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Capital/Fortress update to spin-off and offer to acquire Capital by scheme of arrangement, updated financials
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”)
UPDATE TO:
- THE SPIN-OFF BY CAPITAL OF A NEW REIT HOLDING ITS OFFICE PORTFOLIO;
- THE 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; AND
- ILLUSTRATIVE AND PRO FORMA FINANCIAL EFFECTS
1. Introduction
Shareholders of Capital and Fortress are referred to the joint SENS announcements of 15 May 2015, 1 June 2015 and
16 July 2015 and the Capital SENS announcement of 19 May 2015.
Capital has informed Fortress that the market has concerns about the proposed spin-off of Capital’s office portfolio (the
“spin-off”) and the listing of Capital’s office portfolio as a newly-established stand-alone REIT (“Newreit”). Furthermore,
the external management team identified to head up Newreit has declined the opportunity. Capital is therefore of the view
that Capital shareholders will benefit more from retaining its office portfolio for disposal to Fortress as part of the Fortress
scheme (defined below), than the spin-off. Accordingly, Capital has resolved to no longer spin-off its office portfolio.
Fortress has agreed to waive the spin-off related condition precedent to the proposed offer by Fortress to acquire all of 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”), as set out in the joint firm intention announcement released on SENS on
16 July 2015 (the “16 July 2015 announcement”).
The share swap ratio proposed by Fortress in the 16 July 2015 announcement, in consideration for all the shares in Capital,
being 0.31750 Fortress A and 0.31750 Fortress B shares for each Capital share (the “original swap ratio”), assumes the
acquisition by Fortress of Capital after implementation of the spin-off. On the basis that Capital will retain its office
portfolio and Capital shareholders will no longer receive any shares in NewReit, Fortress proposes that an additional
0.03250 Fortress A and 0.03250 Fortress B shares be issued to Capital shareholders for each Capital share acquired by
Fortress pursuant to the Fortress scheme (the “additional swap ratio”).
The equity value of the Capital office portfolio is R2 514.27 million based on 1 772 624 329 Capital shares in issue and a
value attributable to the Capital office portfolio of 141.84 cents per Capital share, as set out in the 16 July 2015
announcement. Based on a value per Fortress combined share of R43.59, the aggregate of the market prices of the 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, of R16.09 and R27.50 respectively) an additional 57 610 291 Fortress scheme consideration shares will be
issued. This results in an additional 0.03250 Fortress A and 0.03250 Fortress B shares for each Capital share acquired by
Fortress pursuant to the Fortress scheme.
Accordingly, the updated share swap ratio proposed by Fortress (being the sum of the original swap ratio and the additional
swap ratio) is 0.35000 Fortress A and 0.35000 Fortress B shares for every Capital share (the “updated swap ratio”), based
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 prior to implementation of the Fortress scheme.
Fortress and Capital shareholders: illustrative financial effects of the Before the After the %
Fortress scheme and the B share specific repurchase (cents): adjustments adjustments change
Dividend per Fortress A share 129.29 129.29 -
Dividend per Fortress B share 99.09 124.78 25.9%
Dividend per Fortress combined share 228.38 254.07 11.2%
Market price per Fortress A share 1 609 1 609 -
Market price per Fortress B share 2 750 3 463 25.9%
Market price per Fortress combined share 4 359 5 072 16.4%
Dividend per Capital share 94.40 88.92 (5.8)%
Market price per Capital share 1 347 1 775 31.8%
See the footnotes to the table in paragraph 3 below.
2. Financial effects pertaining to the Fortress scheme and B share specific repurchase
2.1. 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 shareholder and a Fortress B shareholder assuming
that the Fortress scheme had been implemented on 30 June 2015 for purposes of the pro forma statement of
financial position.
After the After the Fortress
Before the Fortress scheme and B share % change
(Cents) adjustments¹ scheme² % change specific repurchase3 (cumulative)
NAV per Fortress A share 1 572 1 572 - 1 572 -
NAV per Fortress B share 1 315 2 361 79.5% 2 361 79.5%
NTAV per Fortress A share 1 572 1 572 - 1 572 -
NTAV per Fortress B share 1 315 1 645 25.1% 1 645 25.1%
Notes and assumptions:
1. The financial information in the “Before the adjustments” column has been extracted from Fortress’
preliminary summarised audited consolidated financial statements for the year ended 30 June 2015.
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 30 June 2015 for an aggregate purchase consideration of
R28.37 billion (based on a closing price on 17 August 2015 of R16.10 and R31.81 per Fortress A share and
Fortress B share respectively).
a. The acquisition is accounted for in terms of IFRS 3: Business Combinations with the resultant
recognition of goodwill of R6.81 billion, the difference in the aggregate consideration of R28.37 billion
and management’s current estimate of the fair values of assets and liabilities acquired of R21.56 billion.
For purposes of the pro forma effects, the fair values of assets and liabilities acquired of R21.56 billion is
assumed to equate to the net asset value of Capital at 30 June 2015 of R22.71 billion less the 80.63
million Capital shares held by Fortress at 30 June 2015 at their book value of R1.15 billion.
b. Finalisation of the purchase price allocation will be performed within the time period allowed for in
IFRS 3: Business Combinations, being 12 months from the acquisition date.
c. After the Fortress scheme, Capital is a wholly-owned subsidiary of Fortress and is included in Fortress’
consolidated statement of financial position. Investments are reduced by R3.84 billion, the carrying
values of the 105.48 million Fortress B shares held by Capital and the 80.63 million Capital shares held
by Fortress at 30 June 2015 of R2.69 billion and R1.15 billion respectively. Of the R10 million
transaction costs, R1.8 million relates to listing fees and were debited to stated capital with the balance
increasing the goodwill.
3. The financial information in the “After the Fortress scheme and B share specific repurchase” column
assumes Fortress acquires from Capital the 105.48 million Fortress B shares held by Capital at 30 June 2015
for an aggregate repurchase consideration of R2.69 billion, being Capital’s book value at 30 June 2015. The
transaction has no impact on Fortress’ consolidated statement of financial position as the shares were held in
treasury after the Fortress scheme.
2.2. 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 year ended 30 June 2015, assuming that the Fortress scheme had been implemented
on 1 July 2014 for purposes of the statement of comprehensive income and on 30 June 2015 for purposes of the
statement of financial position.
Capital shareholder pro forma earnings Before the After the Fortress
and net asset value (cents): adjustments¹ scheme2 % change
NAV per share 1 281 1 377 7.5%
NTAV per share 1 281 1 126 (12.1)%
Earnings per share 309.18 227.24 (26.5)%
Headline earnings per share 284.95 200.62 (29.6)%
Dividend per share 86.99 79.10 (9.1%)
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 condensed unaudited consolidated interim financial statements for the six months
ended 30 June 2015. Earnings per share, headline earnings per share and dividend per share in the “Before
the adjustments” column have been calculated by adding Capital’s unaudited results for the six months ended
30 June 2015 to Capital’s results for the six months ended 31 December 2014. Capital’s results for the six
months ended 31 December 2014 were 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 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 2.1)
pursuant to the Fortress scheme by the updated swap ratio of 0.35000 Fortress A shares and 0.35000 Fortress
B shares for each Capital share to provide the pro forma financial effects for Capital shareholders.
3. 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 Fortress scheme and the B share specific repurchase Before the After the %
(cents) adjustments adjustments change
Dividend per Fortress A share 129.291 129.292 -
Dividend per Fortress B share 99.091 124.783 25.9%
Dividend per Fortress combined share 228.381 254.07 11.2%
Market price per Fortress A share 1 6091 1 6092 -
Market price per Fortress B share 2 7501 3 4633 25.9%
Market price per Fortress combined share 4 3591 5 072 16.4%
Dividend per Capital share 94.404 88.925 (5.8)%
Market price per Capital share 1 3474 1 7755 31.8%
Notes and assumptions:
1. The financial information has been extracted from the joint SENS announcement released by Capital and Fortress
on 16 July 2015. The dividend per Fortress combined share is based on guidance provided in Fortress’ 30 June 2015
results 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. The dividend per Fortress A share is based on the actual dividend
per Fortress A share of 123.13 cents for the year ended 30 June 2015 and anticipated growth of 5.0% per annum.
The dividend per Fortress B share is the difference between the dividend per Fortress combined share and dividend
per Fortress A share.
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. The 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 joint SENS announcement released by Capital and Fortress
on 16 July 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.
5. The dividend per Capital share and market price per Capital share has been prepared by multiplying the dividend
and market price per Fortress A and Fortress B share by the updated swap ratio of 0.35000 Fortress A shares and
0.35000 Fortress B shares for each Capital share.
4. Forecast financial information and property specific information
A joint announcement informing Fortress and Capital shareholders of the forecast financial information of Capital,
including the Capital office portfolio together with the property specific information required in terms of the JSE Listings
Requirements in relation to each of the properties comprising Capital’s office portfolio, as at 31 December 2014, will be
released separately on SENS.
5. 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 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.
6. Documentation and timing in regard to the Fortress scheme
Full details of the Fortress scheme and ancillary matters will be set out in a joint circular which will be distributed by
Capital and Fortress to Capital shareholders in due course and will include the opinions of the independent expert in
respect of the Fortress scheme, a notice of scheme meeting of Capital shareholders to approve the Fortress scheme and the
applicable salient dates and times, including the date of the scheme meeting of Capital shareholders.
19 August 2015
Corporate advisor, sponsor and tax advisor to Capital and Fortress
Java Capital
Legal advisor to the transaction
Cliffe Dekker Hofmeyr Inc
Date: 19/08/2015 03:32:00 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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