Record Fortress merger gets offshore boost

THE biggest merger in the history of the South African listed property sector is going ahead, with Fortress Income Fund finalising the acquisition of Capital Property Fund.

The merged entity is set to become an attractive investment for offshore institutions as it will be included in the MSCI Emerging Markets Index.

MSCI, a US-based provider of equity, fixed income and hedge fund stock market indices, will fast-track Fortress’s inclusion into the MSCI emerging markets index. This will force global index trackers to buy Fortress shares, which could lead to a rerating for the company and also boost its share price.

Fortress has a dual-unit share structure to cater for investors with varying risk appetites. Investors in the A units have a preferential claim to earnings and receive a 5% increase in distributions from earnings. The remainder of distributions are attributable to B unit investors. In the past seven days, Fortress’s A unit share price has climbed 7% and its B unit has increased 17.7%, largely thanks to MSCI’s decision.

Fortress, which focuses on retail centre assets situated near transport nodes — such as taxi ranks, and bus and railway terminals — will acquire industrial and office specialist Capital Property Fund in a deal that is set to be valued at more than R52bn.

This would mean Fortress could overtake Redefine Properties in terms of market capitalisation, depending on share price movements in the next couple of weeks, making it the second-biggest South African-based listed property company.

Redefine’s current market capitalisation is about R55bn.

The boards of Capital and Fortress said yesterday that, with effect from Monday, November 30, all Capital shares held by Capital shareholders would be transferred into the name of Fortress and Fortress would hold 100% of the issued share capital of Capital.

The listing of Capital shares on the JSE would be suspended with effect from the commencement of trade on Monday November 23, and terminated on November 30.

“We are also excited that we could be included in the JSE’s Top 40 index, which will bring us to the attention of investors who have not traded in listed property before,” Fortress CEO Mark Stevens said.

“The inclusion in the MSCI (emerging markets) index does result in demand from index trackers, which pushes up the price,” said Evan Robins of Old Mutual Investment Group.

“The next step could be Top 40 inclusion with some corporate action.”

South African real estate investment trusts, including Growthpoint Properties, Resilient Property Income Fund, Redefine Properties and Hyprop Investments, have been included in global property indices in recent months.

This has boosted their share prices.