FORTRESS INCOME FUND LIMITED - Acquisition of a 25% undivided share in Arbour Crossing and The Galleria

Acquisition of a 25% undivided share in Arbour Crossing and The Galleria

FORTRESS INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA      ISIN: ZAE000141313
                 FFB      ISIN: ZAE000141321
(Approved as a REIT by the JSE)
(“Fortress” or “the company”)

ACQUISITION OF A 25% UNDIVIDED SHARE IN ARBOUR CROSSING AND THE GALLERIA


1.   INTRODUCTION
     A wholly-owned subsidiary of Fortress, Fortress Income 2 Proprietary Limited (“Fortress 2”) has
     concluded an agreement for the acquisition of a 25% undivided share in the rental enterprises
     conducted in respect of and including the properties and buildings known as Arbour Crossing and The
     Galleria (“the Arbour Town acquisition”) from Arbour Town Proprietary Limited (“Arbour
     Town”).

2.   RATIONALE
     The Arbour Town acquisition is consistent with Fortress’ strategy of increasing its exposure to retail
     properties.

3.   DETAILS OF THE ARBOUR TOWN ACQUISITION
     The Galleria (Erf 237 Umbogintwini Registration Division ET KwaZulu-Natal) is a shopping centre of
     88 443 square metres, the weighted average net rental per square metre of which is currently R135.52
     per square metre. Arbour Crossing (Portion 2 of Erf 235 Umbogintwini Registration Division ET
     KwaZulu-Natal) is a shopping centre of 39 786 square metres, the weighted average net rental per
     square metre of which is currently R85.66 per square metre.

4.   TERMS AND CONDITION PRECEDENT
     The aggregate purchase price of R548 611 111 for both The Galleria and Arbour Crossing
     (collectively, the “properties”), is payable in cash against transfer of ownership of the 25% undivided
     share in both the Arbour Town property and The Galleria property into Fortress 2’s name. The
     effective date of the Arbour Town acquisition is the first business day immediately following the date
     on which the condition precedent, disclosed below, to which the Arbour Town acquisition is subject, is
     fulfilled.
     In the event that transfer of the Arbour Crossing property and The Galleria property has not taken
     place on or before 1 December 2013, Fortress will pay interest to Arbour Town in an amount of
     R94 444 per day from 1 December 2013 to the transfer date.
     The agreement governing the Arbour Town acquisition (the “Arbour Town acquisition agreement”)
     provides for warranties and indemnities that are standard for acquisitions of this nature.
     The Arbour Town acquisition is subject to the suspensive condition that on or before 31 March 2014
     the shareholder/s of Arbour Town pass a unanimous resolution approving the Arbour Town
     acquisition, failing which the Arbour Town acquisition agreement will never become of any force or
     effect.
5.   VALUATION
     Arbour Crossing and The Galleria were valued at R2 197 000 000 as at 1 July 2013 by Peter Parfitt of
     Quadrant Properties Proprietary Limited, who is independent and registered as a professional valuer in
     terms of the Property Valuers Profession Act, No 47 of 2000.

6.   FINANCIAL EFFECTS
     The pro forma financial effects, set out in the table below, have been prepared for illustrative purposes
     only, to provide information on how the Arbour Town acquisition may have impacted on the historical
     financial results of Fortress for the year ended 30 June 2013 and on the basis set out in the notes to the
     pro forma financial effects below. Due to their nature, the pro forma financial effects may not fairly
     present Fortress’ financial position, changes in equity, results of operations or cash flows after the
     Arbour Town acquisition. The pro forma financial effects are the responsibility of the directors of
     Fortress and have not been reviewed or reported on by Fortress’ auditors or reporting accountants.
     The pro forma financial effects of the Arbour Town acquisition on basic earnings per A linked unit,
     distribution per A linked unit and net asset value and net tangible asset value per A and B linked unit
     are not significant and have not been disclosed.
     The pro forma financial effects have been prepared in accordance with Fortress’ accounting policies
     and in compliance with IFRS.

                                                      Unadjusted
                                                       before the      Pro forma after the
                                                    Arbour Town             Arbour Town
                                                      acquisition              acquisition
                                                          (cents)                  (cents)         % change
      Basic earnings per A share                          206.31                   197.67              (4.2)
      Basic earnings per B share                          206.31                   197.67              (4.2)
      Basic earnings per B linked unit                    235.04                   223.01              (5.1)
      Headline earnings per A share                        89.61                    82.17              (8.3)
      Headline earnings per B share                        89.61                    82.17              (8.3)
      Headline earnings per A linked unit                 201.63                   194.19              (3.7)
      Headline earnings per B linked unit                 118.34                   107.51              (9.2)
      Distribution per B linked unit                       28.68                    25.29             (11.8)
      Weighted average number of A and B
      shares/linked units in issue                    308 213 257              308 213 257                     -

Notes and assumptions:
     1.    The amounts set out in the “Unadjusted before the Arbour Town acquisition” column have been
           extracted, without adjustment, from the preliminary summarised audited consolidated financial
           statements of Fortress for the year ended 30 June 2013.
     2.    The Arbour Town acquisition is assumed to be implemented on 1 July 2012 for the statement of
           comprehensive income purposes.
     3.    The Arbour Town acquisition is assumed to be implemented on 30 June 2013 for the statement
           of financial position purposes.
     4.    The properties are assumed to be acquired from Arbour Town for a purchase price of R548 611
           111 which is entirely settled in cash.
     5.    The purchase price is assumed to be funded through third party bank debt which incurs interest
           at Fortress’ historical weighted average cost of debt of 8.48% per annum.
     6.    The properties earned historical net rental income of R44.0 million (25%) (a straight-lining
           rental adjustment of R8.0 million) for the year ended 30 June 2013.
     7.    The historical property revenue and expenses were extracted from the underlying books and
           records of each property which have not been reviewed or reported on by auditors or reporting
           accountants. However, the directors of Fortress are satisfied with the quality of the information.
      8.   Estimated Arbour Town acquisition costs of approximately R0.1 million are assumed to be
           incurred by Fortress and have been capitalised.
      9.   The properties are accounted for at fair value as valued by Quadrant Properties Proprietary
           Limited.
     10.   All statement of comprehensive income adjustments have a continuing effect.


7.    CATEGORISATION
      The Arbour Town acquisition is a category 2 transaction in terms of the JSE Listings Requirements
      and accordingly does not require approval by linked unitholders.

15 August 2013

Corporate advisor and sponsor
Java Capital

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