Wrap Text
Spin-off of Capital office portfolio, Fortress offer to acquire Capital, Fortress A & B share repurchase, withdrawal
CAPITAL PROPERTY FUND LIMITED FORTRESS INCOME FUND LIMITED
(previously Friedshelf 1497 Proprietary Limited) (Incorporated in the Republic of South Africa)
(Incorporated in the Republic of South Africa) (Registration number 2009/016487/06)
(Registration number 2013/226575/06) JSE share codes: FFA ISIN: ZAE000192787
JSE share code: CPF ISIN: ZAE000186821 FFB ISIN: ZAE000192795
(Approved as a REIT by the JSE) (Approved as a REIT by the JSE)
(“Capital”) (“Fortress”)
- THE SPIN-OFF BY CAPITAL OF A NEW REIT HOLDING ITS OFFICE PORTFOLIO INCLUDING THE
PROPOSAL OF A SCHEME OF ARRANGEMENT AND REPURCHASE OF CAPITAL SHARES IN ORDER TO
EFFECT THE SPIN-OFF;
- A FIRM INTENTION BY FORTRESS TO MAKE AN OFFER TO ACQUIRE ALL THE ISSUED SHARES OF
CAPITAL THAT FORTRESS DOES NOT ALREADY OWN BY SCHEME OF ARRANGEMENT;
- AUTHORITY FOR FORTRESS TO REPURCHASE FORTRESS B SHARES OWNED BY CAPITAL;
- AUTHORITY FOR FORTRESS TO REPURCHASE FORTRESS A SHARES IN THE OPEN MARKET; AND
- WITHDRAWAL OF CAUTIONARY
1. Introduction
Shareholders of Capital and Fortress are referred to the joint SENS announcements of 15 May and 1 June 2015 and the Capital
SENS announcement of 19 May 2015.
This announcement contains further details of the proposed spin-off by Capital of its office portfolio, the proposal by Fortress to
acquire all of the issued shares in Capital and ancillary matters. In summary, to be read subject to the additional detail below:
- Capital has unconditionally resolved to spin-off its office portfolio (the “spin-off”) as a newly-established stand-alone
REIT (“Newreit”). As the first step toward the spin-off, Newreit, which will be incorporated as a wholly-owned
subsidiary of Capital, will acquire all the issued shares in the wholly-owned subsidiary of Capital that holds its office
portfolio.
Implementation of the spin-off, ignoring costs related to the transaction and the listing of Newreit and the potential for
any re-rating of Newreit as a focussed specialist REIT, will be neutral to the position of Capital shareholders as regards
dividends per share and the market value of their investment in respect of Capital and Newreit shares taken together.
The proposed alternative mechanisms for the spin-off will have the end result that Capital’s shareholders will receive
listed shares in Newreit. The preferred mechanism for the spin-off is a scheme of arrangement pursuant to which
Capital shareholders will, in effect, swap 10.53% of all Capital shares for shares in Newreit (the “Newreit scheme”)
conditional on authority for Capital to repurchase the Capital shares acquired by Newreit pursuant to the Newreit
scheme (“Newreit Capital repurchase”).
- If the Newreit scheme cannot be implemented for any reason, including that it does not receive the required level of
support from Capital shareholders, the spin-off will be effected by a pro rata in specie distribution of Newreit shares to
Capital shareholders. In either event, after the spin-off of Newreit, Capital shareholders will hold shares in Capital and
shares in Newreit.
- Fortress has given notice of its firm intention to offer to acquire all the issued shares of Capital that Fortress does not
already own in exchange for Fortress A shares and Fortress B shares, by scheme of arrangement (the “Fortress
scheme”), at a swap ratio of 0.31750 Fortress A and 0.31750 Fortress B shares for each Capital share, based inter alia
on 1 772 624 329 Capital shares in issue. The Fortress scheme will be subject to conditions referred to below.
- The Capital board has agreed to the proposal of the Fortress scheme to Capital shareholders, subject to receipt of a fair
and reasonable opinion from an independent expert as referred to in 10 below.
- In the event of implementation of the Fortress scheme:
- Capital will become a wholly-owned subsidiary of Fortress and will de-list from the JSE;
- Capital shareholders will have swapped all their shares or remaining shares in Capital for Fortress A and
Fortress B shares and will retain the Newreit shares they will have received pursuant to the spin-off; and
- Fortress will repurchase the 105 482 144 Fortress B shares currently held by Capital, and will have received
authority, subject to the Listings Requirements, to elect from time to time thereafter to repurchase Fortress A
shares on the open market subject to a maximum repurchase that restores parity to the number of Fortress A
and Fortress B shares in issue.
Fortress and Capital shareholders: illustrative financial effects of
the Fortress scheme and the B share specific repurchase (cents per Before the After the %
share): adjustments adjustments change
Dividend per Fortress A share 129.68 129.68 -
Dividend per Fortress B share 98.19 116.76 18.9%
Dividend per Fortress combined share 227.87 246.44 8.1%
Market price per Fortress A share 1 609 1 609 -
Market price per Fortress B share 2 750 3 270 18.9%
Market price per Fortress combined share 4 359 4 879 11.9%
Dividend per Capital share 82.20 78.24 (4.8)%
Market price per Capital share 1 205 1 549 28.5%
Dividend per Capital combined share 94.40 90.44 (4.2)%
Market price per Capital combined share 1 347 1 691 25.5%
See the footnotes to the table in paragraph 6 below.
2. The spin-off of Newreit
The spin-off will establish Newreit as a widely-held JSE-listed REIT with liquidity in its listed shares and with an office portfolio
valued at more than R4 billion that will benefit from the focussed and specialist attention of the newly-appointed management of
Newreit. Details of the management and strategy of Newreit will be announced with the abridged listings particulars of Newreit.
The benefits to shareholders of the specialist focus will be more marked, given the smaller initial market capitalisation of
Newreit.
2.1. Newreit scheme consideration
On implementation of the Newreit scheme, Newreit will acquire from each Capital shareholder 10.53% of its Capital
shares, simultaneously and with immediate effect from the time of issue of Newreit shares to the Capital shareholders.
The swap will be subject to rounding principles.
2.2. Conditions precedent to the Newreit scheme
The Newreit scheme will be subject to the following conditions precedent:
- approval by the JSE of the listing of Newreit ordinary shares on the JSE;
- approval of the Newreit scheme by Capital shareholders by special resolution and, if necessary, approval of the
implementation of the resolution by the High Court;
- that appraisal rights (in terms of section 164 of the Companies Act) are not validly exercised by any Capital
shareholders in respect of the Newreit scheme or the Newreit Capital repurchase, but only to the extent that the
condition is not waived by Newreit;
- all applicable regulatory and statutory approvals;
- all applicable approvals under any debt agreement or the like to which Capital is party; and
- the Newreit Capital repurchase referred to in paragraph 2.3 below becoming unconditional, save for the
condition requiring that the Newreit scheme becomes unconditional.
2.3. The Newreit Capital repurchase
It is proposed that, on implementation of the Newreit scheme, Capital will purchase from Newreit all the Capital shares
acquired by Newreit pursuant to the Newreit scheme for a purchase consideration of R13.47 per Capital share (the
“Newreit Capital repurchase”).
The Newreit Capital repurchase will be subject to the following conditions precedent:
- the Newreit scheme becoming unconditional, save for the condition requiring that the Newreit Capital
repurchase becomes unconditional;
- the approval of the Newreit Capital repurchase by Capital shareholders by special resolution and, if required,
the approval of the implementation of the resolution by the High Court; and
- that appraisal rights (in terms of section 164 of the Companies Act) are not validly exercised by any Capital
shareholders in respect of the Newreit Capital repurchase, but only to the extent that this condition is not
waived by Capital; and
- all applicable regulatory and statutory approvals.
After implementation of the Newreit Capital repurchase, Capital would not hold any Capital shares in treasury.
2.4. Distributions and alternative mechanism for the spin-off
Following the listing of Newreit on the JSE, Newreit will pay a dividend to all Newreit shareholders for the income
period from 1 September to 31 December 2015, which will become payable to all Newreit shareholders who hold
Newreit shares at the record date for participation in the distribution.
Capital will declare and pay an interim distribution to Capital shareholders for the six months ended 30 June 2015 in the
ordinary course of business.
If the Newreit scheme and Newreit Capital repurchase cannot be implemented for any reason including that they do not
receive approval by the requisite majority of Capital shareholders, Capital intends to make a pro rata in specie
distribution of all the issued shares in Newreit to Capital shareholders prior to the implementation of the Fortress
scheme.
2.5. Pro forma earnings and net asset value effects pertaining to the Newreit scheme and Newreit Capital repurchase
In terms of Regulation 101(7)(b)(iv) of the Companies Act’s Regulations, a firm intention announcement must contain,
inter alia, the pro forma earnings and asset value per offeree regulated company security if the offer consideration
consists wholly or partly of offeror securities.
As Capital shareholders will, in terms of the Newreit scheme and Newreit Capital repurchase, in effect, swap a portion
of their Capital shares for shares in Newreit, their Capital and Newreit shares after the Newreit scheme and Newreit
Capital repurchase will mirror the economics of the Capital shares before the Newreit scheme and Newreit Capital
repurchase. Accordingly, save for the once-off costs of the transaction and the listing of Newreit and the on-going cost
to Newreit of being listed (which in aggregate are not material and which have not been taken into account in
determining the financial effects of the Newreit scheme and the Newreit Capital repurchase), the Newreit scheme and
Newreit Capital repurchase will have no financial effect on Capital shareholders.
2.6. Illustrative financial effects pertaining to the Newreit scheme and Newreit Capital repurchase
The table below sets out the illustrative financial effects of the transaction on a Capital shareholder, assuming that the
transaction is implemented on 1 July 2015, and based on the market prices per Capital share on 14 May 2015, being the
day before the first joint cautionary announcement on SENS by Capital and Fortress.
The illustrative financial effects are not pro forma financial effects and are provided for illustrative purposes only. The
illustrative financial effects are the responsibility of the directors of Capital and Fortress, and have not been reviewed or
reported on by independent reporting accountants.
Capital
Capital share Newreit combined
after the share after share after the
Newreit the Newreit Newreit
Capital shareholder: illustrative scheme and scheme and scheme and
financial effects of the Newreit Newreit Newreit Newreit
scheme and Newreit Capital Before the Capital Capital Capital %
repurchase (cents per share): adjustments repurchase repurchase repurchase change
Dividend per share 94.401 82.202 12.202 94.40 -
Market price per share 1 347.001 1 205.163 141.843 1 347.00 -
Notes and assumptions:
1. The financial information has been extracted from the joint SENS announcement released by Capital and Fortress
on 1 June 2015. The dividend per share is based on Java Capital’s analysis of market consensus regarding the
projected dividend of Capital for the year ending 30 June 2016 and the market price per share is on 14 May 2015,
the day before the first joint cautionary announcement on SENS by Capital and Fortress.
2. Dividend per share for the Newreit share is based on an estimated dividend of 12.20 cents per Newreit share. The
balance of the dividend is attributed to the Capital share after the Newreit scheme and Newreit Capital repurchase.
These projections have not been reviewed or reported on by independent reporting accountants.
3. Market price per share is based on the Capital share price in the “Before the adjustments” column adjusted for the
effect of the Newreit scheme and Newreit Capital repurchase which effectively results in each Capital shareholder
swapping 10.53% of their Capital shares for Newreit shares.
3. The Fortress scheme
Implementation of the Fortress scheme would result in a substantially enlarged market capitalisation for Fortress, with economies
of scale and the benefits of enhanced liquidity and index inclusion working for all Fortress A and Fortress B shareholders.
It is anticipated that, for Capital shareholders, implementation of the Fortress scheme will be value-enhancing and will allow
shareholders greater flexibility in retaining only the investment exposure of their choice, with a liquid market in the event that
there is any preference to dispose of any shares.
3.1. Fortress scheme consideration
In terms of the Fortress scheme, it will be proposed that Capital shareholders swap all their Capital shares for Fortress A
and B shares (the “Fortress scheme consideration shares”). The joint SENS announcement of 1 June 2015 referred to
an envisaged swap ratio of 0.355 Fortress A and 0.355 Fortress B shares for each Capital share, on the assumption that
the spin-off will result in R1 billion of Newreit’s share capital in the hands of Capital shareholders. That assumption has
been revisited and the current assumption is that the spin-off will result in more than R2.5 billion of the issued share
capital in Newreit in the hands of Capital shareholders. In light of the revised assumption, Fortress has adjusted its
proposed swap ratio to 0.31750 Fortress A and 0.31750 Fortress B shares for each Capital share, based inter alia on
1 772 624 329 Capital shares in issue. This ratio will be adjusted if the number of Capital shares in issue changes for any
reason as would be the case if, for example, the spin-off is implemented by the Newreit scheme and Newreit Capital
repurchase, in which event the swap ratio would be adjusted, proportionately to the cancellation of 10.53% of Capital
shares in issue, to 0.35487 Fortress A and 0.35487 Fortress B shares for every Capital share. The swap will be subject
to rounding principles.
3.2. Conditions precedent to the Fortress scheme
The Fortress scheme will be subject to the following conditions precedent:
- implementation of the spin-off;
- approval by the JSE of the listing of Newreit ordinary shares on the JSE;
- approval by Fortress shareholders of the ordinary and special resolutions necessary to authorise the
implementation of the Fortress scheme as a “category 1 transaction” in terms of Rule 9.20 of the Listings
Requirements and the allotment, issue and procurement of the listing on the JSE of the Fortress scheme
consideration shares;
- implementation of the increase in the authorised share capital of Fortress in order for Fortress to meet all of its
obligations in relation to the Fortress scheme;
- approval by Capital shareholders of the Fortress scheme by special resolution and, if necessary, the approval of
the implementation of the resolution by the High Court;
- that appraisal rights (in terms of section 164 of the Companies Act) are not validly exercised by any Capital
shareholders in respect of the Fortress scheme;
- approval of all resolutions necessary to give effect to the Fortress scheme and proposed A and B share
repurchases by the requisite majority/ies of Fortress shareholders;
- all applicable regulatory and statutory approvals including, if necessary, the approval of the competition
authorities;
- all applicable approvals under any debt agreement or the like to which Capital is party;
- Fortress obtaining confirmation from the Mauritian Financial Services Commission that the implementation of
the Fortress scheme would not give rise to the requirement to make a mandatory offer to the shareholders of
Rockcastle Global Real Estate Company Limited in terms of the Mauritian Securities (Takeover) Rules, or
alternatively that the Mauritian Financial Services Commission grants Fortress a waiver from such mandatory
offer requirement, but only to the extent that the condition is not waived by Fortress;
- that there are no regulatory or legal impediments, or adverse regulatory or legal consequences to the
implementation of the Fortress scheme; and
- that, prior to the Fortress scheme becoming unconditional, no material adverse event shall have arisen or
occurred (or might reasonably be expected to arise or occur) which could reasonably be expected to be adverse
with regard to the operations, continued existence, business, condition, assets and liabilities of Capital.
All conditions, other than those that are regulatory in nature and not capable of being waived, may be waived by
Fortress in whole or in part.
3.3. Distributions
The Fortress scheme consideration shares will be issued to Capital shareholders “cum” the entitlement to all
distributions for the periods from 1 July 2015.
Fortress will declare and pay a final distribution to Fortress shareholders for the six months ended 30 June 2015 in the
ordinary course of business.
Capital will declare and pay an interim distribution to Capital shareholders for the six months ended 30 June 2015 in the
ordinary course of business.
Fortress’ interim distribution for the financial year ending 30 June 2016 will be for the period 1 July 2015 to
31 December 2015. The full interim distribution will be payable to all Fortress shareholders who hold Fortress shares at
the record date for participation in such distribution.
3.4. Interim period undertakings
Capital has informed Fortress that it has resolved to dispose of its office portfolio, which will include the spin-off.
Capital has undertaken to Fortress that for the period up to implementation or failure of the Fortress scheme, Capital
will:
- continue to conduct its business in the ordinary and regular course;
- obtain the prior written consent of Fortress to the content of the formal agreements and documentation required
to give effect to the spin-off;
- not declare or make any distributions other than as referred to in this announcement without the prior written
consent of Fortress; and
- not solicit, initiate or encourage any expression of interest, enquiry, proposal or offer regarding any merger,
amalgamation, business combination, takeover bid, sale or other disposition of all or substantially all of the
equity in and/or business and/or assets of Capital, or afford options to acquire equity, the business and/or assets
of Capital or enter into any negotiation or consummate any transaction for any type of similar transaction or
series of transactions, which would or could constitute a change of control (as contemplated in section 123(5)
of the Companies Act read with Regulation 86 of the Takeover Regulations) in relation to Capital or which
could reasonably be considered to be likely to preclude or frustrate the proposed transaction with Fortress or its
implementation or to approve or recommend an alternative proposal or enter into any agreement related to an
alternative proposal.
For the same period, Fortress has undertaken to Capital that it will continue to conduct its business in the ordinary and
regular course and it will not declare or make any distributions other than as referred to in this announcement, without
first agreeing with Capital an appropriate adjustment to the share swap ratio in respect of the Fortress scheme.
4. The B share specific repurchase and the A share specific repurchase
On implementation of the Fortress scheme, Capital would become a wholly-owned subsidiary of Fortress and the 105 482 144
Fortress B shares held by Capital would become non-voting treasury shares of Fortress. In this event, Fortress will seek
shareholder authority to repurchase from Capital and cancel the 105 482 144 Fortress B shares (the “B share specific
repurchase”) and, subject to the Listings Requirements, to elect from time to time thereafter to repurchase Fortress A shares on
the open market subject to the Listings Requirements and a maximum repurchase of 105 482 144 Fortress A shares (the “A share
specific repurchase”) with the objective of moving toward parity in the number of Fortress A and Fortress B shares in issue.
4.1. The B share specific repurchase
Pursuant to the B share specific repurchase, Fortress proposes to repurchase from Capital and cancel from its issued
B share capital the 105 482 144 Fortress B shares held by Capital for a repurchase consideration based on the market
value of Fortress B shares at the date of the repurchase. After implementation of the B share specific repurchase,
Fortress would not hold any Fortress B shares in treasury.
The B share specific repurchase will be subject to the following conditions precedent:
- approval and implementation of the Fortress scheme;
- the A share specific repurchase becoming unconditional, save for the condition requiring that the B share
specific repurchase becomes unconditional;
- approval of the B share specific repurchase by the requisite majority of Fortress shareholders, as contemplated
in paragraph 5.69(c) of the Listings Requirements and section 115(2) of the Companies Act, and, if necessary,
the approval of the implementation of the relevant special resolution(s) by the High Court;
- that appraisal rights (in terms of section 164 of the Companies Act) are not validly exercised by any Fortress
shareholders in respect of the B share specific repurchase, but only to the extent that the condition is not
waived by Fortress; and
- all applicable regulatory and statutory approvals.
The conditions precedent, other than those that are regulatory in nature and not capable of being waived, may be waived
by Fortress in whole or in part.
4.2. The A share specific repurchase
Pursuant to the A share specific repurchase, Fortress proposes that it be authorised to repurchase Fortress A shares in
the open market from time to time and cancel any repurchased shares from its A share capital, subject to a maximum
aggregate repurchase of 105 482 144 Fortress A shares for a repurchase consideration not greater than 10% above the
weighted average market value for the Fortress A shares for the five business days immediately preceding any date on
which any repurchase is effected. After the repurchase of 105 482 144 Fortress A shares under the A share specific
repurchase, Fortress would not hold any Fortress A shares in treasury.
The authority to effect the A share specific repurchase will be subject to the following additional terms:
- the A share specific repurchase authority will be valid until Fortress’ annual general meeting in respect of the
financial year ended 30 June 2016 is held or for 15 months from the date the A share specific repurchase
special resolution is approved by shareholders, whichever is shorter;
- at any point in time, Fortress will only appoint one agent to effect repurchases on its behalf; and
- Fortress may not repurchase securities during a prohibited period as defined in paragraph 3.67 of the Listings
Requirements unless there is a repurchase programme in place where the dates and quantities of securities to be
traded during the relevant period are fixed (not subject to any variation) and has been submitted to the JSE in
writing prior to the commencement of the prohibited period. Fortress must instruct an independent third party,
which makes its investment decisions in relation to Fortress’ securities independently of, and uninfluenced by,
Fortress, prior to the commencement of the prohibited period to execute the repurchase programme submitted
to the JSE.
The authority to effect the A share specific repurchase will be subject to the following conditions precedent:
- approval and implementation of the Fortress scheme;
- the B share specific repurchase becoming unconditional, save for the condition requiring that the A share
specific repurchase becomes unconditional;
- approval of the A share specific repurchase by the requisite majority of Fortress shareholders, as contemplated
in paragraph 5.69(c) of the JSE Listings Requirements and section 115(2) of the Companies Act, and, if
necessary, the approval of the implementation of the relevant special resolution(s) by the High Court;
- that appraisal rights (in terms of section 164 of the Companies Act) are not validly exercised by any Fortress
shareholders in respect of the A share specific repurchase, but only to the extent that the condition is not
waived by Fortress; and
- all applicable regulatory and statutory approvals.
The conditions precedent, other than those that are regulatory in nature and not capable of being waived, may be waived
by Fortress in whole or in part.
5. Financial effects pertaining to the Fortress scheme, B share specific repurchase and the A share specific repurchase
5.1. Pro forma net asset value effects for Fortress shareholders
In terms of the JSE Listings Requirements, a category 1 transaction requires a pro forma statement of financial position
of Fortress showing the effects of the Fortress scheme. Accordingly, the table below sets out the pro forma financial
effects of the Fortress scheme on a Fortress A ordinary shareholder and a Fortress B ordinary shareholder assuming that
the Fortress offer had been implemented on 31 December 2014 for purposes of the pro forma statement of financial
position.
After the
Fortress
scheme, the B
After the share specific
Fortress % repurchase %
After the scheme and B change and A share change
Before the Fortress % share specific (cumul specific (cumula
Cents per share adjustments(2) scheme(2) change repurchase(3) ative) repurchase(4) tive)
NAV per Fortress A
share 1 619 1 619 - 1 619 - 1 619 -
NAV per Fortress B
share 863 1 783 106.6% 1 783 106.6% 1 787 107.1%
NTAV per Fortress A
share 1 619 1 619 - 1 619 - 1 619 -
NTAV per Fortress B
share 863 1 235 43.1% 1 235 43.1% 1 238 43.5%
Notes and assumptions:
1. The financial information in the “Before the adjustments” column has been extracted from Fortress’ unaudited
interim results for the six months ended 31 December 2014. It is assumed that the Fortress A and B linked units
were converted to A and B shares at 31 December 2014.
2. The financial information in the “After the Fortress scheme” column assumes Fortress acquires all of the Capital
shares it does not already own at 31 December 2014 for an aggregate purchase consideration of
R22 310.18 million (based on a closing price on 13 July 2015 of R15.90 and R25.16 per Fortress A share and
Fortress B share respectively. The acquisition is accounted for in terms of IFRS 3: Business Combinations with the
resultant recognition of goodwill for the difference in the aggregate consideration paid by Fortress and the Capital
net asset value as at 31 December 2014. Adjustments for the effects of the Newreit scheme and the Newreit
Capital specific repurchase include:
a. Fortress receives Newreit shares to the value of R71.02 million as a result of the 49.73 million Capital shares it
already owns.
b. The properties and earnings attributable to the Capital office portfolio have been eliminated.
c. It is assumed that the R1 676.7 million cash consideration proceeds received from the disposal of the Capital
office portfolio to Newreit are used to reduce debt.
3. The financial information in the “After the Fortress scheme and B share specific repurchase” column assumes
Fortress acquires from Capital the 107 070 000 Fortress B shares held by Capital at 31 December 2014 for an
aggregate repurchase consideration of R1 875.87 million, being the carrying costs in Capital’s results at 31
December 2014. The transaction has no impact to a Fortress shareholder as it is eliminated on consolidation.
4. The financial information in the “After the Fortress scheme, B share specific repurchase and A share specific
repurchase” column assumes Fortress acquires from Fortress shareholders 107 070 000 Fortress A shares at
R15.90 per Fortress A share (the closing price per Fortress A share on 13 July 2015) for an aggregate repurchase
consideration of R1 702.41 million.
5.2. Pro forma earnings and net asset value effects for Capital shareholders
In terms of Regulation 101(7)(b)(iv) of the Companies Act’s Regulations, a firm intention announcement must contain,
inter alia, the pro forma earnings and asset value per offeree regulated company security if the offer consideration
consists wholly or partly of offeror securities.
The pro forma financial effects of the Fortress scheme for Capital shareholders set out below are provided for
illustrative purposes only to provide information about how the Fortress offer may have affected the financial
performance and financial position of Capital, and because of their nature, may not fairly represent the financial
performance and financial position of Capital after the Fortress scheme.
The table below sets out the pro forma financial effects of the Fortress scheme on a Capital shareholder based on the
results of Capital for the six months ended 31 December 2014, assuming that the Fortress scheme had been
implemented on 1 July 2014 for purposes of the statement of comprehensive income and on 31 December 2014 for
purposes of the statement of financial position. As the Fortress scheme is implemented immediately after the Newreit
scheme and Newreit Capital repurchase, the financial effects of the Fortress scheme are calculated after adjusting for the
financial effects of the Newreit scheme and Newreit Capital repurchase.
After the Newreit
After the Newreit scheme, Newreit
Capital shareholder pro scheme and Capital
forma earnings and net asset Before the Newreit Capital % repurchase and %
value (cents per share): adjustments(1) repurchase(2) change Fortress scheme(3) change
NAV per share 1 156 1 139 (1.5)% 1 207 6.0%
NTAV per share 1 156 1 139 (1.5)% 1 013 (11.1)%
Earnings per share 141.02 158.07 12.1% 101.82 (35.6)%
Headline earnings per share 124.04 130.10 4.9% 84.89 (34.8)%
Dividend per share 44.22 41.71 (5.7)% 38.34 (8.1)%
Notes and assumptions:
1. NAV per share and NTAV per share in the “Before the adjustments” column have been extracted, without
adjustment, from Capital’s audited annual financial statements for the year ended 31 December 2014. Earnings per
share, headline earnings per share and dividend per share in the “Before the adjustments” column have been
calculated by subtracting Capital’s unaudited results for the six months ended 30 June 2014 from Capital’s audited
annual financial statements for the year ended 31 December 2014.
2. The financial information in the “After the Newreit scheme and Newreit Capital repurchase” column is after
adjusting the financial information in the “Before the adjustments” column for the effects of the Newreit scheme,
whereby Newreit acquires 10.53% of the Capital shares in issue, and for the Newreit Capital repurchase, whereby
Capital acquires the Capital shares acquired by Newreit. In effect, for each 10 000 Capital shares held, a Capital
shareholder will swap 1 053 Capital shares for the same number of Newreit shares. Prior to the implementation of
the Newreit scheme and Newreit Capital repurchase, Newreit will have acquired from Capital its office portfolio,
details of which will be set out in the listings particulars of Newreit, for a purchase consideration of
R4 191.75 million, R1 676.7 million of which is to be settled in cash financed from interest-bearing borrowings
and the balance of R2 515.05 million to remain outstanding on loan account.
a. The adjustments to NAV per share and NTAV per share are calculated by eliminating the Capital office
portfolio at its carrying value of R4 040.3 million at 31 December 2014. The profit on disposal is
R151.45 million, the difference between the disposal proceeds and the carrying value of the Capital office
portfolio at 31 December 2014.
b. The adjustments to earnings per share, headline earnings per share and dividend per share are calculated by
eliminating the earnings attributable to the Capital office portfolio. It is assumed that the R1 676.7 million
disposal proceeds are used to reduce debt at Capital’s weighted average cost of funding for the six months
ended 31 December 2014 of 8.36%. The profit on disposal is R184.70 million, the difference between the
disposal proceeds and the carrying value of the Capital office portfolio at 30 June 2014.
3. The financial information in the “After the Fortress scheme” column has been prepared by multiplying Fortress’
financial effects (the effects on NAV per share and NTAV per share are set out in paragraph 5.1) pursuant to the
Fortress scheme (for the six months ended 31 December 2014) by the swap ratio of 0.35487 Fortress A ordinary
shares and 0.35487 Fortress B ordinary shares for each Capital share to provide the pro forma financial effects for
Capital shareholders.
6. Illustrative financial effects pertaining to the Fortress scheme and B share specific repurchase
The table below sets out the illustrative financial effects of the transaction on a Capital and Fortress shareholder, assuming that
the transaction is implemented on 1 July 2015, and based on the market prices per Capital, Fortress A and Fortress B shares on
14 May 2015, being the day before the first joint cautionary announcement on SENS by Capital and Fortress.
The illustrative financial effects are not pro forma financial effects and are provided for illustrative purposes only. The illustrative
financial effects are the responsibility of the directors of Capital and Fortress, and have not been reviewed or reported on by
independent reporting accountants.
Fortress and Capital shareholders: illustrative financial effects of the Before the After the %
Fortress scheme and the B share specific repurchase adjustments adjustments change
Dividend per Fortress A share 129.681 129.682 -
Dividend per Fortress B share 98.191 116.763 18.9%
Dividend per Fortress combined share 227.87 246.44 8.1%
Market price per Fortress A share 1 6091 1 6092 -
Market price per Fortress B share 2 7501 3 2703 18.9%
Market price per Fortress combined share 4 359 4 879 11.9%
Dividend per Capital share 82.204 78.245 (4.8)%
Market price per Capital share 1 2054 1 5495 28.5%
Dividend per Capital combined share 94.406 90.447 (4.2)%
Market price per Capital combined share 1 3476 1 6917 25.5%
Notes and assumptions:
1. The financial information has been extracted from the joint SENS announcement released by Capital and Fortress on
1 June 2015. The dividend per share is based on guidance provided in the announcement and the market price per share is
on 14 May 2015, the day before the first joint cautionary announcement on SENS by Capital and Fortress.
2. The transactions have no impact on the dividend per Fortress A share and accordingly no impact has been calculated on
the market price per Fortress A share.
3. Dividend per Fortress B share has been calculated based on the dividend per Fortress A, Fortress B and Capital share set
out in the “Before the adjustments” column as adjusted for Capital shares held by Fortress and Fortress B shares held by
Capital. The market price per Fortress B share is based on the dividend per Fortress B share assuming the yield per
Fortress B share in the “Before the adjustments” column remains unchanged.
4. The financial information has been extracted from the “Capital share after the Newreit scheme and Newreit Capital
repurchase” column in paragraph 2.6 above.
5. Dividend per Capital share and market price per Capital share has been prepared by multiplying the dividend and market
price per Fortress A and B share by the swap ratio of 0.31750 Fortress A ordinary shares and 0.31750 Fortress B ordinary
shares for each Capital share.
6. The financial information has been extracted from the “Capital combined share after the Newreit scheme and Newreit
Capital repurchase” column in paragraph 2.6 above.
7. Dividend per Capital combined share and market price per Capital combined share has been prepared by adding the
dividend and market price per Capital share calculated in note 6 above to the dividend and market price per Capital share
in the “Newreit share after the Newreit scheme and Newreit Capital repurchase” column set out in paragraph 2.6.
7. Forecast financial information
A joint announcement informing Fortress and Capital shareholders of the forecast financial effects of the Fortress scheme will be
released separately on SENS together with the property specific information.
8. Property specific information
The property specific information required in terms of the JSE Listings Requirements in relation to each of the properties
comprising Capital’s property portfolio (excluding Capital’s office portfolio), as at 31 December 2014 will be released separately
on SENS together with the forecast financial information.
9. Shareholder support
No Capital shareholder has given any undertaking to vote in favour of the Newreit scheme, the Newreit Capital repurchase or the
Fortress scheme.
No Fortress shareholder has given any undertaking to vote in favour of the Fortress scheme, the B share specific repurchase or the
A share specific repurchase.
10. Independent expert
The Capital board has appointed Grant Thornton Advisory Services Proprietary Limited to act as independent expert to review
the terms of the Newreit scheme, the Newreit Capital repurchase and the Fortress scheme and to provide a fair and reasonable
opinion required under Regulation 110 of the Companies Act Regulations and in accordance with Regulation 90 of the
Companies Act Regulations. The opinion of the independent expert will include the report required by section 114(3) of the
Companies Act. Capital’s acceptance of the proposal by Fortress in its firm intention letter is subject to receipt in due course of
this fair and reasonable opinion.
The Fortress board has appointed Grant Thornton Advisory Services Proprietary Limited to act as independent expert to review
the terms of the B share specific repurchase and the A share specific repurchase and to provide a fair and reasonable opinion
required under Regulation 110 of the Companies Act Regulations and in accordance with Regulation 90 of the Companies Act
Regulations, which will include the report required by section 114(3) of the Companies Act.
11. Confirmation to the TRP
Fortress has confirmed with the Takeover Regulation Panel (“TRP”) that, after the increase in Fortress’ authorised share capital
referred to in this announcement, it will have a sufficient number of authorised and unissued A ordinary shares and B ordinary
shares in order to fulfil its obligations on implementation of the Fortress scheme.
12. Shareholding in Capital
Fortress holds 80 633 816 Capital shares, comprising approximately 4.55% of Capital shares in issue.
13. No concert party arrangements
Fortress is not acting in concert with any other person in relation to the Fortress scheme, the B share specific repurchase and/or
the A share specific repurchase.
14. Documentation and timing in regard to the Newreit scheme, the Newreit specific repurchase and the Fortress scheme
Full details of the Newreit scheme, the Newreit Capital repurchase and the Fortress scheme and ancillary matters will be set out in
a joint circular which will be distributed by Capital, Newreit and Fortress to Capital shareholders within 20 business days after
the date of this announcement and will include the opinions of the independent expert referred to in paragraph 10 above, a notice
of scheme meeting of Capital shareholders to approve the Newreit scheme, the Newreit Capital repurchase and the Fortress
scheme and the applicable salient dates and times, including the date of the scheme meeting of Capital shareholders.
15. Approvals required by Fortress and documentation
In order to implement the Fortress scheme and as a condition precedent to the Fortress scheme, Fortress will be required to
increase its authorised share capital. A notice of general meeting, requesting the approval by way of special resolution of Fortress
shareholders of the increase of the authorised share capital of Fortress, will be sent to Fortress shareholders in due course.
The Fortress scheme will constitute a category 1 acquisition for Fortress in terms of the Listings Requirements. Full details of the
Fortress scheme, the B share repurchase and the A share repurchase will be set out in a category 1 transaction circular which will
be distributed by Fortress to Fortress shareholders within 20 business days after the date of this announcement and will include
the opinions of the independent expert referred to in paragraph 10 above, a notice of general meeting of Fortress shareholders to
approve the Fortress scheme, the B share repurchase and the A share repurchase and the applicable salient dates and times,
including the date of the general meeting of Fortress shareholders.
The Fortress scheme will constitute a reverse takeover of Fortress by Capital in terms of the Listings Requirements, requiring
revised listing particulars in respect of the enlarged Fortress group, pursuant to the Fortress scheme. Revised listing particulars
will be distributed by Fortress to Fortress shareholders together with the category 1 circular.
16. Responsibility statements
Capital and the independent board of Capital (which excludes all of the executive directors of Capital) accept responsibility for
the information contained in this announcement insofar as it relates to Capital, Newreit, the Newreit scheme, the Newreit Capital
repurchase and the Fortress scheme. To the best of Capital and its independent directors’ knowledge and belief, the information
contained in this announcement is true and this announcement does not omit anything likely to affect the import of the
information.
The Fortress board accepts responsibility for the information contained in this announcement insofar as it relates to Fortress. To
the best of its knowledge and belief, the information contained in this announcement is true and the announcement does not omit
anything likely to affect the import of the information.
17. Withdrawal of cautionary
Shareholders of Capital and Fortress are advised that caution is no longer required to be exercised in their dealings in Capital and
Fortress shares.
16 July 2015
Corporate advisor, sponsor and tax advisor to Capital and Fortress
Java Capital
Legal advisor to the transaction
Cliffe Dekker Hofmeyr Inc
Date: 16/07/2015 05:01:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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