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Fortress/Capital - Update announcement in respect of the Fortress Scheme of Arrangement
CAPITAL PROPERTY FUND LIMITED
(previously Friedshelf 1497 Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2013/226575/06)
JSE share code: CPF ISIN: ZAE000186821
(Approved as a REIT by the JSE)
("Capital")
FORTRESS INCOME FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA ISIN: ZAE000192787
FFB ISIN: ZAE000192795
(Approved as a REIT by the JSE)
("Fortress")
UPDATE ANNOUNCEMENT IN RESPECT OF THE FORTRESS SCHEME OF ARRANGEMENT
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
of arrangement, than the spin-off. Accordingly, Capital has resolved to no longer
spin-off its office portfolio.
Forecast financial information of Capital including the Capital office portfolio
Set out below are the forecast revenue, net property income, net operating profit and
distributable earnings of Capital, including the office portfolio ("the forecasts") for
the 10 months ending 30 June 2016 and the year ending 30 June 2017 ("the forecast
periods"). The forecasts have been prepared on the assumption that the Fortress scheme
will be implemented on 1 September 2015 and on the basis that the forecasts include
forecast results for the duration of the forecast periods.
The forecasts, including the assumptions on which they are based and the financial
information from which they are prepared, are the responsibility of the directors of
Fortress. The forecasts have not been reviewed or reported on by independent reporting
accountants.
The forecasts presented in the table below have been prepared in accordance with
Fortress' accounting policies and in compliance with IFRS.
Forecast for Forecast for
the 10 months the year
ending ending
30 June 2016 30 June 2017
R'000 R'000
Net rental and related revenue 1 089 194 1 387 846
Recoveries and contractual rental revenue 1 674 320 2 209 171
Straight-lining of rental revenue adjustment 12 841 (27 725)
Rental revenue 1 687 161 2 181 446
Property operating expenses (597 967) (793 600)
Income from investments 269 379 373 084
Fair value (loss)/gain on investment property (12 841) 27 725
Adjustment resulting from straight-lining of rental revenue (12 841) 27 725
Administrative expenses (40 461) (51 603)
Income from associate 160 743 207 769
- distributable 160 743 207 769
Profit before net finance costs 1 466 014 1 944 821
Net finance costs (172 644) (235 053)
Finance income 230 395 251 949
Interest received 230 395 251 949
Finance costs (403 039) (487 002)
Interest paid on borrowings (534 918) (663 276)
Capitalised interest 131 879 176 274
Profit before income tax expense 1 293 370 1 709 768
Income tax - -
Profit for the period attributable to equity holders 1 293 370 1 709 768
Total comprehensive income for the period 1 293 370 1 709 768
Total comprehensive income equals distributable earnings.
Notes and assumptions:
The forecasts incorporate the following material assumptions in respect of revenue and
expenses that can be influenced by the directors:
1. The forecasts are based on an analysis of historical information and information
provided by the property manager and independent valuer.
2. The properties underlying the forecasts comprise the Capital property portfolio
(including the Capital office portfolio).
3. Contracted revenue is based on existing lease agreements including stipulated
increases, all of which are valid and enforceable.
4. Uncontracted revenue comprises 17.1% and 33.5% of revenue for the 10 months ending
30 June 2016 and year ending 30 June 2017 respectively.
5. Current vacant space has been forecast on a property-by-property basis and has been
assumed to remain vacant unless it is deemed probable that such space will be let,
in which case rental is forecast at prevailing market rates.
6. Leases expiring during the forecast periods have been forecast on a lease-by-lease
basis, and have been assumed to renew at current market rates unless the lessee has
indicated its intention to terminate the lease.
7. Property operating expenditure has been forecast on a line-by-line basis for each
property based on management's review of historical expenditure, view on inflation
and discussion with the property manager.
The forecasts incorporate the following material assumptions in respect of revenue and
expenses that cannot be influenced by the directors:
1. The effective date of the transaction is 1 September 2015.
2. Fortress acquires all of the Capital shares it does not already own in exchange for
Fortress shares.
3. There will be no unforeseen economic factors that will affect the lessees'
abilities to meet their commitments in terms of existing lease agreements.
Material items of expenditure within the property expenses line item include:
1. R134.13 million in rates and taxes, R238.03 million in electricity and R44.18
million in property management fees in respect of the 10 months ending 30 June
2016; and
2. R173.96 million in rates and taxes, R320.13 million in electricity and R56.44
million in property management fees in respect of the year ending 30 June 2017.
Material expenditure items are not expected to change by more than 15% between historical and forecast expenditure.
Property specific information in respect of the Capital office portfolio
The property specific information required in terms of the JSE Listings Requirements in
relation to each of the properties comprising the Capital office portfolio, as at
31 December 2014 is set out below. 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 the Capital office portfolio), as at
31 December 2014 is set out in the announcement released on SENS on 16 July 2015.
Difference
between
Weighted Purchase purchase
Average price paid price and
GLA rental Valuation by Capital valuation
No.Property name Address (m2) (R/m2) R'000 R'000 R'000
1 Caxton House 35 Terminus 10 220 109.26 84 300 21 566 62 734
East London Street, East
London, Eastern
Cape
2 Centurion Hendrik 7 660 105.79 89 600 23 017 66 583
Office Park Verwoerd Drive,
Centurion,
Gauteng
3 Howick Close Howick Close, 3 949 129.19 50 500 14 841 35 659
Midrand,
Gauteng
4 Standard Bank 1 Twilight 2 194 $ 38 700 13 900 24 800
Crossing Avenue,
Fourways,
Gauteng
5 11 Naivasha Road 11 Naivasha 6 546 $ 68 600 50 323 18 277
Road,
Sunninghill,
Gauteng
6 Oak Avenue Oak Avenue
Highveld Highveld 11 700 $ 198 300 121 000 77 300
Business Park,
Centurion,
Gauteng
7 28 On Sloane 28 Sloane 4 790 135.12 81 300 56 000 25 300
Street,
Bryanston,
Gauteng
8 Cullinan Office 2 Cullinan
Park Place, 9 428 137.54 190 000 116 000 74 000
Morningside,
Gauteng
9 1257 South Road 1257 South 1 805 $ 19 000 12 900 6 100
Centurion Road, Centurion,
Gauteng
10 Northdowns 17 Georgian 5 750 113.60 80 700 39 500 41 200
Bryanston Crescent,
Bryanston,
Gauteng
11 35 Impala Road 35 Impala 1 399 $ 21 000 10 350 10 650
Chislehurston Road,
Chislehurston,
Gauteng
12 19 Girton Road 19 Girton 7 335 $ 81 000 47 000 34 000
Parktown Road,
Parktown,
Gauteng
13 Cambridge Manor Witkoppen
Paulshof Road, 6 672 91.44 63 500 49 000 14 500
Paulshof,
Gauteng
14 Culross Court 16 Culross 4 070 120.44 59 150 45 000 14 150
Bryanston Road,
Bryanston,
Gauteng
15 Parc Nicol 3001 William 5 233 149.27 76 800 67 300 9 500
Nicol Drive
Bryanston,
Gauteng
16 Choice House 22 Sloane 4 619 99.64 55 000 44 000 11 000
Bryanston Street,
Bryanston,
Gauteng
17 Kildrummy Office Witkoppen 11 944 117.81 169 500 179 700 (10 200)
Park Paulshof Road,
Paulshof,
Gauteng
18 204 Rivonia Road 204 Rivonia 8 231 147.74 115 100 137 200 (22 100)
Morningside Road,
Morningside,
Gauteng
19 Hobart Square 23 Arklow 6 629 120.17 95 500 69 750 25 750
Road,
Bryanston,
Gauteng
20 386 Main Road 386 Main 1 173 $ 21 400 15 600 5 800
Bryanston Road,
Bryanston,
Gauteng
21 Fourways Office Roos Street, 15 146 102.37 158 500 176 400 (17 900)
Park Fourways Fourways,
Gauteng
22 26 Augrabies 26 Augrabies 3 397 $ 30 300 26 500 3 800
Road Waterfall Road,
Park Waterfall Park,
Gauteng
23 Pebble Beach Roos Street, 1 897 99.36 21 600 27 100 (5 500)
Fourways Golf Fourways,
Park Gauteng
24 Highveld 116 Witch 1 592 $ 21 800 18 200 3 600
Technopark Hazel Road,
Highveld
Technopark,
Gauteng
25 Petunia Road Petunia Road 2 422 $ 38 000 41 700 (3 700)
Bryanston Bryanston,
Gauteng
26 Howick Close Howick Close 3 230 78.74 34 800 25 200 9 600
Waterfall Park Waterfall Park,
Gauteng
27 Muirfield Roos Street, 2 804 113.94 26 800 35 600 (8 800)
Fourways Fourways,
Golf Park Gauteng
28 Oxford Manor 196 Oxford 12 722 112.84 166 100 128 000 38 100
Illovo Road, Illovo,
Gauteng
29 Rutherford 1 Scott Street,9 192 136.78 162 000 119 800 42 200
Estate Scott Waverley,
Street Gauteng
30 Curzon House Grosvenor Road 1 386 111.15 13 830 18 000 (4 170)
Bryanston,
Gauteng
31 West Street Cnr West and 14 143 $ 372 000 267 200 104 800
Sandton Maude Streets,
Sandton,
Gauteng
32 Wentworth Roos Street, 1 488 98.85 15 200 15 950 (750)
Fourways,
Gauteng
33 Leslie Office cnr William 4 277 140.84 63 000 64 900 (1 900)
Park Nicol and
Leslie Roads
Fourways,
Gauteng
34 Library Office cnr Payne 645 $ 6 050 9 400 (3 350)
Park and New Roads
Bryanston,
Gauteng
35 21E Polo 21E Polo 1 750 $ 29 900 24 400 5 500
Crescent Crescent,
Woodmead Woodmead,
Gauteng
36 Pricewaterhouse- Ida Street, 6 405 $ 172 000 39 636 132 364
Coopers Menlo Park,
Pretoria Gauteng
37 189 Monte Carlo 189 Monte 3 528 83.59 28 000 28 800 (800)
Crescent Kyalami Carlo Crescent,
Kyalami Park,
Gauteng
38 357 Rivonia 357 Rivonia 3 663 92.92 30 900 23 000 7 900
Boulevard Boulevard,
Gauteng
39 Chelsea 57 Wessels 2 793 82.50 21 000 26 000 (5 000)
Office Park Road, Rivonia,
Rivonia Gauteng
40 114 Dennis Road 114 Dennis 5 736 $ 98 000 57 200 40 800
Athol Gardens Road, Athol
Gardens,
Gauteng
41 Monyetla Office Inyanga, 17 535 112.06 237 600 217 000 20 600
Park Close
Sunninghill,
Gauteng
42 Wedgewood 3 Muswell 9 625 107.30 123 000 110 500 12 500
Office Park Road,
Bryanston,
Gauteng
43 Absa Towers 30 FW Beyers 3 670 $ 13 000 20 000 (7 000)
Vanderbijlpark Street,
Vanderbijlpark,
Gauteng
44 8 Armstrong 8 Armstrong 2 033 126.10 31 000 17 008 13 992
Road La Lucia Road, La Lucia,
KwaZulu-Natal
45 Westway Office Spine Road, 3 690 108.00 46 500 41 905 4 595
Park Westville,
KwaZulu-Natal
46 17 Kosi Place 17 Kosi 3 710 104.26 40 000 43 600 (3 600)
Umgeni Place, Umgeni
Business Park,
KwaZulu-Natal
47 Corporate Place 17 Mispel 4 368 82.09 41 100 4 681 36 419
Cape Town Avenue,
Bellville,
Cape Town,
Western Cape
48 Long Street 2 Long 23 487 113.84 339 200 59 000 280 200
Cape Town Street,
Cape Town,
Western Cape
287 681 4 040 130 2 820 627 1 219 503
Notes
1. $ means single tenanted property. The average gross rental of single tenanted
office properties is R121.82/m2.
2. The difference between the valuation and the purchase prices paid by Capital is due
to the fact that the values attributed by the independent property valuer are open
market values, while the purchase prices paid by Capital are historic negotiated
values.
3. The properties were valued at 31 December 2014 by Peter Parfitt of Quadrant
Properties Proprietary Limited an external independent registered professional
associated valuer.
19 August 2015
Corporate advisor, sponsor and tax advisor to Capital and Fortress
Java Capital
Legal advisor to the transaction
Cliffe Dekker Hofmeyr
Date: 19/08/2015 03:33:00 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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