June 26 2023
JSE-listed property group Fortress Real Estate Investments on Monday upped its guidance for its full-year distribution by almost 5%, saying it continued to see strong demand for its logistics properties in SA, as well as falling vacancies in its retail portfolio.
The group which is worth about R20n and listed on the JSE said that it expected to earn distributable earnings of at least R1.74bn for the financial year to end-June, having forecast R1.66bn previously. The company achieved R1.71bn worth of earnings in 2022.
Fortress used to be a real estate investment trust (Reit) which was mandated to pay at least 75% of its distributable income as a dividend each year. However, the company lost its Reit status in January 2023 when it failed to meet the requirement. Some investors had bought Fortress’ stock to achieve regular dividend payouts. But now Fortress will appeal to investors seeking capital share growth more than dividend payouts and growth in those dividends.
Fortress said in a pre-close update on Monday that it was enjoying strong demand for its upper-end logistics properties, both locally and in Poland. Higher interest rates meant borrowing and construction costs had risen but Fortress had been able to pass these onto its tenants. There were higher asking rentals for speculative developments and better rentals for its standing portfolio.
The company said that is had a directly held property portfolio worth R32.1bn at the end of December 2022, more than half of which was logistics, while about a third included commuter retail assets. Fortress also owns 23.7% of Eastern Europe-focused real estate group Nepi Rockcastle. The group gained its stake in Nepi, a company which invests in Romania and Poland, through its previous cross share and property structure with Resilient Reit.
Fortress’ retail properties saw vacancies decrease to 2% from 2.8%, while achieving like-for-like tenant turnover growth of 7%.
“The strategic focus on extending and refurbishing our existing retail centres is proving fruitful and we plan to continue to dispose of underperforming assets and use this capital to enhance our portfolio of conveniently-located and commuter-focused shopping centres,” CEO Steven Brown said.
“While the logistics property sub-sector is not immune to the macroeconomic challenges the country faces, it remains well-positioned to weather the storm, given that fundamentals are robust relative to other real estate sub-sectors,” he said.
Last year many of Fortress’ shareholders rejected a scheme to collapse its dual AB share structure. Fortress A shares get preference for dividends. They are paid the lower of prevailing consumer price inflation and a set percentage, while the B shares receive the remaining distribution.
Fortress’ A shares closed 0.40% lower at R12.56 while its B shares closed 0.4% lower at R4.93.
alistair@propertyflash.co.za