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Fortress to fold dual share structure despite some shareholder disquiet

Fortress REIT’s Clairewood Logistics Park. Photo, Supplied.

Fortress REIT’s Clairewood Logistics Park. Photo, Supplied.

Published Jun 21, 2022

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Fortress REIT, the commercial property group that includes a large logistics portfolio, said the collapse of its A and B share structure into one class of shares is currently the only way to preserve its Reit status.

The Fortress B share price surged 7.7 percent yesterday afternoon to R3.77, while Fortress A shares were down 1.8 percent to R11.46. The group admitted there were divergent views among its shareholders on the scheme.

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“Although shareholders indicated an understanding of the need to collapse the dual share structure, in general there is a wide gap between Fortress A and Fortress B shareholders on what exchange ratio they would consider to be fair,” the group said.

The group, which also holds some 23.6 percent of central and eastern Europe retail property group Nepi Rockcastle, yesterday proposed a scheme of arrangement to enable a share exchange ratio of 3.01 Fortress B shares per Fortress A share.

The exchange ratio represented a discount of 5 percent to the A share market price as at May 20, 2022, the day prior to an initial announcement suggesting a collapse of the dual share structure.

The board said the complexity of the dual share structure and uncertainty about the ability to pay regular distributions and maintain Reit status were hurting the market valuation of the company, by about 31 percent of its net asset value.

The board said the collapse of the dual share structure and elimination of restrictions on paying distributions would allow them to pay a distribution and meet Reit obligations for the 2022 year, and would allow a six-monthly distribution cycle, paying out 100 percent of distributable earnings.

Post implementation, Fortress A and Fortress B shareholders may also benefit from a re-rating of the Fortress B share.

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The board said it acknowledged the divergent views of shareholders, but “the board considers it is incumbent on Fortress to make a proposal to shareholders that is an alternative to the risk of loss of Reit status that will be the result of shareholders failing to approve any solution allowing Fortress to meet the payout obligations of a Reit.”

Fortress guided distributable earnings of R1.7 billion for its 2022 financial year and R1.91 billion for 2023 in a trading update on June 6, and was well-positioned to produce growing distributable earnings, the group said.

“If approved, (it) allows for a dividend payment equivalent to R1.17 per Fortress A share (being R0.39 per Fortress B share multiplied by the exchange ratio) and R0.39 per Fortress B share, for the year to end June 30, 20220.”

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The share exchange was premised on Fortress A shareholders receiving 80 percent of Fortress' distributions going forward, with the remaining 20 percent benefiting Fortress B shareholders.

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