A disciplined, well-structured opportunity in a growing market, offering a 18.6% base-case return to an investor whose hurdle is in the mid-teens — and not to one whose hurdle is twenty percent.

24.1 The case in summary

• The market is growing and under-penetrated. Flexible workspace occupies 2.6% of quality office stock in Gauteng against 5–8% in comparable international markets. The Company’s FY2031 revenue represents 1.8% of the provincial market.
• The product choice is the right one. Sixty-two percent of capacity behind a lockable door on twelve-month-plus contracts produces contracted revenue, a negative cash conversion cycle worth R11.7m of cumulative cash inflow, and a business a lender will lend against.
• The entry point is favourable. Ten-year leases with R9.0m of installation allowances and four months rent-free are available in the current market and will not be in three years.
• The economics work at site level. Each centre pays back its net capital in 32 to 35 months at the contribution line, with cash-on-cash returns of 66% to 78% at stabilisation.
• The structure protects the investor. Only R20.0m of R29.0m is committed before the flagship demonstrates 75% occupancy, the third centre is genuinely optional, and R10.0m of committed standby liquidity is in place.

24.2 What would have to be true

1. Rosebank reaches 75% occupancy by month 13. Everything downstream, the second equity tranche, the Sandton lease, the entire scale-up, depends on this single test.
2. Achieved rates hold within 5% of the published card. A ten percent rate shortfall reduces the equity IRR to 2.0%.
3. Blended occupancy stabilises at or near 84%. A six-point shortfall reduces the IRR to 7.5%; a twelve-point shortfall produces a negative return.
4. The senior lender accommodates the FY2030 covenant position at financial close, through a step-down, an add-back or an equity cure right.
5. A trade or financial buyer is available in FY2031 or FY2032 at 7.50× EBITDA or better. The return is realised at exit, not through distributions.

24.3 What is unattractive about this opportunity

24.4 Which investors this suits

Table 75 Fit against investor type

24.5 Recommendation

The Company recommends proceeding on the terms set out in this document: R29.0m of equity in two milestone-linked tranches for 53% of the Company, alongside R12.0m of senior term debt, R6.8m of asset finance and R9.0m of landlord installation allowances, with a committed but undrawn R10.0m revolving facility.

The recommendation is subject to four conditions that the Company regards as integral rather than procedural. First, the senior facility must be documented with a covenant accommodation covering the four quarters following each new centre opening. Second, the month-13 and month-34 decision gates must be written into the shareholders’ agreement as genuine conditions, not as reporting milestones. Third, the 8% member concentration cap must be a reserved matter requiring investor consent to exceed. Fourth, the revolving facility must be committed at financial close rather than arranged when it is needed.

An investor whose required return is in the mid-teens, who understands property-backed operating businesses and who can hold to a FY2031 or FY2032 exit should find this an attractive and unusually well-protected opportunity. An investor requiring a twenty percent return, interim distributions or a shorter horizon should not proceed, and the Company would rather say so at this stage than discover it at the investment committee.