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Acquisition of a portfolio from Resilient Property Income Fund Limited
FORTRESS INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
Registration number 2009/016487/06
Share codes: FFA ISIN: ZAE000141313
FFB ISIN: ZAE000141321
(“Fortress”)
ACQUISITION OF A PORTFOLIO OF PROPERTIES FROM RESILIENT PROPERTY INCOME FUND LIMITED
INTRODUCTION
Linked unitholders are advised that a wholly owned subsidiary of Fortress has concluded agreements with
wholly owned subsidiary companies of Resilient Property Income Fund Limited (“Resilient”) for the
acquisition of the letting enterprises conducted in respect of the properties known as Nelspruit Plaza,
Rustenburg Plaza, Central Park Bloemfontein, New Redruth Village, Sterkspruit Plaza (82%) and Tzaneen
Lifestyle Centre (25%) (collectively, the “properties”), as well as a loan to a development partner (collectively,
the “transaction”).
RATIONALE FOR THE TRANSACTION
The acquisition is in line with Fortress’ strategy of acquiring rural retail centres which are accessible to
commuter transport, have a strong national tenant profile and are anchored by a national grocer. The transaction
will enhance the quality of the property portfolio and increase Fortress’ retail exposure.
TERMS OF THE TRANSACTION AND CONDITIONS PRECEDENT
The effective date of the transaction is 1 July 2013.
The aggregate purchase price payable by Fortress to Resilient pursuant to the transaction is R1 062 585 984.
This will be settled by the payment of R531 292 992 in cash and the balance through the issue to Resilient of
25 469 463 Fortress A linked units at R13.80 per A linked unit and 25 469 463 Fortress B linked units at R7.06
per B linked unit, respectively. Of the total purchase price payable, R20 595 291 relates to the loan to the
development partner.
The transaction is subject to:
- the receipt of approval from Fortress’ linked unitholders (as further detailed below);
- the receipt of unconditional approval from the Competition Authorities;
- in respect of Nelspruit Plaza, the receipt of written confirmation from Transnet Limited, within 90 calendar
days after the date of signature of the acquisition agreement, that it has no objection to and consents to the
sale of the business and the cessation by Resilient to Fortress of its leasehold rights, title and interest in and
to the notarial deed of lease, to the extent that such consent is required; and
- in respect of the acquisitions of the 82% undivided share in Sterkspruit Plaza and the 25% undivided share
in Tzaneen Lifestyle Centre, the receipt of written confirmation from Resilient, within 30 calendar days
from the date of signature of the acquisition agreements, that the co-owners of the remaining undivided
shares in these properties, have not exercised their rights of first refusal to acquire the properties or other
rights as co-owners.
The acquisition of each property and the loan to the development partner are inter-conditional and must all
become unconditional in accordance with their terms.
The acquisition agreements contain warranties that are typical for acquisitions of this nature.
THE PROPERTIES
Details of the properties being acquired by Fortress pursuant to the transaction, including property name and
address, geographical location, rentable area, sector, weighted average rental per square metre, effective date of
acquisition, purchase price and the valuations attributed to the properties as at 1 July 2013 by Quadrant
Properties (Proprietary) Limited (“Quadrant”), an independent professional associated valuer, are as follows:
Property name and address Geographical location Rentable area Sector
(100%) (m2)
Nelspruit Plaza, corner Henshall and
Bester Streets, Nelspruit Mpumalanga 18 525 Retail
Rustenburg Plaza, 34 Fatima Bhayat
Street, Rustenburg North West 12 188 Retail
Central Park Bloemfontein, corner
Fichardt and Hanger Streets,
Bloemfontein Free State 12 753 Retail
New Redruth Village, St. Austell Street,
New Redruth, Alberton Gauteng 12 028 Retail
Sterkspruit Plaza, corner of Zastron and
Voyizana Roads, Sterkspruit (82%) Eastern Cape 10 696 Retail
Tzaneen Lifestyle Centre, corner
Voortrekker and the P43-3 Roads,
Tzaneen (25%) Limpopo 9 380 Retail
Total 75 570
Weighted
average rental Valuation as at
per square metre Effective date of Purchase price 1 July 2013
Property name and address (R/m2) acquisition (R) (R)
Nelspruit Plaza, corner
Henshall and Bester Streets,
Nelspruit 129.01 1 July 2013 312 500 000 312 500 000
Rustenburg Plaza, 34 Fatima
Bhayat Street, Rustenburg 140.18 1 July 2013 260 000 000 260 000 000
Central Park Bloemfontein,
corner Fichardt and Hanger
Streets, Bloemfontein 116.17 1 July 2013 163 000 000 163 000 000
New Redruth Village, St.
Austell Street, New Redruth,
Alberton 103.59 1 July 2013 151 000 000 151 000 000
Sterkspruit Plaza, corner of
Zastron and Voyizana Roads,
Sterkspruit (82%) 89.45 1 July 2013 105 544 287^ 105 544 287
Tzaneen Lifestyle Centre,
corner Voortrekker and the
P43-3 Roads, Tzaneen (25%) 112.46 1 July 2013 49 946 406† 49 946 406
Sub total 1 041 990 693 1 041 990 693
Sterkspruit Plaza – loan to
development partner 20 595 291
Total 1 062 585 984
^ Fortress is acquiring an 82% undivided share in this property which includes a portion of land held for
development.
† Fortress is acquiring a 25% undivided share in this property which includes a portion of land held for
development.
CATEGORISATION OF THE TRANSACTION, RELATED PARTY CONSIDERATIONS AND
FURTHER DOCUMENTATION
The transaction constitutes a Category 2 transaction in terms of the JSE Listings Requirements.
As Resilient currently owns and controls 10.5% of the Fortress combined A and B linked units in issue, the
transaction is, from a Fortress perspective, an acquisition from a related party under the JSE Listings
Requirements requiring linked unitholder approval at a general meeting. In addition, as a portion of the
purchase price is to be settled in Fortress linked units, the transaction requires a statement by Fortress
confirming whether the transaction is fair insofar as linked unitholders are concerned and that the board has
been so advised by an independent expert. Accordingly, a circular setting out further details of the transaction
including the independent property valuations and the fairness opinion required in the context of the related
party transaction, and containing a notice convening a general meeting of linked unitholders, will be sent to
Fortress linked unitholders in due course.
Although Resilient will be taken into account in determining a quorum at the general meeting, the JSE Listings
Requirements require that the resolution authorising the transaction must be approved in a general meeting by a
majority of Fortress linked unitholders, excluding the votes cast by Resilient and its associates, present in
person or by proxy.
FINANCIAL INFORMATION
The unaudited pro forma financial effects, set out in the table below, have been prepared for illustrative
purposes only, to provide information on how the transaction may have impacted on the historical financial
results of Fortress for the six months ended 31 December 2012. Due to their nature, the unaudited pro forma
financial effects may not fairly present Fortress’ financial position, changes in equity, results of operations or
cash flows after the transaction. The unaudited 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 unaudited 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
transaction transaction
(cents) (cents) % change
Basic earnings per A share 34.03 31.20 (8.3)
Basic earnings per B share 34.03 31.20 (8.3)
Basic earnings per A linked unit 90.04 87.21 (3.1)
Basic earnings per B linked unit 47.49 42.41 (10.7)
Headline earnings per A share 45.74 42.15 (7.8)
Headline earnings per B share 45.74 42.15 (7.8)
Headline earnings per A linked unit 101.75 98.16 (3.5)
Headline earnings per B linked unit 59.20 53.37 (9.8)
Distribution per A linked unit 56.01 56.01 -
Distribution per B linked unit 13.46 11.21 (16.7)
Net asset value and net tangible asset value per
A linked unit (Rand) 14.24 14.24 -
Net asset value and net tangible asset value per 1.23 1.65 34.1
B linked unit (Rand)
Weighted average number of A and B
shares/linked units in issue 299 594 493 325 063 956 8.5
Actual number of A and B shares/linked units
in issue 299 594 493 325 063 956 8.5
Notes and assumptions:
1. The amounts set out in the “Unadjusted before the transaction” column have been extracted, without
adjustment, from the condensed unaudited consolidated interim financial statements of Fortress for the six
months ended 31 December 2012.
2. The transaction is assumed to be implemented on 1 July 2012 for the statement of comprehensive income
purposes.
3. The transaction is assumed to be implemented on 31 December 2012 for the statement of financial
position purposes.
4. The properties and the loan to the development partner are assumed to be acquired from Resilient for a
purchase price of R1.04 billion and R20.6 million, respectively.
5. Of the total purchase price, R531.3 million is assumed to be settled in cash and the balance is assumed to
be settled by the issue of 25 469 463 Fortress A linked units at R13.80 per A linked unit and 25 469 463
Fortress B linked units at R7.06 per B linked unit, respectively.
6. The cash portion of 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 8.46% per annum.
7. The properties earned historical net rental income of R32.4 million for the six months ended
31 December 2012.
8. 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.
9. Interest on the loan to the development partner is assumed to be earned at a rate of 2% above prime, in
accordance with the terms of the loan agreement with the development partner, in respect of the six
months ended 31 December 2012.
10. Interest capitalised on land which is held for development is assumed to be capitalised at Fortress’
historical weighted average cost of debt of 8.46% in respect of the six months ended 31 December 2012.
11. Distributable income is assumed to be earned evenly throughout the six months ended
31 December 2012.
12. Estimated transaction costs of approximately R1.5 million are assumed to be incurred by Fortress, of
which R1.3 million has been capitalised and the balance has been deducted from share premium.
13. The purchase price for the properties is equal to the fair value of the properties (as valued by Quadrant)
and accordingly the fair value adjustment is assumed to equal the estimated transaction costs which have
been capitalised as per note 12 above.
14. All statement of comprehensive income adjustments have a continuing effect.
22 March 2013
Corporate advisor and sponsor
Java Capital
Date: 22/03/2013 03:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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