At an AGM on Thursday, the majority of Fortress Reit B-shareholders voted against the company’s proposed share scheme, while the requisite majority of A-shareholders voted in favour thereof.
With the failure to meet a resolution — in that the requisite majority of A- and B-shareholders vote in favour of the scheme, Fortress will not pay distribution for the financial year ended June 30 2022.
Constrained by its dual-share structure and the need to retain its real estate investment trust (Reit) status, Fortress proposed to exchange each A-ordinary share for 3.01 B-shares in June.
The value of distributable earnings of R1.7bn is equivalent to 39c per B share. According to the scheme, existing A shareholders will be entitled to 39c per share multiplied by the exchange ratio, or R1.17, for the period ending June 30. In August the shareholders also voted against the proposal.
“We have been consistent in our view that a single share Reit structure is the best for the company and both A and B shareholders,” CEO Steven Brown told Business Day.
He said this was a shareholder-led proposal and shareholders have a prerogative on how to vote based on their views/position on the proposed scheme.
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.
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 non-compliance with the minimum distribution requirements as set out in the JSE listings requirements pertaining to Reits. Fortress failed to submit a compliant Reit declaration on November 30, and the JSE has moved to remove the Reit status. Fortress said it would object to this.
At the end of December Brown said the JSE published a notice that it acknowledged Fortress’s objection to the removal of the Reit status on the basis of the voting stalemate.
“However, with the failed vote, no dividend for the 2022 financial year will be paid, and the JSE will now need to making a ruling on the Reit status and close their objection process,” said Brown.
During morning trade on Friday, the Fortress A share price had lost 3.79% to R9.90.
Though losing Reit status may result in share price volatility, the withheld dividend will strengthen its balance sheet. Fortress continues to show strong operational performance thanks to its strategy of recycling capital from noncore assets into high-quality assets thus providing a solid platform from which to grow future earnings.
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