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RESILIENT REIT LIMITED - Restructure of Siyakha, intention to unwind cross-shareholding, further cautionary, updated distribution guidance

Release Date: 07/03/2018 16:21
Code(s): RES FFB FFA     PDF:  
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Restructure of Siyakha, intention to unwind cross-shareholding, further cautionary, updated distribution guidance

RESILIENT REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2002/016851/06)
JSE share code: RES ISIN: ZAE000209557
(Approved as a REIT by the JSE)
(“Resilient”)

FORTRESS REIT LIMITED
(previously Fortress Income Fund Limited)
(Incorporated in the Republic of South Africa)
(Registration number: 2009/016487/06)
JSE share codes: FFA ISIN: ZAE000248498
                 FFB ISIN: ZAE000248506
(Approved as a REIT by the JSE)
(“Fortress”)


RESTRUCTURE OF THE SIYAKHA EDUCATION TRUSTS, INTENTION TO UNWIND CROSS-SHAREHOLDING, 
FURTHER CAUTIONARY ANNOUNCEMENT AND UPDATED DISTRIBUTION GUIDANCE


INTRODUCTION

The boards of Resilient and Fortress have noted concerns raised about both the Siyakha Education Trusts and the
cross-shareholding between the two companies and this announcement follows a commitment announced in
February 2018 to prioritise the companies’ response to these concerns.
It is proposed to have Resilient as the funder of a trust that holds solely Resilient shares and Fortress as the funder
of a trust that holds solely Fortress shares, without impacting on the current Siyakha education initiatives.
On this basis, Resilient and Fortress provide updated distribution guidance.

RESTRUCTURE OF SIYAKHA EDUCATION TRUSTS

As South African REITs, Resilient and Fortress are committed to the principles of Broad-Based Black Economic
Empowerment and support the upliftment of previously disadvantaged and under-privileged communities through
education. This was the founding principle behind the establishment of The Siyakha Education Trust (“Siyakha
Trust”) and The Siyakha 2 Education Trust (“Siyakha 2 Trust”) (collectively the “Siyakha Education Trusts”)
and the implementation of their education initiatives and projects (the “Siyakha education initiatives”).

As a result of the lower share prices of Resilient and Fortress, the liabilities of Siyakha Trust and Siyakha 2 Trust,
being loans (the “Siyakha Loans”) from Resilient, Fortress and other lenders, exceed the current value of their
assets. This reduces the extent to which Resilient and Fortress consider it appropriate to distribute interest income
accrued on their portion of the Siyakha Loans. In these circumstances, and because it is the intention of Resilient
and Fortress to eliminate the cross-shareholding between them, Resilient, Fortress and the trustees of the Siyakha
Trust and the Siyakha 2 Trust have agreed to a proposal that the affairs of each of Siyakha Trust and Siyakha 2
Trust should be restructured to give effect to the following (the “Siyakha restructure proposal”):

     -   The Siyakha Trust will transfer all its Fortress shares to the Siyakha 2 Trust and the Siyakha 2 Trust will
         transfer all its Resilient shares to the Siyakha Trust;
     -   Thereafter the Siyakha Trust will hold only Resilient shares and will change its name to the “Resilient
         Education Trust” and the Siyakha 2 Trust will hold only Fortress shares and will change its name to the
         “Fortress Education Trust”;
     -   The Resilient Education Trust will then hold 53 182 504 Resilient shares, on the basis that Resilient will
         have replaced third-party funding in an amount of approximately R1,25 billion in order to eliminate all
         third-party liabilities leaving Resilient as the sole creditor of the Resilient Education Trust;
     -   The Fortress Education Trust will then hold 118 497 287 Fortress B shares and approximately 38 668 582
         Fortress A shares, on the basis that Fortress will have replaced third-party funding in the amount of
         approximately R650 million in order to eliminate all third-party liabilities leaving Fortress as the sole
         creditor of the Fortress Education Trust; and
     -   Most importantly, the Siyakha restructure proposal will not interrupt or limit the current Siyakha
         education initiatives.

Thereafter, for purposes of distributable earnings, Resilient and Fortress will recognise interest accrued on the loans
to the relevant trust only to the extent that the accrued interest is matched by dividends declared in the same period
in respect of the shares held by the trust net of the operating expenses of the Siyakha education initiatives, which
are estimated at approximately R20 million in 2018.

Implementation of the Siyakha restructure proposal will be effected as soon as practicable, subject to execution of
written agreements and the fulfilment of conditions including any requisite shareholder, third-party creditor and
regulatory consents.

After implementation of the Siyakha restructure proposal, both Resilient and Fortress anticipate they would report
gearing of below 35% on a loan-to-value basis at June 2018.

INTENTION TO UNWIND THE CROSS-SHAREHOLDING

Resilient and Fortress continue to explore alternatives to eliminate the cross-shareholding between them and will
in due course put proposals in this regard to their shareholders (the “Cross-Shareholding unwind proposal”).

FURTHER CAUTIONARY ANNOUNCEMENTS IN RESPECT OF RESILIENT AND FORTRESS

Each of Resilient and Fortress shareholders are referred to the cautionary announcements published by Resilient
and Fortress on 22 February 2018, informing shareholders that Resilient and Fortress had commenced negotiations
with the Siyakha Education Trusts. Resilient shareholders and Fortress shareholders are hereby advised to continue
to exercise caution in their dealings in Resilient or Fortress shares, as the case may be, pending further
announcements regarding the Siyakha restructure proposal and the Cross-Shareholding unwind proposal.

UPDATED RESILIENT DISTRIBUTION GUIDANCE

Resilient has re-evaluated the distribution guidance provided in the commentary to its interim results for the six
months ended 31 December 2017.

On the assumption that the Siyakha restructure proposal is implemented with effect from 1 January 2018, Resilient
expects its distribution per share to be approximately 601 cents per share for the 2018 financial year (1H actual:
306 cents per share; 2H guidance: 295 cents per share) increasing by approximately 8% for the 2019 financial year.
This is based on the further assumptions that there will be no deterioration of the macro-economic environment,
that no major corporate failures will occur and that tenants will be able to absorb the recovery of rising utility costs
and municipal rates. Budgeted rental income is based on contractual escalations and market-related renewals. As
regards dividends to be received by Resilient on its investments, Resilient’s assumptions are in line with current
guidance provided by the companies in question. The forecast has not been audited, reviewed or reported on by
Resilient’s auditors.

UPDATED FORTRESS DISTRIBUTION GUIDANCE

Fortress has re-evaluated the distribution guidance provided in the commentary to its interim results for the six
months ended 31 December 2017.

On the assumption that the Siyakha restructure proposal is implemented with effect from 1 January 2018 and the
further assumption that the Fortress A distributions per share will increase by 5% in the 2018 and 2019 financial
years, Fortress expects that its distribution per Fortress B share will be approximately 179 cents per share for the
2018 financial year (1H actual: 90 cents per share; 2H guidance: 89 cents per share) growing by approximately 5%
for the 2019 financial year. This is based on the further assumptions that there will be no deterioration of the macro-
economic environment, that no major corporate failures will occur, and that tenants will be able to absorb the
recovery of rising utility costs and municipal rates. Budgeted rental income is based on contractual escalations and
market-related renewals. As regards dividends to be received by Fortress on its investments, the assumptions are
in line with guidance provided by the companies in question. The forecast has not been audited, reviewed or
reported on by Fortress’ auditors.

7 March 2018

Sponsor
Java Capital

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