Fortress Reit says it will object to the JSE’s intention to remove its real estate investment trust (Reit) status after it failed to submit a compliant Reit declaration on November 30.
The company has been battling to collapse its dual-share structure after shareholders rejected its proposal to merge its A and B shares.
To maintain Reit status, SA-listed property companies are required to pay a minimum of 75% of their taxable earnings available for distribution as a dividend annually within a period of four months after its year-end.
Fortress’s inability to pay out dividends resulted in the non-compliance with the minimum distribution requirements as set out in the JSE Listings Requirements pertaining to Reits.
Reits do not incur tax when paying dividend, thus allowing earnings to flow through to investors without the company attracting income tax. They provide investors with dividend-based income, but Fortress shareholders are not enjoying these benefits.
Earlier this year, Fortress proposed a share exchange that will result in Fortress A shareholders receiving 80% of Fortress’s distributions going forward with the remaining 20% going to Fortress B shareholders.
Through the scheme, Fortress will exchange each A ordinary share for 3.01 Fortress B shares.
Had shareholders voted in favour of the proposed scheme, Fortress would have paid out R1.707bn in distributable earnings for the 2022 financial year.
Fortress A and B shareholders will hold a combined general meeting on January 12 2023, and the voting will decide whether Fortress will retain its Reit status.
An independent analyst, The Finance Ghost, said should Fortress lose its Reit status, funds with Reit-only investment mandates will be forced to exit the stock.
“Even if Fortress loses its Reit status, except for the likely volatility in the share price, the company itself will enjoy far greater capital and distribution flexibility. The Reit rules are highly restrictive and are easy to work with in a bull market, but not so easy in a bear market,” said The Finance Ghost.
At the close on Thursday, the Fortress A share price had lost 7.21% to R10.29.
Fortress specialises in the logistics and retail property sectors in SA and owns premium logistics assets in Central and Eastern Europe.
It listed on the JSE in October 2009 with two classes of shares offering investors different risk and reward profiles. Its Fortress A ordinary share and Fortress B ordinary share have equal voting rights.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.