group’s employees regularly attend conferences and training specific to their area of responsibility within the group which would assist in the identification of the new and relevant legislation.

142 PRINTEDBYINCE(PTY)LTD REF.JOB0006572




PRIVATE PLACEMENT APPLICATION FORM

TO BE COMPLETED BY INVITED INVESTORS

An offer to subscribe for ordinary shares in Lodestone (“private placement shares”) at an issue price of R5.10 per ordinary share (“issue price”) (“the private placement”), to invited investors in terms of the prospectus which was registered by the Companies and Intellectual Property Commission on 6 February 2015 (the “prospectus”).

Successful applicants will be advised of their allotment of private placement shares on Monday, 16 February 2015.

Please refer to the instructions below before completing this application form.

Dematerialised shares

The allocated private placement shares will be transferred to successful applicants in dematerialised form only. Accordingly, all successful applicants must appoint a Central Securities Depository Participant (“CSDP”) directly, or a broker, to receive and hold the dematerialised shares on their behalf. Should a shareholder require a physical share certificate for his Lodestone shares, he will have to, at his own cost, rematerialise his Lodestone shares following the listing and should contact his CSDP or broker to do so.

As allocated private placement shares will be transferred to successful applicants on a delivery-versus-payment basis, payment will be made by your CSDP or broker on your behalf.

Invited investors should complete this application form in respect of the private placement and hand deliver, fax or email it to:

If delivered by hand or by courier:Attention: Letrisha Mahabeer2nd Floor, Redefine Place2 Arnold Road, Rosebank2196

If emailed:[email protected] faxed:086 673 7104Attention: Letrisha Mahabeer

In the event that this application form is submitted through a broker, the broker must stamp this application form.

This application form must be received by no later than 12:00 on Friday, 13 February 2015.

Invited investors must contact their CSDP or broker and advise them that they have submitted the application form as instructed above. Pursuant to the application, invited investors must make arrangements with their CSDP or broker for payment to be made as stipulated in the agreement governing their relationship with their CSDP or broker, in respect of the private placement shares allocated to them in terms of the private placement by the settlement date, expected to be Wednesday, 25 February 2015.

Condition precedent

The listing is conditional on the company maintaining a spread of public shareholders acceptable to the JSE at the point of listing on the AltX of the JSE in respect of the ordinary shares, by public shareholders holding not less than 10% of the issued share capital of the company to ensure reasonable liquidity. As at the last practical date Lodestone meets these requirements and expects to do so after the private placement.

Reservation of rights

The board shall, in its sole discretion, determine an appropriate allocation mechanism, such that the private placement shares will be allocated on an equitable basis, as far as reasonably possible, taking into account the spread requirements of the JSE, the liquidity of the shares and considering the potential shareholder base that the board wishes to achieve and whether or not the board considers it appropriate to grant preferential allocation to any applicant or group of applicants.

The directors of Lodestone reserve the right to accept or reject, either in whole or in part, any application form should the terms contained in the prospectus, of which this application form forms part, and the instructions herein not be properly complied with.

Applications must be for a minimum of 5 000 ordinary shares in multiples of 1 000 ordinary shares thereafter.

To the directors:

Lodestone REIT Limited

1. I/We, the undersigned, confirm that I/we have full legal capacity to contract and, having read the prospectus, hereby irrevocably apply for and request you to accept my/our application for the under mentioned value to subscribe for private placement shares under the private placement set out in the prospectus to which this application form is attached and in terms of the terms and conditions set out therein and that may, in your absolute discretion, be allotted to me/us, subject to the MOI of Lodestone.

2. I/We wish to receive my/our allocated private placement shares in dematerialised form and will deliver this application form to Lodestone and will provide appropriate instructions to my/our CSDP or broker, as the case may be, with regard to the application herein and the payment thereof, as stipulated in the agreement governing my/our relationship with my/our CSDP or broker, as the case may be. I/We accept that payment in respect of this application will be, in terms of the custody agreement entered into between me/us and my/our CSDP or broker, as the case may be, on a delivery-versus-payment basis.

3. I/We understand that the subscription for private placement shares in terms of the prospectus is conditional on the granting of a listing of the shares of Lodestone, by Wednesday, 25 February 2015 or such later date as the directors may determine, on the JSE.

Dated 2014 Telephone number ( )

Signature Mobile phone number

Assisted by (where applicable)

Surname of individual or name of corporate body Mr

Mrs

Miss

Other title

Full names (if individual)

Postal address (preferably PO Box address)

Postal code

Telephone number ( )

Mobile phone number

Email address

Number of ordinary shares applied for (minimum of 5 000 ordinary shares) (Enter figures only – not words)

Required information must be completed by CSDP or broker with their stamp and signature affixed thereto.

CSDP name

CSDP contact person

CSDP contact telephone number

SCA or bank CSD account number

Scrip account number

Settlement bank account number

Stamp and signature of CSDP or broker

This application will constitute a legal contract between Lodestone and the applicant. Application forms will not be accepted unless the above information has been furnished.

Instructions:

1. Applications may be made on this application form only for a minimum of 5 000 ordinary shares and in multiples of 1 000 ordinary shares for a single addressee acting as applicant. Copies or reproductions of the application form will be accepted at the discretion of the directors of Lodestone.

2. Applications are irrevocable and may not be withdrawn once submitted.

3. CSDP’s and brokers will be required to retain this application form for presentation to the directors if required.

4. Please refer to the terms and conditions of the private placement set out in paragraph 16 of the prospectus. Applicants should consult their broker or other professional advisor in case of d oubt as to the correct completion of this application form.

5. Applicants need to have appointed a CSDP or broker and must advise their CSDP or broker in terms of the custody agreement entered into between them and their CSDP or broker. Payment will be made on a delivery-versus-payment basis.

6. No payment should be submitted with this application form to Lodestone or Java Capital.

7. If payment is dishonoured, or not made for any reason, Lodestone may, in its sole discretion, regard the relevant application as invalid or take such other steps in regard thereto as it may deem fit.

8. No receipts will be issued for application forms, application monies or any supporting documentation.

9. All alterations on this application form must be authenticated by full signature.

10. Blocked Rand may be used by emigrants and non-residents of the common monetary area (comprising the Republic of South Africa and Namibia and the Kingdoms of Swaziland and Lesotho) for payment in terms of this and reference should be made to paragraph 31 of the prospectus, which deals with the Exchange Control Regulations. If you are in any doubt in regard thereto, please consult your professional advisor.

11. As allocated private placement shares are being transferred to successful applicants on a delivery-versus-payment basis, no payment will be required to be made if the private placement or the listing is not successful.

148 PRINTEDBYINCE(PTY)LTD REF.JOB0006572