Wrap Text
Firm intention to make a general offer to the shareholders of Lodestone REIT Limited and withdrawal of cautionary
LODESTONE REIT LIMITED FORTRESS INCOME FUND LIMITED
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
Registration number: 2010/017830/06 (Registration number 2009/016487/06)
JSE share code: LDO ISIN: ZAE000197935 JSE share codes: FFA ISIN: ZAE000192787
(Approved as a REIT by the JSE) FFB ISIN: ZAE000192795
(“Lodestone”) (Approved as a REIT by the JSE)
(“Fortress”)
FIRM INTENTION TO MAKE A GENERAL OFFER TO THE SHAREHOLDERS OF LODESTONE REIT LIMITED AND WITHDRAWAL OF CAUTIONARY
1. General offer
Lodestone shareholders are referred to the cautionary announcement released on SENS on 21 July 2016 and are
advised that the board of directors of Lodestone has received a letter of firm intention from Fortress to make an
offer to acquire all the issued shares of Lodestone in terms of section 117(1)(c)(iv) of the Companies Act, 71 of
2008 (the “Companies Act”) (the “general offer”).
The general offer will be made in compliance with the relevant provisions of Chapter 5 of the Companies Act
and Chapter 5 of the Companies Act Regulations (the “Takeover Regulations”).
2. Rationale of Fortress for the general offer
Fortress expects to acquire all the issued shares of Lodestone pursuant to acceptances of the general offer, in
which event it will be able to integrate the management of Lodestone with its own management, thereby
supplementing its human capital with a management team it knows well and regards highly. Fortress has
evaluated the assets of Lodestone and considers them to represent fair value for Fortress under the general offer.
Accordingly, Fortress considers this an opportunity to make an acquisition of reasonable size at fair value,
subject to the fairness opinion referred to in paragraph 4 below, thereby acquiring assets most of which it
regards as long term investments, with a competent management team capable of being deployed more widely
to benefit Fortress as a whole.
This evaluation of the rationale for the general offer and the offer consideration has been undertaken by an
independent sub-committee of the Fortress board which does not include any of the executive directors or any
director of Fortress who has any direct or indirect interest in Lodestone.
3. Offer consideration
Fortress will extend a general offer to all Lodestone shareholders to acquire all or part of their Lodestone shares
at a swap ratio (the “swap ratio”) of 1 Fortress A ordinary and 1 Fortress B ordinary share for every 6.66667
Lodestone shares held. Reflecting undertakings provided by Lodestone to Fortress in relation to the general
offer, the swap ratio is based on the assumptions that, from the date of this announcement to expiry of the
period in which the general offer is open for acceptances and for such further period as is available to Fortress
thereafter to effect a compulsory acquisition of any remaining Lodestone shares under the Takeover
Regulations, Lodestone will not enter into any acquisition or disposal transactions or issue any shares for any
purpose. Any change affecting these assumptions, which may only be with the prior written consent of Fortress,
may result in a change in the swap ratio. However, the swap ratio will not be adjusted for the extent to which
either the Fortress share prices or the Lodestone share prices are cum any distribution in respect of income
periods pre-dating either acceptance of the general offer or any compulsory acquisition of Lodestone shares
thereafter.
4. Conditions precedent to the general offer
The general offer will be conditional on:
- the Fortress board receiving an opinion from an independent expert confirming that the general offer is
fair to Fortress shareholders, the Fortress board noting that the shareholders of Lodestone include parties
who may be considered related to Fortress under the related party transaction regulations of the JSE
Listings Requirements;
- the receipt of unconditional approval in writing from the South African Competition Authorities, to the
extent required in terms of the Competition Act 89 of 1998, in relation to the acquisition by Fortress of
control of Lodestone and/or Lodestone’s underlying property portfolio or, if such approval is conditional,
on the conditions being reasonably acceptable to Fortress.
5. Ability to proceed with the general offer
Fortress has confirmed to the board of directors of Lodestone that it has sufficient authorised and unissued
Fortress A ordinary shares and Fortress B ordinary shares under the control of its board of directors to settle any
consideration payable in respect of the general offer.
6. Shareholding of Fortress in Lodestone
Fortress does not hold or control (directly or indirectly) any Lodestone shares and does not have any
arrangements (whether by way of option or otherwise) to acquire Lodestone shares, other than pursuant to the
general offer.
7. Shareholding of persons related to Fortress in Lodestone
The following parties who may be considered related to Fortress under the related party transaction regulations
of the JSE Listings Requirements hold (directly or indirectly) the following Lodestone shares:
Lodestone shareholder Direct holding Indirect Total shares % of issued
holding held shares
Jeff Zidel 426 520 3 585 638 4 012 158 1.71%
Mark Stevens - 15 187 226 15 187 226 6.46%
Rual Bornman - 3 195 075 3 195 075 1.36%
Andrew Teixeira - 14 288 279 14 288 279 6.08%
Steven Brown - 17 000 17 000 0.01%
Fareed Wania 26 360 - 26 360 0.01%
Wiko Serfontein - 1 351 000 1 351 000 0.57%
Craig Hallowes* 439 000 5 387 108 5 826 108 2.48%
Total 891 880 43 011 326 43 903 206 18.68%
* resigned as a director of Fortress with effect from 1 December 2015.
8. No undertakings to accept the general offer
No Lodestone shareholder has given any undertaking to accept the general offer.
9. Pro forma earnings and net asset value effects pertaining to the general offer and further financial
information
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 general offer for Lodestone shareholders set out below are the
responsibility of the directors of Fortress, are provided for illustrative purposes only to provide information
about how the general offer may have affected the financial performance and position of Lodestone, and
because of their nature, may not fairly represent the financial performance and position of Lodestone after the
general offer.
The table below sets out the pro forma financial effects of the general offer on a Lodestone shareholder based
on the results of Lodestone for the year ended 31 March 2016 assuming that the general offer had been
implemented on 1 April 2015 for purposes of the statement of comprehensive income and on 31 March 2016 for
purposes of the statement of financial position.
Before the After the % change
(cents) general offer 1 general offer 2
NAV per share 636.00 584.25 (8.1%)
NTAV per share 636.00 584.25 (8.1%)
Earnings per share 92.60 (45.98) (149.7%)
Headline earnings per share 54.43 27.21 (50.0%)
Distribution per share 47.62 40.17 (15.6%)
Notes and assumptions:
1. The financial information in the “Before the general offer” column has been extracted, without adjustment,
from Lodestone’s audited consolidated annual financial statements for the year ended 31 March 2016.
2. The financial information in the “After the general offer” column has been prepared by dividing Fortress’
financial effects pursuant to the general offer (calculated based on Fortress’ preliminary summarised
audited consolidated financial statements for the year ended 30 June 2016) by the swap ratio to provide the
pro forma financial effects for Lodestone shareholders.
10. Illustrative financial effects pertaining to the general offer
The table below sets out the illustrative financial effects of the general offer on a Fortress and Lodestone
shareholder, based on the latest projected dividends of Fortress and Lodestone using company guidance
provided and the market prices per Fortress A, Fortress B and Lodestone shares on 20 July 2016, being the day
before the Lodestone cautionary announcement was released on SENS.
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 Fortress, and have not been
reviewed or reported on by independent reporting accountants.
Before the After the % change
(cents) general offer general offer
Dividend per Fortress A share 135.63 1 135.63 2 -
Dividend per Fortress B share 167.75 1 169.98 3 1.3%
Dividend per Fortress combined share 303.38 1 305.61 0.7%
Market price per Fortress A share 1 638 1 1 638 2 -
Market price per Fortress B share 3 637 1 3 685 3 1.3%
Market price per Fortress combined share 5 275 1 5 32 3 0.9%
Dividend per Lodestone share 55.48 1 45.84 4 (17.4%)
Market value per share for Lodestone shareholders 651 1 798 4 22.6%
Notes and assumptions:
1. The dividend per Fortress A and Fortress B share is based on guidance provided in Fortress’ preliminary
summarised audited consolidated financial statements for the year ended 30 June 2016. The dividend per
Lodestone share is based on the mid-point of guidance provided in Lodestone’s audited consolidated annual
financial statements for the year ended 31 March 2016. The market price per Fortress A, Fortress B and
Lodestone share is the closing price on 20 July 2016, the day before the Lodestone cautionary
announcement was released on SENS.
2. The general offer has 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
Lodestone share set out in the “Before the general offer” column and the number of consideration shares to
be issued based on the swap ratio. 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 general offer” column remains
unchanged.
4. The dividend per Lodestone share and market price per Lodestone share has been prepared by dividing the
dividend and market price per Fortress combined share in the “After the general offer” column by the swap
ratio.
11. Appointment of independent board and independent expert to advise on the fairness and reasonableness
of the general offer
An independent sub-committee of the board of directors of Lodestone, comprising at least 3 directors of
Lodestone, has been formed for the purposes of considering the general offer in accordance with the
requirements of the Takeover Regulations.
The independent board committee will appoint an independent expert acceptable to the TRP to advise and
report to it on the general offer by way of a fair and reasonable opinion. The independent expert’s full report
will be included in an offeree response circular.
12. Responsibility statements
The board of directors of Fortress and, to the extent that the information relates directly to Lodestone, the board
of directors of Lodestone:
- accepts responsibility for the information contained in this announcement;
- confirms that to the best of its knowledge and belief, the information contained in this announcement is
true and correct; and
- confirms that this announcement does not omit anything likely to affect the importance of the
information contained in it.
13. Documentation and timing in regard to the general offer
The offer circular will be posted to Lodestone shareholders within 20 business days of the date of this
announcement.
Lodestone shareholders will be advised of the posting of the circular and the opening date of the general offer
by means of a SENS announcement.
The general offer will remain open for acceptance for at least 30 business days after the opening date of the
general offer, which will occur once the conditions precedent to the general offer have been secured.
14. Categorisation, small related party considerations, financial information, independent valuation
The general offer is considered a small related party transaction for Fortress in terms of section 10.7 of the JSE
Listings Requirements as Fortress may acquire Lodestone shares from the related parties set out in paragraph 7
above pursuant to the general offer.
The general offer is not subject to shareholder approval, provided that an independent expert has confirmed that
the terms of the general offer are fair insofar as Fortress shareholders are concerned. Fortress has appointed
Grant Thornton Advisory Services Proprietary Limited to provide the board of directors of Fortress with a
fairness opinion, as required in terms of section 10.7 of the JSE Listings Requirements (the “Fortress fairness
opinion”). A further announcement to Fortress shareholders will be released on SENS on the finalisation of the
Fortress fairness opinion.
15. Property specific information
The property specific information required in terms of the JSE Listings Requirements in relation to each of the
properties comprising Lodestone’s property portfolio, as at 31 March 2016 is set out below. The property
specific information set out below has been extracted by Fortress from the integrated annual report of Lodestone
for the year ended 31 March 2016 and is the responsibility of the Fortress board.
Difference
between
Weighted purchase
Purchase Effective average price and
GLA Valuation price date of rental valuation
Property name Address (m2) (R'000) (R'000) acquisition (R/m2) (R'000)
14 Union Street,
Union Park Alberton North, 6 August
1. Alberton Gauteng 28 496 145 400 50 000 2012 39.66 95 400
12 and 14 Elliot
Elliot Avenue Avenue, Epping, 24 May
2. Epping Western Cape 13 250 52 000 30 751 2012 30.94 21 249
8 & 16 Harry
Street, 8 & 16 Harry Street, 23 June
3. Robertsham Robertsham, Gauteng 11 375 43 600 21 000 2011 @ 22 600
4 6th Street 4 6th Street, Wynberg, 9 May
4. Wynberg Gauteng 10 076 39 200 16 500 2012 @ 22 700
Croker Road 7 Croker Road, 25 August
5. Wadeville Wadeville, Gauteng 9 882 35 609 22 000 2011 43.44 13 609
53 Rudo Nel Road, Jet 8 June
6. Rudo Nel Jet Park Park, Gauteng 4 468 26 100 16 500 2011 @ 9 600
16th Street 705 16th Street, 26 October
7. Midrand Midrand, Gauteng 3 569 22 900 21 000 2015 @ 1 900
Prolecon 2 & 4 Prolecon Road, 7 October
8. Industrial Park Prolecon, Gauteng 4 595 22 776 14 500 2010 41.06 8 276
7 & 9 Watkins 7 & 9 Watkins Street, 7 October
9. Street Denver Denver, Gauteng 3 432 21 000 12 000 2010 51.36 9 000
30
1338 Staal Road 1388 Staal Road, November
10. Stormill Stormill, Gauteng 4 320 18 200 14 500 2015 @ 3 700
2, 4, 6, and 8 Hans
Pirow Street, Selby, 7 October
11. Selby Mini Units Gauteng 4 911 17 400 13 500 2010 41.71 3 900
Westar Park 15 Reduktor Avenue, 7 October
12. Stormill Stormill, Gauteng 5 500 15 000 13 000 2010 36.57 2 000
5
Brewery Road 19 Brewery Road, November
13. Isando Isando, Gauteng 4 896 14 700 11 000 2013 @ 3 700
100 Dekema 100 Dekema Road, 27 August
14. Road Wadeville* Wadeville, Gauteng 7 500 14 150 11 624 2015 @ 2 526
15 Progress Road, New
15 Progress Road Germany, KwaZulu- 25 August
15. New Germany* Natal 3 922 9 500 9 004 2015 @ 496
20 Industrial
Crescent 20 Industrial Crescent, 31 August
16. Witbank* Witbank, Mpumalanga 2 680 7 500 6 909 2015 @ 591
25 Angus
Crescent 24 Angus Crescent, 25 August
17. Londmeadow* Longmeadow, Gauteng 1 680 6 450 6 153 2015 @ 297
312 Mitchell
Street Pretoria 312 Mitchell Street, 26 August
18. West* Pretoria West, Gauteng 1 741 5 125 4 248 2015 @ 877
37 Kindon Road 37 Kindon Road, 5 October
19. Robertsham* Robertsham, Gauteng 3 400 4 390 3 659 2015 @ 731
19 Dorsetshire 19 Dorsetshire Street,
Street Paarden Paarden Eiland, 31 August
20. Eiland* Western Cape 1 350 4 235 4 057 2015 @ 178
44 Neptune Street,
44 Neptune Street Paarden Eiland, 31 August
21. Paarden Eiland* Western Cape 1 785 3 285 3 144 2015 @ 141
17
216 Winze Road 216 Winze Road, September
22. Stormill* Stormill, Gauteng 1 466 2 970 2 486 2015 @ 484
40 Beechfield 40 Beechfield
Crescent Crescent, Springfield, 28 August
23. Springfield KwaZulu-Natal 965 2 590 2 486 2015 @ 104
15 Kouga Street 15 Kouga Street, 31 August
24. Stikland* Stikland, Gauteng 800 1 730 1 462 2015 @ 268
Total industrial 136 059 535 810 311 483
11
232 Sheba Street, November
25. Tembi Mall Tembisa, Gauteng 6 599 96 090 17 000 2011 121.38 79 090
Cnr Oceanview and
Aucaria Roads,
Kingsburgh Kingsburgh, KwaZulu- 29 April
26. Shopping Centre Natal 9 940 94 184 35 769 2011 80.59 58 415
Cnr Jones Road and
Curry Street,
Kimberley Kimberley, Northern 1 January
27. Junction Cape 5 633 83 152 17 000 2012 121.53 66 152
Cnr Archerfish Drive 2
Yarona Shopping and Angelfish Street, December
28. Centre Tembisa, Gauteng 5 979 83 000 80 000 2015 117.54 3 000
80 High Street, 17 May
29. Protea Centre Brixton, Gauteng 10 001 80 028 18 930 2011 74.89 61 098
Cnr Van Riebeeck
Van Riebeeck Road and 3rd Street, 20 May
30. Mall Edenvale, Gauteng 10 634 77 497 19 500 2011 78.80 57 997
Station Road, 28 March
31. Mafikeng Station Mafikeng, North West 7 354 68 700 25 000 2013 88.19 43 700
Fatima Bhayat Fatima Bhayat Street, 14
Street, Rustenburg, North December
32. Rustenburg West 4 562 54 100 42 000 2015 103.52 12 100
Cnr Marx and Sutter 26
Shoprite Bela- Roads, Bela-Bela, September
33. Bela Limpopo 4 889 47 000 27 500 2012 79.01 19 500
Cnr Shongozwi Street 12
and Krigh Street, December
34. Makhado Square Makhado, Limpopo 2 651 39 500 37 500 2014 116.66 2 000
15
Cambridge 37 Pretoria Avenue, September
35. Randburg Randburg, Gauteng 4 015 19 000 12 600 2011 34.93 6 400
516 Van Riebeeck
Groblersdal Street, Groblersdal, 5 April
36. Centre Mpumalanga 2 057 11 800 4 300 2011 38.87 7 500
Total retail 74 314 754 051 337 099
8
Erf 290 Edenburg, December
37. The Prism $ Gauteng N/a 53 691 32 000 2015 N/a 21 691
Total developments 53 691 32 000 21 691
Total portfolio 210 373 1 343 552 680 582
@ single tenanted property. The average gross rental of single tenanted industrial properties is R34.52/m2.
* Lodestone owns a 50% undivided share of this property.
$
Lodestone owns 50.1% of this development.
16. Withdrawal of cautionary
Lodestone shareholders are advised that caution is no longer required to be exercised in their dealings in
Lodestone shares.
11 August 2016
Corporate advisor and sponsor to Fortress and
corporate and designated advisor to Lodestone
Java Capital
Date: 11/08/2016 05:43:00 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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