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Fortress BEE initiative
FORTRESS REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA ISIN: ZAE000248498
FFB ISIN: ZAE000248506
Bond company code: FORI
(Approved as a REIT by the JSE)
("Fortress")
FORTRESS BEE INITIATIVE
1. INTRODUCTION
Shareholders are referred to the TRP 121 notification announcement published on SENS on 4 July 2019
and are advised that the Siyakha Education Trust has disposed of its entire shareholding in Fortress
(being 97 224 065 Fortress B shares) to four Black Economic Empowerment ("BEE") entities, being
Fortress Empowerment 1 Proprietary Limited ("Fortress Empowerment 1"), Fortress Empowerment 2
Proprietary Limited ("Fortress Empowerment 2"), Fortress Empowerment 3 Proprietary Limited
("Fortress Empowerment 3") and Fortress Empowerment 4 Proprietary Limited ("Fortress
Empowerment 4") (collectively, "the Fortress Empowerment Vehicles") on loan account for an
aggregate consideration of R1 175 438 946 (which equates to R12.09 per Fortress B share) ("the
Siyakha Loan Claim").
Shareholders are further advised that the Siyakha 2 Education Trust has disposed of its entire
shareholding in Fortress (being 31 171 516 Fortress B shares) to Fortress Empowerment 1 on loan
account for a consideration of R376 863 628 (which equates to R12.09 per Fortress B share) ("the
Siyakha 2 Loan Claim").
Reference to Fortress in this announcement includes Fortress and its wholly-owned subsidiaries.
2. SETTLEMENT OF LOANS
The liabilities of each of the Siyakha Education Trust and Siyakha 2 Education Trust (collectively or
individually, a "Trust/s") exceed their assets. After considering the current economic environment, the
board of directors of Fortress has assessed the possibility of the market value of the Fortress B shares
increasing to or exceeding the amount of the loan obligations owed by each of the Siyakha Education
Trust and Siyakha 2 Education Trust to Fortress as remote and, accordingly, Fortress has agreed to
accept the assignment by the Siyakha Education Trust and the Siyakha 2 Education Trust of the Siyakha
Loan Claim and the Siyakha 2 Loan Claim as settlement for the balance of the loans owing by each of
the Siyakha Education Trust and the Siyakha 2 Education Trust. The effect of the assignment will be
that each Trust, which collectively owe Fortress c.R4 billion, will be released and discharged from any
liability to pay any amounts in respect of those loans.
3. FORTRESS BEE INITIATIVE
Shareholders are referred to special resolution number 3 contained in the notice of annual general
meeting included in Fortress' integrated annual report for the year ended 30 June 2017, which resolution
was approved by shareholders at the annual general meeting of Fortress shareholders held on
1 November 2017 ("the resolution"). The resolution gives Fortress the authority to provide any form of
financial assistance for the purchase of shares in Fortress to any trust, company and/or other third party
for the purpose of, or in connection with, the promotion of Black Economic Empowerment in relation
to Fortress, subject to the following parameters:
- the capital amount (excluding interest, costs, charges, fees and expenses) of any such financial
assistance may not in aggregate exceed R2.9 billion;
- financial assistance may be provided for any period, but not exceeding 10 years from the effective
date on which it is provided; and
- Fortress may provide financial assistance on such arm's length terms as it in its discretion considers
appropriate for the nature of the financial assistance, provided that on any loan advanced by Fortress
for the acquisition of shares in Fortress it shall agree a return at least equivalent to the dividends
received and expected to be received on such shares, plus an additional return at least equivalent to
49% of the performance of such shares over the duration of the loan.
Pursuant to the above authority, shareholders are advised that Fortress, through one of its subsidiaries,
has provided financial assistance to the Fortress Empowerment Vehicles to settle the Siyakha Loan
Claim and the Siyakha 2 Loan Claim ("the empowerment transaction"). The empowerment transaction
is consistent with Fortress' stated priority to assist with the restructuring of the Siyakha Education Trust
and the Siyakha 2 Education Trust and formulate a new BEE strategy.
The shareholders of the Fortress Empowerment Vehicles are as follows:
- Meshanthan Pillay (being the sole shareholder of Fortress Empowerment 1 and Fortress
Empowerment 2), who is the founder of, and Chief Executive Officer, at YW Investments
Proprietary Limited ("YW Investments"), an empowered financial services and investments
company. YW Investments is one of the only 100% black-owned financial services companies
operating across international markets with a specialisation in equity and equity-linked capital
markets advisory. YW Investments also holds investments in real estate, resources, ICT and across
other sectors; and
- Jade Capital Partners Proprietary Limited (being the sole shareholder of Fortress Empowerment 3
and Fortress Empowerment 4), a 100% black-women owned and managed investment holding
company founded in 2013 by Zola Malinga and Bukelwa Bulo. The primary focus of the company
is investments in the property sector, including direct property and property services companies.
4. SALIENT DETAILS OF THE EMPOWERMENT TRANSACTION
The effective date of the empowerment transaction is 28 June 2019.
The empowerment transaction has been structured as follows:
- Fortress Empowerment 1 and Fortress Empowerment 3
- In settlement of its loan claim, Fortress Empowerment 1 will issue to Fortress preference
shares to the value of R388 075 653.
- In settlement of its loan claim, Fortress Empowerment 3 will issue to Fortress preference
shares to the value of R388 075 641.
- The preference shares carry a zero coupon.
- The preference shares will be redeemed at face value on the redemption date, being 10 years
from issue, but may be redeemed earlier at the option of either Fortress Empowerment 1 or
Fortress Empowerment 3 (as applicable) or Fortress (but not within the first three years of
the issue date).
- Fortress Empowerment 1 and Fortress Empowerment 3 each waives its right to dividends on
the Fortress B shares that it holds.
- On the redemption date, the preference shares will pay a dividend equal to 70% of the
increase in the market value of the Fortress B share above R12.09 to Fortress. To the extent
that the shareholder of Fortress Empowerment 1 or Fortress Empowerment 3 (as applicable)
injects equity into the vehicle, the dividend will be adjusted accordingly but Fortress' share
of the dividend may not be less than 49% of the increase in market value above R12.09.
- On the redemption date, if the market value of the Fortress B shares is less than R12.09, the
redemption value will be the then Fortress B share price (calculated as the 5-day VWAP of
the Fortress B shares) on the redemption date multiplied by the number of Fortress B shares
funded by the preference shares.
- Fortress Empowerment 2 and Fortress Empowerment 4
- Fortress Empowerment 2 is funded by way of a loan from Fortress to the value of
R388 075 641.
- Fortress Empowerment 4 is funded by way of a loan from Fortress to the value of
R388 075 641.
- Each loan does not bear any interest unless certain interest accrual events occur, in which
case interest will accrue only pursuant to that Interest Accrual Event (as defined below) and
subject to certain conditions.
- The loans are repayable on the earlier of (i) a change in control of Fortress Empowerment 2
or Fortress Empowerment 4 (as applicable); or (ii) the date on which Fortress Empowerment
2 or Fortress Empowerment 4 (as applicable) disposes of the Fortress B shares that it holds;
or (iii) 18 months from the provision of the loan.
- Fortress Empowerment 2 and Fortress Empowerment 4 each waives its right to dividends on
the Fortress B shares that it holds.
- In the event that there is (a) a change in control; or (b) Fortress Empowerment 2 or Fortress
Empowerment 4 (as applicable) disposes of its Fortress B shares; or (c) 18 months have
lapsed and provided that on such date the assets of Fortress Empowerment 2 or Fortress
Empowerment 4 (as applicable) exceed its liabilities (whichever is earlier) (an "Interest
Accrual Event"), the loans shall, pursuant to such an Interest Accrual Event occurring,
accrue interest in arrears at a rate equal to the appreciation in the market value of the Fortress
B shares (being the increase in the market value of the Fortress B share above R12.09), if
any, calculated from the date that Fortress Empowerment 2 or Fortress Empowerment 4 (as
applicable) acquired the Fortress B shares to the date of the change in control or the date of
disposal or the date on which the 18 month period has lapsed (as applicable).
- The intention is to introduce a new B-BBEE shareholder into these vehicles in due course.
5. FINANCIAL CONSIDERATIONS
For as long as the Fortress Empowerment Vehicles remain funded in accordance with the empowerment
transaction terms, the empowerment transaction does not result in any dilution to distributable earnings
per Fortress A share and Fortress B share and as such, the guidance communicated at the pre-close call
held on 31 May 2019 remains unchanged.
6. VOLUNTARY ANNOUNCEMENT
The provision of financial assistance by Fortress to the Fortress Empowerment Vehicles was previously
approved by shareholders at the annual general meeting of Fortress shareholders held on
1 November 2017 and is not a categorisable transaction in terms of the JSE Listings Requirements. As
such, this announcement is voluntary and for information purposes only.
4 July 2019
Lead sponsor
Java Capital
Joint sponsor
Nedbank Corporate and Investment Banking
Legal advisor
DLA Piper
Date: 04/07/2019 05:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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