Fortress to retain offices in improved offer for Capital

Fortress Income Fund CEO Mark Stevens says listing costs and overheads for Capital Property Fund would be relatively too high and ultimately the people involved could not make the numbers work

Fortress Income Fund is no longer planning to spin off Capital Property Fund’s office portfolio into a separate listing.

Instead the group, which made a firm offer last month to acquire all the listed shares of Capital in this year’s biggest transaction in the listed property sector, now plans to keep the best assets and redevelop or sell underperforming offices.

Fortress, whose A and B shares give it a combined value of R22.4bn, has for some time been courting Capital, which has a market capitalisation of R28bn. If the deal is successful, Fortress would be valued at close to R50bn, making it the third-biggest local property fund by market capitalisation.

The revised offer, which also sees Capital’s shareholders receiving more Fortress scrip, was welcomed by the market with Capital climbing 4.64% to close at R15.80 yesterday.

Fortress announced an increased share swap offer ratio after it was decided that Capital would no longer spin off its secondary office portfolio as a separate real estate investment trust (Reit).

When Fortress made an offer in July for all of Capital, it said Capital would first spin off its R2.5bn office portfolio in a separate listing called NewReit. Those plans were dashed as the listing was deemed to be too expensive. Furthermore, the external management team identified to head New Reit declined the opportunity.

“It was felt the fund would be a bit too small if it were listed. Listing costs and overheads for such a fund would be relatively too high and ultimately the people involved could not make the numbers work,” Fortress CEO Mark Stevens said.

He said the new offer would be better for Capital’s shareholders. “We have improved the ratio and if we did not go for all of the assets including the offices, we may not have been successful at all so we are happy to pursue the entire Capital fund,” he said.

Accordingly, the updated share swap ratio proposed by Fortress would be 0.35 Fortress A and 0.35 Fortress B shares for every Capital share, based on 1,772,624,329 Capital shares in issue.

Capital’s portfolio includes some of the best-rated industrial property in SA.

Sesfikile Capital director Mohamed Kalla said the improved offer was a positive move by Fortress.

“As Capital shareholders we’re glad that management has listened to the market’s concerns, particularly around the spin-off of the office portfolio into a separate Reit,” said Mr Kalla.