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IFRS 12 Disclosure in respect of The Siyakha Trusts for 2017 and 2018
FORTRESS REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA ISIN:ZAE000248498
FFB ISIN:ZAE000248506
Bond company code: FORI
(Approved as a REIT by the JSE)
("Fortress" or "the company")
IFRS 12 DISCLOSURE IN RESPECT OF THE SIYAKHA TRUSTS FOR 2017 AND 2018
Fortress has reconsidered its assessment and accounting treatment of the Siyakha Education Trust, the Siyakha 1
Education Trust and the Siyakha 2 Education Trust (collectively "Siyakha Trusts"), at the recommendation and request
of the JSE, following the JSE's consultation with and consideration of the advice of the Financial Reporting Investigation
Panel ("FRIP"). The Siyakha Trusts are B-BBEE charitable trusts focused on education initiatives with Fortress
providing financial assistance to The Siyakha Education Trust and The Siyakha 2 Education Trust.
As disclosed in the 2017 and 2018 annual financial statements, the Siyakha Trusts were not considered to meet the
requirements of structured entities included in IFRS 12: Disclosure of Interests in Other Entities. The JSE referred the
matter of the accounting treatment of the Siyakha Trusts to the FRIP, in respect of which the Review Committee of the
FRIP has concluded that the Siyakha Trusts are unconsolidated structured entities and hence the disclosure requirements
in that regard, per IFRS 12, should have been provided. Upon subsequent reconsideration of management's assessment
of the Siyakha Trusts in terms of IFRS 12, Fortress accepts the finding of the FRIP that the Siyakha Trusts are
unconsolidated structured entities. Upon request from the JSE, we therefore set out below the revised disclosure as
required by IFRS 12 in respect of the Siyakha Trusts in relation to the 2018 financial statements, including the
comparative 2017 financial year. This additional disclosure presented below has not been reported on by the external
auditors of Fortress and the audit opinions issued on the 2017 and 2018 financial statements of Fortress remain
unchanged, as unqualified audit opinions.
Presentation of IFRS 12 disclosure in respect of the Siyakha Trusts as omitted from the Fortress annual financial
statements for the year ended 30 June 2018
(Financial statement note references correspond to the notes presented in the 2018 annual financial statements)
1. ACCOUNTING POLICIES
Structured Entities
Controlled structured entities are consolidated. In the case of structured entities that are not controlled information is
disclosed that enables the users of the financial statements to understand the nature and extent of the interest in the
entity and to evaluate the nature of, and changes in, the risks associated with the interest in the entity.
8. LOANS TO BEE VEHICLES – UNCONSOLIDATED STRUCTURED ENTITIES
Fortress' assessment and accounting treatment of the Siyakha Trusts has been revised. Previously, as disclosed in the
2017 and 2018 financial statements, Fortress did not consider the Siyakha Trusts to be classified as unconsolidated
structured entities in terms of IFRS 12: Disclosure of Interests in Other Entities. Management now considers these trusts
to be unconsolidated structured entities with the disclosure requirements of IFRS 12 being applicable.
Fortress provides financial assistance to The Siyakha Education Trust and The Siyakha 2 Education Trust. Fortress'
Broad-Based Black Economic Empowerment initiatives include these two trusts together with The Siyakha 1 Education
Trust. The Siyakha Trusts are B-BBEE charitable trusts focused on education initiatives. Financial assistance by way of
loan funding is provided in order for these trusts to acquire shares in Fortress that may return capital growth and will
earn dividends.
Loans to BEE vehicles1
GROUP COMPANY
2018 2017 2018 2017
R'000 R'000 R'000 R'000
Loans to the Siyakha Education Trust (BEE
charitable trust) 2 373 381 2 394 766 300 919 -
Loans to the Siyakha 2 Education Trust (BEE
charitable trust) 1 431 743 1 037 879 656 699 -
Accumulated Impairment Loss (1 858 177) - - -
1 946 947 3 432 645 957 618 -
The loans to the Siyakha Education Trust
(BEE charitable trust) are secured (2017:
unsecured), bear interest at prime plus 2%
(2017: prime plus 2%) with interest being
capitalised to the extent it is not paid. The
loans are repayable as follows:
- On 16 March 2024 240 871 333 369 110 481 -
- On 6 October 2024 1 362 075 1 206 390 - -
- On 8 December 2024 414 901 367 478 190 304 -
- On 11 March 2025 148 939 131 915 - -
- On 25 November 2025 206 304 182 724 - -
- On 1 December 2025 291 172 890 134 -
2 373 381 2 394 766 300 919 -
The loans to the Siyakha 2 Education Trust
(BEE charitable trust) are secured (2017:
unsecured) and R840,9 million (2017: 517,3
million) bear interest at prime with the
balance of R590,9 million (2017: 520,6
million) bearing interest at prime plus 2%.
Interest is capitalised to the extent it is not
paid.
The loans are repayable as follows:
- On 14 December 2026 325 863 532 040 149 464 -
- On 24 May 2027 565 521 505 839 259 388 -
- On 18 October 2027 540 359 - 247 847 -
1 431 743 1 037 879 656 699 -
Items included in the statement of comprehensive income relating to Fortress' interest in the Siyakha Trusts
GROUP COMPANY
2018 2017 2018 2017
R'000 R'000 R'000 R'000
BEE Siyakha contribution (included in
administrative expenses) (16 000) - - -
Impairment of loans to BEE vehicles (1 858 177) - - -
Finance income - interest on loans to BEE
vehicles (capitalised to the loan) 432 568 301 850 - -
(1 441 609) 301 850 - -
1 Amounts in respect of loans to BEE vehicles presented in this table are consistent with amounts reported in the 2017 and 2018 financial statements.
Financial assistance
Fortress has granted loans to both the Siyakha Education Trust and the Siyakha 2 Education Trust, details of which are
disclosed above. The Siyakha Education Trust and the Siyakha 2 Education Trust collectively owned 947 525 (2017:
107 939 454) Fortress A shares and 135 870 288 (2017: 121 977 629) Fortress B shares at year-end. A total of 947 525
A shares and 128 395 581 B shares are held as security against the loans.
Fortress is not the sole financier of the Siyakha Trusts, with Fortress' portion of loan funding amounting to 45% of total
debt of the Siyakha Trusts at 30 June 2018 (2017: 36%). The market value of Fortress A and B shares held by the Siyakha
Trusts amounts to 41% of the Siyakha Trusts' total asset base at 30 June 2018 (2017: 50%). The Siyakha Trusts'
collective funding at 30 June 2018 relates to loan funding provided by Resilient REIT Limited ("Resilient") (55%) and
loan funding provided by Fortress (45%) (2017: bank debt (26%), loan funding provided by Resilient REIT Limited
(38%) and loan funding provided by Fortress (36%)). In 2018 the Siyakha Trusts settled the bank debt. No further funding
was provided by Fortress to settle the bank debt nor did Fortress provide any security in respect of this bank debt.
The Siyakha Trusts' asset base consists of liquid listed shares in Resilient and Fortress whilst debt consists of longer-
dated loan funding provided by Resilient and Fortress (2017: Siyakha Trusts debt consists of longer-dated bank debt,
Resilient loan funding and Fortress loan funding).
Exposure and impairment
The combined negative net asset value of the Siyakha Education Trust and Siyakha 2 Education Trust was R3,50 billion
at 30 June 2018 (2017: positive net asset value of R2,56 billion). At 30 June 2018, an impairment loss of R1 858,2 million
(2017: RNil) has been recognised at group level. The recoverable amount of the loans have been determined based on
the fair value less cost to sell of the underlying shares held as security against the loan.
The maximum exposure relating to the loans granted to the Trusts is included in note 25.1, Financial Instruments, Credit
Risk. Refer to note 26 for Accounting estimates and judgements relating to the impairment of loans to BEE vehicles.
Additional exposure exists in the form of non-contractual contributions and services detailed below.
The decision was made in 2018 by Fortress to distribute interest accrued on the loans advanced to the Siyakha Trusts
only to the extent that this interest is matched by dividends accrued to the Siyakha Trusts from Fortress A and B shares
they held.
Financial and other support
In addition to Fortress providing financial assistance by way of loans granted to the Siyakha Education Trust and the
Siyakha 2 Education Trust and as a result of the deterioration in the market value of investments held by the Siyakha
Trusts, Fortress contributed an amount of R16 million towards a portion of the fees and costs of the Siyakha programme
in 2018 (2017: RNil) and has committed to fund a further estimated R16 million in 2019. This contribution by Fortress
towards the Siyakha programme amounts to approximately 50% of the Siyakha Trusts' annual expenses in a calendar
year, excluding interest costs on debt. Whilst this financial support has been provided to enable the Siyakha Trusts to
fund expenditure under the Siyakha education programme, this commitment is non-contractual. The requirement for
additional support will be assessed and disclosed on an ongoing basis. Being mindful of the charitable nature of the
Siyakha Trusts, Fortress has also provided support in the form of limited bookkeeping services provided by Fortress
employees during 2017 and 2018, estimated at a market value of R120 000 per annum. These bookkeeping services were
no longer provided from May 2018. No other support has been provided to the Siyakha Trusts.
Siyakha project initiatives
Siyakha has changed its focus from the provision of infrastructure at schools to providing additional facilities and courses
at the Learning Labs as well as the provision of university bursaries to students.
Learning Labs
In order to support academic advancement, Siyakha invested in building Siyakha Learning Labs. The intention is for the
Learning Labs to become educational havens where people of all demographics come to study and advance themselves
by attending courses, receive training, use the internet and have access to educational supplements for free. The Siyakha
Learning Labs present various courses from Mondays to Fridays (Leadership Academy Course, Welcome to Computers,
Welcome to English and Work Readiness Programme), with Saturday classes at the Leaning Labs being reserved for
schools who require curriculum support (basic computers, mathematics, reading and natural science). Siyakha has
established three Learning Labs: Tubatse Crossing (Burgersfort), The Galleria (Amanzimtoti) and Jubilee Mall
(Hammanskraal). Siyakha Learning Labs have to date registered a total of 42 252 user students.
University bursaries
In addition to the Learning Labs, Siyakha awards university bursaries to qualifying candidates throughout South Africa,
especially from areas where Fortress has a presence. The full bursaries cover all their study-related expenses, namely
tuition, accommodation, stationery, tutoring lessons, monthly allowance, meals, laptops and study material. These
students' field of study ranges across accounting, medicine, engineering, actuarial science, biochemistry and many more.
The Siyakha Trusts currently have a total of 106 university students studying at the following universities: University of
Cape Town, University of Pretoria, Wits University, University of KwaZulu-Natal, Stellenbosch University, University
of the Free State, University of Johannesburg, North West University, Tshwane University of Technology and University
of Limpopo.
Further detailed information on the Siyakha Trusts' initiatives is provided in the Social and Ethics Committee Report
included in the Fortress Integrated report, refer to page 67.
26. ACCOUNTING ESTIMATES AND JUDGEMENTS
26.7 Unconsolidated Structured Entities: Siyakha Trusts
Fortress' Broad-Based Black Economic Empowerment initiatives relate to the Siyakha Education Trust, the Siyakha 1
Education Trust and the Siyakha 2 Education Trust ("the Siyakha Trusts"), which are B-BBEE charitable trusts focused
on education initiatives. Fortress provides financial assistance to the Siyakha Education Trust and the Siyakha 2
Education Trust in order for these trusts to acquire shares in Fortress that will earn dividends.
Management has assessed whether the Siyakha Trusts meet the definition of structured entities in accordance with IFRS
12: Disclosure of Interests in Other Entities. This assessment has been revised, as management previously concluded per
the 2018 and 2017 annual financial statements that the Siyakha Trusts were not unconsolidated structured entities per
IFRS 12.
The following attributes, which often apply to structured entities, were considered by management in assessing whether
the Siyakha Trusts are structured entities - being restricted activities and a narrow and well-defined objective. The
Siyakha Trusts are all charitable trusts, established to conduct restricted activities with a narrow and well-defined
objective, this being to support black education in South Africa, and for that reason management concluded that they are
structured entities.
Management has further assessed the relationship with the Siyakha Trusts in terms of the requirements of IFRS 10 and
has concluded the following:
a) Fortress has no power to direct the relevant activities of the Siyakha Trusts and has not historically directed the
relevant activities. Fortress has no influence over the decision-making of the Siyakha Trusts.
b) Fortress receives interest income from The Siyakha Education Trust and The Siyakha 2 Education Trust at interest
rates linked to prime and has no other contractual rights to income from the Siyakha Trusts.
c) Fortress has no power or other contractual rights enabling it to affect the amount of returns from the Siyakha Trusts.
Fortress is not the sole financier of the Siyakha Trusts.
Management is therefore satisfied that the group does not control these trusts and as such has not consolidated these
trusts.
Management has therefore concluded that the Siyakha Trusts are unconsolidated structured entities and the disclosure
required by IFRS 12 is set out in note 8.
8 March 2019
Lead sponsor
Java Capital
Joint sponsor
Nedbank Corporate and Investment Banking
Date: 08/03/2019 01:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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