Wrap Text
Condensed unaudited consolidated interim financial statements for the six months ended 31 December 2017
Fortress Reit Limited
Incorporated in the Republic of South Africa
Registration number 2009/016487/06
JSE share codes: FFA ISIN ZAE000248498
FFB ISIN ZAE000248506
("Fortress" or "the group" or "the company")
(Approved as a REIT by the JSE)
(Previously Fortress Income Fund Limited)
Condensed unaudited consolidated interim financial statements
for the six months ended 31 December 2017
Directors' commentary
Nature of business and strategy
Fortress REIT Limited is an internally asset managed company investing in
both direct property and listed property securities.
At 31 December 2017, Fortress' direct property portfolio comprised 311
properties, focusing on logistics facilities and commuter retail
centres. As a hybrid REIT, Fortress owns a portfolio of locally listed
REITs and listed international property companies.
The direct property portfolio is constantly being expanded with the
development of new logistics parks on strategically located land already
owned by the group. These logistics facilities are built to the highest
modern standards for local and international users.
Fortress' retail portfolio consists of 61 centres located nationally and
mainly in outlying towns that benefit from close proximity to transport
infrastructure. Expansion of the retail portfolio will be driven by tenant
demand in these growth nodes.
Capital structure
Fortress is listed on the Johannesburg Stock Exchange with two separately
listed shares. The A share (share code: FFA) has a preferential right to
distribution of income and to capital participation in the event of winding
up. The B share (share code: FFB) has entitlement to the residual
distributable income and capital participation on winding up.
Distributable earnings
The increase in the dividend for the interim period attributable to the
A share was 4,77%, being the lower of CPI or 5,00%, as data published
by Statistics South Africa indicated CPI to be 4,76% for the period.
Accordingly, the dividend for the A share increased from 67,96 cents
per share to 71,20 cents per share. The B share dividend increased by
14,61% from 78,59 cents per share to 90,07 cents per share for the
six months ended 31 December 2017 compared to the six months
ended 31 December 2016.
The logistics and retail portfolios performed in line with budget. The
office and industrial portfolios continued to operate in challenging
markets. The listed property securities maintained their strong earnings
growth and the dividend income from the offshore listed securities
benefited from attractive in-force hedged exchange rates.
Direct property portfolio
Logistics
Phase one of Louwlardia Logistics Park was successfully let to We Buy Cars.
Phase two of the park is nearing completion and this 34 025m2 facility is
let to Worldwide Automotive Group ("WAG") who will take occupation in
April 2018 at a projected yield of 9,5%. WAG has a fixed option to purchase
50% of the property within the first year of the lease. Construction of
phase three, a logistics warehouse measuring 17 715m2, has commenced and
lease negotiations, with a large multi-national tenant is at an advanced stage.
Westlake View phase one was successfully let to Bongani Rainmaker Logistics.
The construction of Westlake View phase two, a speculative logistics warehouse
measuring 23 569m2, has commenced. This building will have a height of
15 metres to the eaves in keeping with the group's commitment to deliver
internationally relevant standards to the South African market.
The development for C. Steinweg Bridge of a 30 354m2 logistics facility on
a 15-year lease was successfully completed with occupation taken in
October 2017. Fortress owns a 51% share in this development.
A 13 320m2 logistics facility at Union Park was completed in November
2017 and a 10-year lease agreement has been concluded with Voltex Electrical.
An agreement to sell a 50% undivided share in this logistics facility
has been concluded. Earthworks on phase two has commenced and a new
logistics warehouse measuring 21 958m2 is scheduled for completion
in February 2019.
Construction of warehouse one at Clairwood Logistics Park is underway
and completion of this 24 977m2 speculative facility is anticipated in
September 2018. Negotiations are at an advanced stage with a logistics
user for the leasing of this facility. Soil improvements have been
completed for warehouse three and the construction of its platform is
nearing completion. The soil improvements required for the construction
of warehouses two and seven are at an advanced stage and are nearing
completion.
At Cornubia Ridge Park (50,1% owned), the soil improvement and platform
development is progressing on schedule and in line with budget. Masstores
has committed to lease an 18 925m2 Makro retail facility on a 20-year
lease. Construction is planned to start in February 2018.
The development of the gatehouse at Eastport Logistics Park (65% owned)
started during January 2018. Fortress has concluded a 12-year lease
agreement for a 24 280m2 distribution facility for Savino Del Bene
("Savino"). The tenant has an option to purchase the building within
the first and third year of the lease. Construction of the Savino
logistics facility and an adjacent 21 835m2 speculative warehouse
has commenced.
Two warehouses are under construction at Montague Business Park (25%
owned) with a GLA of 4 957m2 and 3 002m2 respectively. The former has
been pre-let while the latter is being built on a speculative basis
for completion in April 2018.
Industrial
Fortress will continue to evaluate the industrial portfolio where the
buildings are of an older nature and where rental growth may be limited.
Several industrial buildings have been disposed of in line with the
group's strategy.
Retail
In addition to the successful Black Friday trade in November, December's
trade at Fortress' centres also showed pleasing density growth. Sales on
a 12-month rolling basis recorded growth of 6,9%. This trading density
growth includes the benefits derived from extensions and refurbishments
at various centres.
Weskus Mall welcomed a new 3 000m2 Pick n Pay store in November 2017 and
Edgars was relocated within the centre to a more prominent position. New
10-year leases were concluded with each of these tenants. Several additional
new lettings were concluded, including a new Pick n Pay Clothing store.
A new access road for Palm Springs Mall and a refurbishment of the
Shoprite entrance was completed in December 2017.
The clearing of the White River site for the construction of a new
convenience centre has been completed. Fortress has agreed to acquire
51% of this development. Construction of the 15 000m2 GLA centre will
commence on receipt of final council approval. This first phase will
include two food anchors and a national pharmacy chain.
Offices
The challenging conditions experienced in the office market are expected
to deteriorate further as demand remains weak and additional supply reaches
completion. In line with its strategy, the group continued to dispose of
its offices and a number of buildings were sold during the period. A
decision to open sectional title registers in larger office parks has
led to several sales being concluded. These sales remain subject to
council approval. Fortress currently owns 39 office buildings with a
combined value of R2,9 billion.
Fortress expects transfer of the site adjacent to the new Old Mutual
Sandton office during the year. This site has usable bulk of
approximately 42 000m2 and is strategically situated opposite the
Sandton Gautrain station entrance. Negotiations are underway for
the development of a mixed-use building comprising a hotel, convenience
retail and P-grade offices.
Other
The Prism in Rivonia (50,1% owned) is a residential development
consisting of 156 apartments measuring 10 164m2. This complex was
completed on time for occupation in November 2017. All the units have
been successfully let to Corporate Apartment Group ("CAG") on a
four-year lease agreement at an initial yield of 9,2%. CAG has leased
the entire complex to Huawei Technologies.
Property disposals
The following properties were sold during the period:
Net Book Exit
proceeds value Transfer yield
Property name Sector R'000 R'000 date %
West Street %
Sandton Office 273 000 350 000 Dec 2017 n/a
45 Richard Carte
Road Mobeni Logistics 110 000 104 100 Dec 2017 9,0
22 on Sloane
Bryanston Office 65 000 64 500 # @
87-91 Goodwood Road
Durban Logistics 49 000 42 100 Nov 2017 7,7
Rutherfords
Germiston Industrial 41 000 42 000 # @
Essex Street
Meadowdale Industrial 39 500 37 700 Oct 2017 9,4
204 Rivonia Road
Morningside * Office 28 842 24 000 Nov 2017 @
York Road Wynberg
Cape Town Industrial 17 750 17 600 Nov 2017 9,9
3 Capital Hill
Business Park
Midrand Industrial 12 000 10 700 # 8,7
Isando Business
Park * Logistics 10 500 10 500 Dec 2017 9,3
Chelsea Office Park
Rivonia (Block C) * Office 6 790 4 716 # @
28 Linbro Village
Linbro Park Industrial 5 265 4 750 Nov 2017 8,5
658 647 712 666
% The board resolved to dispose of West Street Sandton at a sale price below
the book value. The strategic decision to sell this office building was taken
considering the limited demand for the letting of B-grade offices in the
Sandton CBD.
* Portion of building sold.
@ Vacant occupation.
# Held for sale.
All properties held for sale at 30 June 2017 were transferred, except for
the Greenbushes sale which was cancelled.
Vacancies
Total vacancies at 31 December 2017 increased to 5,8% from 5,3% at
30 June 2017. The increase in the office vacancy is attributable to
weaker than expected demand as well as the sale of fully let offices.
Approximately 3 700m2 of existing retail GLA currently undergoing
refurbishment is included in the vacancy. A large logistics user vacated
Nurburg Road Raceway, contributing to the increase in the logistics vacancy.
Negotiations are underway to replace the tenant.
Property Property
portfolio portfolio Vacancy Vacancy
by value by value GLA GLA
Dec 2017* Jun 2017* Dec 2017 Jun 2017
Sector % % % %
Logistics 40,8 37,3 3,3 3,0
Retail 33,6 36,1 4,5 3,8
Offices 10,4 11,7 19,6 17,4
Industrial 13,1 13,1 6,5 6,4
Other 2,1 1,8 14,8 10,6
* Information based on Fortress' management accounts.
Listed portfolio
Dec 2017 Jun 2017
Number of Fair value Number of Fair value
Counter shares R'000 shares R'000
NEPI (NEP) $ & 59 154 000 9 787 621
Resilient (RES) 39 610 000 5 987 448 39 456 000 4 803 373
5 987 448 14 590 994
Greenbay (GRP) * 1 909 630 000 4 869 557 1 480 410 000 2 857 191
Rockcastle (ROC) * & 358 432 000 12 788 854
NEPI Rockcastle
(NRP) &* 139 850 000 29 867 765
Total 40 724 770 30 237 039
$ The deferred tax liability relating to the fair value adjustment on the NEPI
investment at 30 June 2017 was reversed as a result of the merger.
& In July 2017 NEPI and Rockcastle merged into a new company, NEPI Rockcastle
plc, which is listed on the JSE Limited and Euronext in Amsterdam.
* Fortress' interests in Greenbay, NEPI Rockcastle and Rockcastle were treated
as associates (equity accounted) and were not fair valued in the financial
statements. In July 2017 Fortress' investment in Rockcastle was sold as a
consequence of the merger, resulting in a profit on the sale of an interest
in an associate of R3,7 billion being recorded.
Fortress elected to receive scrip dividends on its investments in NEPI
Rockcastle and Greenbay during the six months ended 31 December 2017. In
order to facilitate future ring-fenced funding against NEPI Rockcastle and
Greenbay, Fortress transferred its investments in these inwardly-listed
companies to separate wholly-owned subsidiaries.
Broad-based black economic empowerment
The group is committed to complying with the Property Sector Charter. The
Charter was gazetted in June 2017 and Fortress continuously engages with the
Property Sector Charter Council. The group is exploring initiatives to continue
to improve its rating in terms of this charter. In line with shareholder
approval, Fortress provided financial assistance to The Siyakha 2 Education
Trust enabling it to acquire 9 281 603 Fortress A shares and 9 281 603
Fortress B shares at R16,48 per A share and R37,39 per B share on
19 October 2017.
Fortress does not guarantee third party finance provided to its BEE partners.
It does, however, provide subsidised mezzanine finance ranging between prime
and prime plus 2%. These loans offer no growth and are a drag on earnings in
the medium and long term. Siyakha's charitable activities include providing
bursaries, educational material, scientific laboratories and computer centres
to schools supporting previously disadvantaged communities.
At the annual general meeting held on 1 November 2017, shareholders approved
the provision of future financial assistance to BEE entities. The financial
assistance is on the basis that any loans advanced by the company to BEE
entities, for the acquisition of shares in the company, attract interest
at least equivalent to the dividends received and expected to be received on
such shares, plus an additional return at least equivalent to 49% of the
performance of such shares over the duration of the loans.
Funding and facilities
Fortress has accepted a new R500 million facility from Absa with a
tenure of five years and a R300 million facility that was due to expire
in August 2018, was refinanced and increased to R500 million with a tenure
of five years.
Fortress accepted a new seven-year facility of R500 million from Sanlam and
a new R400 million facility from LibFin with tenures of six years
(R150 million) and seven years (R250 million) respectively.
Standard Bank facilities totalling R897 million that were due to expire
in October 2017 and November 2017 were renewed and extended for five years.
An existing Standard Bank facility (1 July 2021) of R750 million was
extended by a further 17 months to 30 November 2022.
During the period Fortress raised a total of R700 million (five-years:
R500 million; six-months: R200 million) and repaid R242,5 million under
its Domestic Medium Term Note Programme.
Average
margin
Amount over Jibar
Facility expiry R'million %
Jun 2018 284 1,12
Jun 2019 4 837 1,65
Jun 2020 4 597 1,71
Jun 2021 3 716 1,80
Jun 2022 1 900 1,86
Jun 2023 4 428 1,77
Jun 2024 400 1,75
Jun 2025 750 1,85
Jun 2026 – –
Jun 2027 250 1,99
21 162 1,74
Interest rate derivatives
The following interest rate derivatives are in place in mitigation of
South African interest rate risk:
Average
Amount swap rate
Interest rate swap expiry R'million %
Jun 2019 100 7,71
Jun 2020 1 200 6,99
Jun 2021 700 8,16
Jun 2022 600 7,99
Jun 2023 300 7,79
Jun 2024 200 7,47
Jun 2025 100 7,78
3 200 7,59
Average
Amount cap rate
Interest rate cap expiry R'million %
Jun 2019 200 7,39
Jun 2020 200 7,52
Jun 2021 400 7,80
Jun 2022 400 7,76
Jun 2023 300 7,71
Jun 2024 400 7,98
Jun 2025 250 8,03
Jun 2026 250 8,13
Jun 2027 250 8,18
2 650 7,85
The all-in weighted average cost of funding of Fortress was 9,06% at
31 December 2017 and the average hedge term was 4,1 years.
The following interest rate derivatives are in place in mitigation of the
group's exposure to Euro interest rate risk:
Average
Amount cap rate
Interest rate cap expiry EUR'000 %
Jun 2022 146 900 0,36
Jun 2023 146 900 0,49
Jun 2024 79 900 0,33
Jun 2025 48 900 0,38
422 600 0,40
In total 80,2% of the exposure to Euro base rates was hedged and the average
hedge term was 5,1 years.
Offshore
listed in
South Africa South Africa
Exposure to variable interest rates '000 '000
Interest-bearing borrowings R17 163 461
Currency derivatives (R8 553 389) R8 553 389
Loans to BEE vehicles (R3 592 056)
Loans to co-owners (R435 910)
Cash and cash equivalents (R17 088)
Capital commitments contracted for R457 244
Capital commitments approved R1 233 192
R6 255 454 R8 553 389
Spot rate R16,23
Exposure EUR527 011
Total interest rate derivatives
(swaps/caps) R5 850 000 EUR422 600
Percentage hedged 93,5% 80,2%
Information based on Fortress' management accounts.
Currency derivatives
Balance sheet hedging
The board's policy is to use cross-currency swaps as a means of obtaining
funding in a currency similar to that of the foreign investments but
only to achieve a neutral effect on the first year's distribution. At
31 December 2017 cross-currency swaps totalled EUR527,011 million at an
exchange rate of R16,23 against investments of EUR2 338,5 million (Greenbay
and NEPI Rockcastle).
Income hedging
Foreign income is hedged in line with the following policy:
- Hedge 100% of the income projected to be received in the following
12 months;
- Hedge 67% of the income projected to be received in months 13 to 24;
and
- Hedge 33% of the projected income to be received in months 25 to 36.
In line with this policy the following hedges are currently in place:
NEPI
Greenbay Rockcastle
Forward rate against ZAR EUR EUR
Jun 2018 17,05 17,59
Dec 2018 17,18 17,46
Jun 2019 18,27 18,69
Dec 2019 18,22 18,08
Jun 2020 19,39 18,97
Dec 2020 19,35 19,05
At 31 December 2017, trade and other receivables included an amount of
R1,113 billion relating to the positive fair value adjustments on
currency derivatives.
Summary of financial performance
Dec 2017 Jun 2017 Dec 2016 Jun 2016
Dividend per
A share (cents) 71,20 67,67 67,96 64,45
Dividend per
B share (cents) 90,07 93,41 78,59 74,69
Shares in issue
at period end
- A 1 184 496 438 1 175 214 835 1 172 508 991 1 119 708 334
- B 1 086 114 294 1 076 832 691 1 067 026 847 1 014 226 190
Shares used
for dividend
per share
calculation
- A 1 184 496 438 1 175 214 835 1 165 408 991 1 112 608 334
- B 1 086 114 294 1 076 832 691 1 067 026 847 1 014 226 190
A shares held
in treasury - - 7 100 000 7 100 000
Management
accounts
information
Net asset
value per
A share * R17,39 R16,89 R16,32 R15,62
Net asset
value per
B share R35,08 R26,75 R24,73 R25,73
Loan-to-value
ratio ** 22,9% 22,8% 25,2% 23,8%
Net property
expense ratio 18,3% 14,9% 19,5% 16,8%
Gross property
expense ratio 35,4% 34,9% 36,2% 33,6%
Net total
expense ratio 13,8% 12,4% 15,8% 15,6%
Gross total
expense ratio 26,1% 26,5% 28,0% 28,1%
IFRS
accounting
Net asset value
per A share * R17,39 R16,89 R16,32 R15,62
Net asset value
per B share R28,85 R23,43 R22,83 R23,22
* 60-day volume-weighted average traded price at reporting date limited
to combined net asset value.
** The loan-to-value ratio is calculated by dividing total interest-
bearing borrowings adjusted for cash on hand by the total of investments
in property, listed securities and loans advanced.
Prospects
The core logistics and retail portfolio, which constitutes 74% of the value
of the direct real estate portfolio, continues to provide sustained growth
in a weak South African macro-economic environment. The group's strategically
located land will ensure a pipeline for the development of technically
superior logistics facilities.
The office portfolio, however, continues to be an area of concern and the
persistent vacancies and weak office demand will have an impact on
distributions going forward.
On the assumption that the A share dividend will increase by 5,00%, the
board anticipates that the B share dividend will increase by approximately
15% for the 2018 financial year and by approximately 11% for the 2019
financial year. The growth is based on the assumptions that there is no
deterioration of the macro-economic environment, that no major corporate
failures will occur and that tenants will be able to absorb the recovery
of rising utility costs and municipal rates. Budgeted rental income was
based on contractual escalations and market-related renewals. This
forecast has not been audited, reviewed or reported on by Fortress'
auditors.
By order of the board
Mark Stevens Rual Bornman
Managing director Financial director
Johannesburg
2 February 2018
Condensed consolidated statement of financial position
Unaudited Audited Unaudited
Dec 2017 Jun 2017 Dec 2016
R'000 R'000 R'000
Assets
Non-current assets 68 093 254 60 144 415 58 007 204
Investment property 24 859 768 24 848 981 25 084 162
Straight-lining of rental
revenue adjustment 423 165 364 862 333 220
Investment property under
development 3 740 896 3 282 103 2 565 181
Investment in and loans
to associates and joint
venture 28 775 930 12 860 576 12 540 793
Investments 5 987 448 14 590 994 13 716 331
Fortress Share Purchase
Trust loans 713 991 764 254 1 052 393
Loans to BEE vehicles 3 592 056 3 432 645 2 715 124
Current assets 1 878 619 1 921 566 1 718 930
Investment property held
for sale 124 618 990 409 232 262
Straight-lining of rental
revenue adjustment 172 11 801 238
Fortress Share Purchase
Trust loans 19 749 22 344 18 747
Trade and other receivables 1 716 944 881 242 1 193 673
Hammerson equity derivative - - 253 894
Cash and cash equivalents 17 136 15 770 20 116
Total assets 69 971 873 62 065 981 59 726 134
Equity and liabilities
Total equity attributable
to equity holders 51 930 548 45 074 462 43 380 827
Stated capital 45 571 944 45 072 151 44 677 185
Treasury shares - - (104 827)
Currency translation
reserve 5 856 (134 149) (96 815)
Reserves 6 352 748 136 460 (1 094 716)
Non-controlling interests 35 503 38 101 30 053
Total equity 51 966 051 45 112 563 43 410 880
Total liabilities 18 005 822 16 953 418 16 315 254
Non-current liabilities 16 043 512 14 951 626 13 111 706
Interest-bearing borrowings 15 836 757 13 804 864 11 831 595
Deferred tax 206 755 1 146 762 1 280 111
Current liabilities 1 962 310 2 001 792 3 203 548
Trade and other payables 591 994 1 001 482 535 848
Interest-bearing borrowings 1 370 316 1 000 310 2 667 700
Total equity and
liabilities 69 971 873 62 065 981 59 726 134
Condensed consolidated statement of comprehensive income
Unaudited Audited Unaudited
for the six for the for the six
months ended year ended months ended
Dec 2017 Jun 2017 Dec 2016
R'000 R'000 R'000
Net rental and related
revenue 1 117 736 2 181 722 1 057 078
Recoveries and contractual
rental revenue 1 653 591 3 204 670 1 577 915
Straight-lining of rental
revenue adjustment 46 674 92 245 49 040
Rental revenue 1 700 265 3 296 915 1 626 955
Property operating expenses (582 529) (1 115 193) (569 877)
Income from investments 203 741 740 734 281 419
Fair value gain/(loss) on
investment property,
investments and currency
derivatives 1 637 478 1 314 302 (193 867)
Fair value (loss)/gain on
investment property (62 289) 856 542 34 272
Adjustment resulting
from straight-lining
of rental revenue (46 674) (92 245) (49 040)
Fair value gain/(loss)
on investments 1 850 842 (223 138) (994 963)
Fair value (loss)/gain on (104 401) 773 143 815 864
currency derivatives
Administrative expenses (48 459) (122 694) (60 024)
Impairment of goodwill on
Lodestone merger - (1 707) (1 707)
Profit on sale of interest
in associate 3 706 415 - -
Income from associates
and joint venture 531 057 640 113 855 833
- distributable 638 129 634 467 288 344
- non-distributable (107 072) 5 646 567 489
Profit before net finance
costs 7 147 968 4 752 470 1 938 732
Net finance costs (73 147) (262 124) (184 851)
Finance income 547 758 972 593 446 058
Interest received on loans 263 341 438 312 184 965
Interest received on
cross-currency swaps 284 417 534 281 261 093
Finance costs (620 905) (1 234 717) (630 909)
Interest on borrowings (739 709) (1 398 418) (672 301)
Capitalised interest 164 201 222 292 91 496
Fair value adjustment on
interest rate derivatives (45 397) (58 591) (50 104)
Profit before income tax 7 074 821 4 490 346 1 753 881
Income tax 940 006 (64 063) (197 410)
Profit for the period 8 014 827 4 426 283 1 556 471
Other comprehensive
profit/(loss) net of tax
Items that may subsequently
be reclassified to profit
or loss:
Exchange differences realised
on translation of
associates 134 200 - -
Exchange differences on
translation of associates 5 805 (100 074) (62 740)
Total comprehensive income
for the period 8 154 832 4 326 209 1 493 731
Profit for the period
attributable to:
Equity holders of the
company 8 017 425 4 420 054 1 558 290
Non-controlling interests (2 598) 6 229 (1 819)
8 014 827 4 426 283 1 556 471
Total comprehensive income
for the period
attributable to:
Equity holders of the
company 8 157 430 4 319 980 1 495 550
Non-controlling interests (2 598) 6 229 (1 819)
8 154 832 4 326 209 1 493 731
Basic earnings per
A share (cents) 354,83 201,93 72,74
Basic earnings per
B share (cents) 354,83 201,93 72,74
Condensed consolidated statement of changes in equity
Currency
trans-
Stated Treasury lation
capital shares reserve Reserves
Unaudited R'000 R'0000 R'000 R'000
Balance at Jun 2016 42 241 795 (104 827) (34 075) (1 178 404)
Issue of shares
(equal number of
A and B shares) 2 435 390
Non-controlling
interests on
Lodestone merger
Total comprehensive
income/(loss) for
the period 1 558 290
Exchange differences
on translation of
associates (62 740)
Dividends paid (1 474 602)
Balance at Dec 2016 44 677 185 (104 827) (96 815) (1 094 716)
Issue of shares
(equal number of
A and B shares) 499 793
Total comprehensive
income for the period 2 861 764
Cancellation of
treasury shares (104 827) 104 827
Exchange differences
on translation of
associates (37 334)
Dividends paid (1 630 588)
Balance at Jun 2017 45 072 151 - (134 149) 136 460
Issue of 9 281 603
A and B shares each
on 19 October 2017 499 793
Total comprehensive
income/(loss) for
the period 8 017 425
Exchange differences
realised on translation
of associates 134 200
Exchange differences on
translation of
associates 5 805
Dividends paid (1 801 137)
Balance at Dec 2017 45 571 944 - 5 856 6 352 748
Equity
attributable Non-
to equity controlling Total
holders interest equity
Unaudited R'000 R'000 R'000
Balance at Jun 2016 40 924 489 40 924 489
Issue of shares
(equal number of
A and B shares) 2 435 390 2 435 390
Non-controlling
interests on
Lodestone merger 31 872 31 872
Total comprehensive
income/(loss) for
the period 1 558 290 (1 819) 1 556 471
Exchange differences
on translation of
associates (62 740) (62 740)
Dividends paid (1 474 602) (1 474 602)
Balance at Dec 2016 43 380 827 30 053 43 410 880
Issue of shares (equal
number of A and
B shares) 499 793 499 793
Total comprehensive
income for the period 2 861 764 8 048 2 869 812
Cancellation of
treasury shares - -
Exchange differences
on translation of
associates (37 334) (37 334)
Dividends paid (1 630 588) (1 630 588)
Balance at Jun 2017 45 074 462 38 101 45 112 563
Issue of 9 281 603
A and B shares each on
19 October 2017 499 793 499 793
Total comprehensive
income/(loss) for
the period 8 017 425 (2 598) 8 014 827
Exchange differences
realised on translation
of associates 134 200 134 200
Exchange differences
on translation of
associates 5 805 5 805
Dividends paid (1 801 137) (1 801 137)
Balance at Dec 2017 51 930 548 35 503 51 966 051
Condensed consolidated statement of cash flows
Unaudited Audited Unaudited
for the six for the for the six
months ended year ended months ended
Dec 2017 Jun 2017 Dec 2016
R'000 R'000 R'000
Operating activities
Cash generated from
operations 1 218 464 2 375 529 1 342 789
Interest received on loans 263 341 438 312 184 965
Interest received on
cross-currency swaps 284 417 534 281 261 093
Interest on borrowings (739 709) (1 398 418) (672 301)
Dividends paid (1 801 137) (3 105 190) (1 474 602)
Cash outflow from
operating activities (774 624) (1 155 486) (358 056)
Investing activities
Development and improvement
of investment property (784 359) (1 031 231) (516 082)
Acquisition of investment
property (238 899) (907 201) (259 398)
Disposal of investment
property 1 457 367 1 471 189 656 789
Increase of interest in
and loans advanced to
associates and joint
venture (1 095 554) (1 423 636) (31 727)
Share Purchase Trust
loans advanced - (335 199) (512 500)
Share Purchase Trust
loans repaid 52 858 675 088 567 847
Investment property and
related assets and
liabilities acquired
not included in
additions to investment
property or
financing activities - 2 927 2 927
Cash flow on currency
derivatives (1 338 223) 1 263 422 218 895
Cash flow on Hammerson
equity derivative - 278 349 (103 005)
Acquisition of investments (19 481) (759 234) (1 494 206)
Co-owner loans repaid - 169 029 169 029
Loans advanced to BEE
vehicles (159 411) (1 336 851) (619 330)
Cash outflow from
investing activities (2 125 702) (1 933 348) (1 920 761)
Financing activities
Increase in interest-
bearing borrowings 2 401 899 1 760 086 1 454 207
Raising of share capital 499 793 1 334 617 834 825
Cash inflow from financing
activities 2 901 692 3 094 703 2 289 032
Increase in cash and cash
equivalents 1 366 5 869 10 215
Cash and cash equivalents
at the beginning of the
period 15 770 9 901 9 901
Cash and cash equivalents
at the end of the period 17 136 15 770 20 116
Cash and cash equivalents
consist of:
Current accounts 17 136 15 770 20 116
The net cash outflow from operating activities results mainly from the
group distributing scrip dividends received (R606,583 million), the
antecedent dividend adjustment (R8,957 million), dividends accrued for
but not yet received (R26,654 million negative), capitalised interest
(R164,201 million), as well as arrears of R47,085 million collected after
the early close-off by property managers in December 2017.
Notes
1. Preparation and accounting policies
The condensed unaudited consolidated interim financial statements have
been prepared in accordance with and contains the information required
by IAS 34: Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial
Reporting Pronouncements as issued by the Financial Reporting Standards
Council, the JSE Limited Listings Requirements and the requirements of
the Companies Act of South Africa. This report complies with the SA REIT
Association Best Practice Recommendations. This report was compiled
under the supervision of Rual Bornman CA(SA), the financial director.
The accounting policies applied in the preparation of the condensed
interim financial statements are consistent with the accounting policies
applied in the preparation of the previous consolidated financial
statements, with the exception of the adoption of new and revised standards
which became effective during the period.
The group's investment properties are valued internally by the directors
at interim reporting periods and externally by an independent valuer for
year-end reporting. In terms of IAS 40: Investment Property and IFRS 7:
Financial Instruments: Disclosure, investment properties are measured
at fair value and are categorised as level 3 investments.
The revaluation of investment property requires judgement in the
determination of future cash flows from leases and an appropriate
capitalisation rate which varies between 7,50% and 15,50%.
Changes in the capitalisation rate attributable to changes in market
conditions can have a significant impact on property valuations. A 25
basis points increase in the capitalisation rate will decrease the
value of investment property by R677,9 million. A 25 basis points
decrease in the capitalisation rate will increase the value of
investment property by R716,5 million.
In terms of IAS 39: Financial Instruments: Recognition and measurement
and IFRS 7, the group's currency and interest rate derivatives are
measured at fair value through profit or loss and are categorised as
level 2 investments. In terms of IAS 39, investments are measured at
fair value being the quoted closing price at the reporting date and
are categorised as level 1 investments.
There were no transfers between levels 1, 2 and 3 during the period.
The valuation methods applied are consistent with those applied in
preparing the previous consolidated financial statements.
The directors are not aware of any matters or circumstances arising
subsequent to 31 December 2017 that require any additional disclosure
or adjustment to the financial statements. At the date of this
announcement, having revalued the listed portfolio to current market
prices and without making adjustments to investment property, the
net asset value of a Fortress A share is R17,54 (60-day volume-weighted
average traded price limited to combined net asset value) and the
net asset value of a Fortress B share is R22,27 and the loan-to-value
ratio is 28,0%.
The condensed interim financial statements have not been audited or
reviewed by Fortress' auditors.
2. Lease expiry profile
Based on
Based on contractual
rentable area rentable revenue
% %
Vacant 5,8
Jun 2018 14,6 13,6
Jun 2019 22,7 21,6
Jun 2020 15,7 17,8
Jun 2021 11,9 14,2
Jun 2022 6,1 8,8
> Jun 2022 23,2 24,0
100,0 100,0
3. Segmental analysis
Unaudited Audited Unaudited
for the six for the for the six
months ended year ended months ended
Dec 2017 Jun 2017 Dec 2016
R'000 R'000 R'000
Segmental revenue
- rental revenue
Logistics 536 191 1 345 816 661 538
Industrial 297 671 197 686 61 505
Offices 210 183 491 743 254 876
Retail 626 546 1 203 854 584 304
Other 29 674 57 816 64 732
Total 1 700 265 3 296 915 1 626 955
Profit for the period
Logistics 370 014 1 288 746 480 150
Industrial 173 998 183 022 31 129
Offices 64 322 229 998 161 413
Retail 410 647 1 275 658 356 668
Other 21 339 51 644 12 950
Corporate 6 974 507 1 397 215 514 161
Total 8 014 827 4 426 283 1 556 471
Total assets
Logistics 12 277 347 11 585 403 10 175 119
Industrial 3 978 773 3 957 574 3 606 347
Offices 3 148 460 3 547 279 4 510 070
Retail 10 156 292 10 852 993 9 669 784
Other 689 956 671 314 456 694
Corporate 39 721 045 31 451 418 31 308 120
Total 69 971 873 62 065 981 59 726 134
Reconciliation of profit
for the period to
dividend declared
Profit for the period 8 014 827 4 426 283 1 556 471
Fair value loss/(gain) on
investment property 62 289 (856 542) (34 272)
Fair value (gain)/loss on
investments (1 850 842) 223 138 994 963
Fair value loss/(gain) on
currency derivatives 104 401 (773 143) (815 864)
Impairment of goodwill on
Lodestone merger - 1 707 1 707
Profit on sale of
interest in
associate (3 706 415) -
Non-distributable
loss/(income)
from associates and
joint venture 107 072 (5 646) (567 489)
Fair value adjustment on
interest rate derivatives 45 397 58 591 50 104
Income tax (940 006) 64 063 197 410
Non-controlling interests 2 598 3 348 1 819
Antecedent dividend 8 957 116 652* 104 095*
Dividends accrued (26 654) 173 274 141 644
Amount available for
distribution under best
practice 1 821 624 3 431 725 1 630 588
Interim dividend declared
- A shares (Dec 2016 net
of treasury shares) (843 361) (792 012) (792 012)
- B shares (978 263) (838 576) (838 576)
Final dividend declared
- A shares (795 268)
- B shares (1 005 869)
- - -
* The antecedent dividend includes eight months' performance of Lodestone
prior to 1 December 2016.
The methodology applied in calculating the dividend is consistent with
that of the prior periods.
Headline earnings
Unaudited Audited Unaudited
for the six for the for the six
months ended year ended months ended
Dec 2017 Jun 2017 Dec 2016
R'000 R'000 R'000
Basic earnings - profit
for the period attributable
to equity holders 8 017 425 4 420 054 1 558 290
Adjusted for: (3 590 414) (791 029) 16 301
- fair value loss/(gain)
on investment property 108 963 (764 297) 14 768
- profit on sale of
interest in associate (3 706 415) - -
- fair value gain on
investment property
of associates and
joint venture - (23 720) -
- impairment of goodwill
on Lodestone merger - 1 707 1 707
- income tax effect 7 038 (4 719) (174)
Headline earnings 4 427 011 3 629 025 1 574 591
Headline earnings per
A share (cents) 195,93 165,79 73,50
Headline earnings per
B share (cents) 195,93 165,79 73,50
Diluted earnings per share and diluted headline earnings per share are
the same as basic earnings per share and headline earnings per share as
there are no dilutionary instruments in issue.
Basic earnings per share and headline earnings per share are based on
the following weighted average shares in issue during the period:
Dec 2017 Jun 2017 Dec 2016
- A share 1 178 947 654 1 143 654 442 1 120 282 759
- B share 1 080 565 510 1 045 272 298 1 021 900 615
4. Payment of interim dividends
The board has approved and notice is hereby given of interim dividends
of 71,20000 cents per A share and 90,07000 cents per B share for the six
months ended 31 December 2017. The dividends are payable to Fortress
shareholders in accordance with the timetable set out below:
Last date to trade cum dividend Tuesday, 6 March 2018
Shares trade ex dividend Wednesday, 7 March 2018
Record date Friday, 9 March 2018
Payment date Monday, 12 March 2018
Share certificates may not be dematerialised or rematerialised between
Wednesday, 7 March 2018 and Friday, 9 March 2018, both days inclusive.
In respect of dematerialised shareholders, the dividend will be
transferred to the CSDP accounts/broker accounts on Monday, 12 March
2018. Certificated shareholders' dividend payments will be deposited on
or about Monday, 12 March 2018. An announcement informing shareholders
of the tax treatment of the dividend will be released separately on SENS.
Management accounts
Basis of preparation
In order to provide information of relevance to investors these
management accounts, which comprise financial information extracted
from the unaudited interim financial statements for the six months
ended 31 December 2017, have been prepared and are presented below to
provide users with the position:
- Had the group's interest in Arbour Town, an associate, accounted for
using the equity method for IFRS, been proportionately consolidated.
- Had the group's listed investments in Greenbay and NEPI Rockcastle that
were accounted for using the equity method for IFRS, been fair valued.
- Had the group's interest in Mantraweb Investments, a joint venture,
accounted for using the equity method for IFRS, been proportionately
consolidated.
- Had the group accounted for its share of the assets, liabilities and
results of partially-owned subsidiaries (Araxia, Bridge and Cornubia)
on a proportionately consolidated basis instead of consolidating it.
The pro forma financial information (management accounts) has been
prepared in terms of the JSE Listings Requirements and the SAICA Guide
on pro forma financial information.
This pro forma financial information has not been reviewed or reported
on by Fortress' auditors.
Directors' responsibility statement
The preparation of the management accounts is the sole responsibility of
the directors and have been prepared on the basis stated, for illustrative
purposes only, to show the impact on the condensed consolidated statement
of financial position and the condensed consolidated statement of
comprehensive income. Due to their nature the management accounts may not
fairly present the financial position and results of the group in terms
of IFRS.
Condensed consolidated statement of financial position
Adj 2
Fair value
Adj 1 accounting
Proportionate for
consolidation investments
of in Greenbay
investment in and NEPI
IFRS Arbour Town Rockcastle
Dec 2017 Dec 2017 Dec 2017
R'000 R'000 R'000
Assets
Non-current assets 68 093 254 362 6 766 677
Investment property 24 859 768 621 953
Straight-lining of rental
revenue adjustment 423 165 12 133
Investment property under
development 3 740 896
Investment in and loans
to associates and joint
venture 28 775 930 (633 724) (27 970 645)
Investments 5 987 448 34 737 322
Fortress Share Purchase
Trust loans 713 991
Loans to BEE vehicles 3 592 056
Loans to co-owners -
Current assets 1 878 619 4 288 -
Investment property held
for sale 124 618
Straight-lining of rental
revenue adjustment 172
Fortress Share Purchase
Trust loans 19 749
Trade and other
receivables 1 716 944 3 411
Cash and cash equivalents 17 136 877
Total assets 69 971 873 4 650 6 766 677
Equity and liabilities
Total equity attributable
to equity holders 51 930 548 - 6 766 677
Stated capital 45 571 944
Currency translation
reserve 5 856
Reserves 6 352 748 6 766 677
Non-controlling interests 35 503
Total equity 51 966 051 – 6 766 677
Total liabilities 18 005 822 4 650 -
Non-current liabilities 16 043 512 - -
Interest-bearing
borrowings 15 836 757
Deferred tax 206 755
Current liabilities 1 962 310 4 650 -
Trade and other payables 591 994 4 650
Interest-bearing
borrowings 1 370 316
Total equity and
liabilities 69 971 873 4 650 6 766 677
Adj 4
Adj 3 Proportionate
Proportionate consolidation
consolidation of partially-
of investment owned Management
in Mantraweb subsidiaries accounts
Dec 2017 Dec 2017 Dec 2017
R'000 R'000 R'000
Assets
Non-current assets (545) (76 787) 74 782 961
Investment property 124 523 (252 661) 25 353 583
Straight-lining of rental
revenue adjustment (7 296) 428 002
Investment property under
development (206 247) 3 534 649
Investment in and loans
to associates and joint
venture (171 561) -
Investments 40 724 770
Fortress Share Purchase
Trust loans 713 991
Loans to BEE vehicles 3 592 056
Loans to co-owners 46 493 389 417 435 910
Current assets 711 (3 262) 1 880 356
Investment property held
for sale 124 618
Straight-lining of rental
revenue adjustment 172
Fortress Share Purchase
Trust loans 19 749
Trade and other
receivables 656 (2 282) 1 718 729
Cash and cash equivalents 55 (980) 17 088
Total assets 166 (80 049) 76 663 317
Equity and liabilities
Total equity attributable
to equity holders - - 58 697 225
Stated capital 45 571 944
Currency translation
reserve 5 856
Reserves 13 119 425
Non-controlling interests (35 503) -
Total equity - (35 503) 58 697 225
Total liabilities 166 (44 546) 17 966 092
Non-current liabilities - (43 612) 15 999 900
Interest-bearing
borrowings (43 612) 15 793 145
Deferred tax 206 755
Current liabilities 166 (934) 1 966 192
Trade and other payables 166 (934) 595 876
Interest-bearing
borrowings 1 370 316
Total equity and
liabilities 166 (80 049) 76 663 317
Condensed consolidated statement of comprehensive income
Adj 2
Fair value
Adj 1 accounting
Proportionate for
consolidation investments
of in Greenbay
investment in and NEPI
IFRS Arbour Town Rockcastle
for the six for the six for the six
months ended months ended months ended
Dec 2017 Dec 2017 Dec 2017
Income statement R'000 R'000 R'000
Net rental and related
revenue 1 117 736 23 451 -
Recoveries and contractual
rental revenue 1 653 591 38 354
Straight-lining of rental
revenue adjustment 46 674 908
Rental revenue 1 700 265 39 262 -
Property operating
expenses (582 529) (15 811)
Income from investments 203 741 606 583
Fair value gain on investment
property, investments
and currency
derivatives 1 637 478 (908) 10 366 020
Fair value loss on
investment property (62 289)
Adjustment resulting
from straight-lining
of rental revenue (46 674) (908)
Fair value gain on
investments 1 850 842 10 366 020
Fair value loss on
currency derivatives (104 401)
Administrative expenses (48 459) (32)
Profit on sale of interest
in associate 3 706 415 (3 706 415)
Income/(loss) from
associates and joint
venture 531 057 (22 566) (499 511)
- distributable 638 129 (22 566) (606 583)
- non-distributable (107 072) - 107 072
Profit/(loss) before
net finance costs 7 147 968 (55) 6 766 677
Net finance (costs)/income (73 147) 55 -
Finance income 547 758 55 -
Interest received on loans 263 341 55
Interest received on
cross-currency swaps 284 417
Finance costs (620 905) - -
Interest on borrowings (739 709)
Capitalised interest 164 201
Fair value adjustment on
interest rate derivatives (45 397)
Profit before income tax 7 074 821 - 6 766 677
Income tax 940 006
Profit for the period 8 014 827 - 6 766 677
Profit for the period
attributable to:
Equity holders of the
company 8 017 425 - 6 766 677
Non-controlling interests (2 598)
Total comprehensive income
for the period 8 014 827 - 6 766 677
Adj 4
Adj 3 Proportionate
Proportionate consolidation
consolidation of partially-
of investment owned Management
in Mantraweb subsidiaries accounts
for the six for the six for the six
months ended months ended months ended
Dec 2017 Dec 2017 Dec 2017
Income statement R'000 R'000 R'000
Net rental and related
revenue 6 659 (9 303) 1 138 543
Recoveries and contractual
rental revenue 8 276 (6 025) 1 694 196
Straight-lining of rental
revenue adjustment - (4 282) 43 300
Rental revenue 8 276 (10 307) 1 737 496
Property operating
expenses (1 617) 1 004 (598 953)
Income from investments 810 324
Fair value gain on
investment property,
investments and currency
derivatives - 4 282 12 006 872
Fair value loss on
investment property (62 289)
Adjustment resulting from
straight-lining of rental
revenue 4 282 (43 300)
Fair value gain on
investments 12 216 862
Fair value loss on
currency derivatives (104 401)
Administrative expenses (52) 18 (48 525)
Profit on sale of interest
in associate -
Income/(loss) from
associates and joint
venture (8 980) - -
- distributable (8 980) -
- non-distributable - -
Profit/(loss) before net
finance costs (2 373) (5 003) 13 907 214
Net finance (costs)/income 2 373 7 601 (63 118)
Finance income (4 020) (31) 543 762
Interest received on loans (4 020) (31) 259 345
Interest received on
cross-currency swaps 284 417
Finance costs 6 393 7 632 (606 880)
Interest on borrowings 6 393 19 447 (713 869)
Capitalised interest (11 815) 152 386
Fair value adjustment on
interest rate derivatives (45 397)
Profit before income tax - 2 598 13 844 096
Income tax - 940 006
Profit for the period - 2 598 14 784 102
Profit for the period
attributable to:
Equity holders of the
company - - 14 784 102
Non-controlling interests 2 598 -
Total comprehensive income
for the period - 2 598 14 784 102
Adj 1 - This adjustment proportionately consolidates the indirect investment
in The Galleria and Arbour Crossing that are held through Arbour Town
(Fortress has a 25% interest), previously accounted for using the equity
method. It effectively discloses the group's interest in the assets,
liabilities and results of operations from this investment by disclosing
the consolidated management accounts for the six months ended 31 December
2017 on a line-by-line basis. Fortress is satisfied with the quality of
the financial information contained in the management accounts of
Arbour Town.
Adj 2 - The investments in Greenbay and NEPI Rockcastle are reflected at
their respective fair values by multiplying the 1 909 630 000 and
139 850 000 shares held respectively by their quoted closing prices at
31 December 2017. All entries relating to accounting for these investments
using the equity method are reversed. This more accurately reflects the
group's assets and liabilities.
Adj 3 - This adjustment proportionately consolidates the indirect
investment in Mthatha Residential that is held through Mantraweb
Investments (Fortress has a 60% interest), accounted for using the equity
method. It effectively discloses the group's interest in the assets,
liabilities and results of operations from this investment by disclosing
the consolidated management accounts for the six months ended
31 December 2017 on a line-by-line basis. Fortress is satisfied with the
quality of the financial information contained in the management accounts
of Mantraweb.
Adj 4 - This adjustment proportionately consolidates the indirect investments
in partially-owned subsidiaries (the indirect investments in Araxia, Bridge
and Cornubia) previously consolidated. It uses the management accounts for
the six months ended 31 December 2017 of Araxia, Bridge and Cornubia to
reverse the non-controlling interests to reflect the group's interest in
the assets, liabilities and results of operations from these investments.
Directors:
Iraj Abedian (chairman); Jeff Zidel (deputy chairman); Mark Stevens*;
Rual Bornman*; Kura Chihota; Vuso Majija*; Tshiamo Matlapeng-Vilakazi;
Bongiwe Njobe; Jan Potgieter; Fareed Wania* (alternate: Steven Brown*);
Banus van der Walt; Djurk Venter
(*executive director)
Changes to the board of directors: Effective 1 November 2017,
Andrew Teixeira retired as an executive director of Fortress at the
annual general meeting in accordance with the provisions of
clause 25.12 of the company's memorandum of incorporation.
Company secretary: Tamlyn Stevens
Registered address:
3rd Floor Rivonia Village, Rivonia Boulevard, Rivonia, 2191.
PO Box 138, Rivonia, 2128
Transfer secretaries:
Link Market Services South Africa Proprietary Limited,
13th Floor, 19 Ameshoff Street, Braamfontein, 2001.
PO Box 4844, Johannesburg, 2000
Sponsor:
Java Capital,
2nd Floor, 6A Sandown Valley Crescent, Sandton, 2196, Johannesburg.
PO Box 2087, Parklands, 2121
www.fortressfund.co.za
Date: 02/02/2018 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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