Fortress Real Estate Investments will cease to be an investment trust

Fortress Real Estate Investments said on Friday that it would cease to be a real estate investment trust from February 1, but would remain a listed property company with the existing dual-class share structure.

The rights of holders of Fortress A shares and holders of Fortress B shares, as prescribed in the memorandum of incorporation, will remain the same after it ceases to be a real estate investment trust.

The “B” shares gained 3.1% on the JSE on Friday afternoon to reach R5.03, while the “A” class shares fell 3.2% to R10.10.

Fortress, which has a strong logistics and retail focus among its directly held local portfolio and its investments in other listed property groups, on December 7 last year lodged an objection to a JSE decision to remove the company’s real estate investment trust status.

Fortress was unable to declare a dividend during the 2022 financial year, owing to its distributable earnings falling below the Fortress A benchmark for that year, as stipulated in the company’s memorandum of incorporation.

The JSE, in response to the Fortress objection, indicated it would await the outcome of the general meeting on January 12, 2023, as the JSE considered this to be important information it would consider when assessing the objection.

Then, on Thursday, the JSE said it had dismissed the objection based on the outcome of the general meeting and the fact that the company had not paid a dividend for the financial year ended June 30, 2022, owing to the restrictive conditions remaining in the company’s memorandum of incorporation.

The cessation of the company’s real estate investment trust status means Fortress will not be required to make annual distributions of a minimum of 75% of its distributable profit.

The group will also no longer be entitled to deduct dividends paid to shareholders in determining its taxable income, and it will be liable for capital gains tax on the disposal of its immovable property and certain of its shares.

Fortress and its subsidiaries will also be entitled to claim allowances which previously were not available to a company with real estate investment trust status.

In the year to June 30, Fortress’s distributable earnings came to R1.71 billion, compared with R1.71 billion for the 2021 financial year. Distributable earnings for the second half were R876.9 million, which was below the “A” dividend benchmark of R967.9 million, and which meant the board could not declare any dividends.