Wrap Text
Trading and pre-close operational update
FORTRESS REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA ISIN: ZAE000248498
FFB ISIN: ZAE000248506
Bond company code: FORI
LEI: 378900FE98E30F24D975
(Approved as a REIT by the JSE)
("Fortress" or "the Company")
TRADING AND PRE-CLOSE OPERATIONAL UPDATE
Shareholders and noteholders are referred to the interim results announcement for the six months ended
31 December 2021, released on SENS on 10 March 2022. We hereby provide an update on Fortress' operations for the
period post 31 December 2021.
Logistics and logistics developments
Vacancies in our logistics portfolio have reduced to 1,8% at 31 May 2022 from 2,6% at 31 December 2021 given
continued demand from tenants for well-located, prime logistics warehouses. Our logistics developments under
construction have remained unchanged since previously reported and we have agreed terms with two new tenants.
RB Logistics will occupy 10 018m² (Pocket 3B) at Clairwood Logistics Park for five years from completion of the
development and Farutex will occupy 2 160m² in Hall E in Bydgoszcz, Poland, also for a five-year term from
completion. Construction of the 164 470m2 Pick n Pay distribution facility at Eastport Logistics Park is progressing well
and is on schedule for completion in the fourth quarter of our 2023 financial year. Tenant interest in our current pipeline
remains robust and we are optimistic regarding letting current speculative developments prior to completion.
There has been notable construction cost inflation over the past six months, which may lead to lower than previously
anticipated net initial yields on new developments where increased costs cannot be recovered in the form of higher
rentals. However, the cost of our recently completed developments is now materially below replacement cost at current
market prices for similar buildings. Our largest development, Pick n Pay at Eastport Logistics Park, is less exposed to
higher costs due to pre-agreed pricing on all material contracts and the rental based on an agreed yield on total cost.
Retail
For the 12-month period ended 30 April 2022, compared to the corresponding prior period, tenant turnover figures in
our retail portfolio have increased by 8,4% on a like-for-like basis. These figures exclude the buildings which suffered
fire damage during the July 2021 civil unrest.
We believe that our portfolio of retail assets which is focussed on essential goods and services in convenient locations
and commuter nodes is well placed in the current macroeconomic environment. There is strong tenant demand for
additional space in well performing centres and our vacancies have remained at 3,7%.
Vacancies
Total vacancies, measured as a percentage of gross lettable area ("GLA"), decreased from 6,5% at 31 December 2021 to 5,5%
at 31 May 2022.
Based on GLA
Dec 2021 May 2022
% %
Logistics – SA 2,6 1,8
Retail 3,7 3,7
Industrial 10,7 6,9
Office 29,1 29,4
Other^ 3,5 4,3
Logistics – CEE* 0,2 8,4
Total portfolio vacancy 6,5 5,5
Information based on management accounts.
^ Includes a hotel, residential units and serviced apartment properties.
* Central and Eastern Europe ("CEE") logistics vacancies increased due to the completion of a new building at
Stargard, Poland. The building was 60% pre-let and was recently completed.
The industrial portfolio vacancy has decreased as a result of shorter-term leases being concluded, with demand evident
for smaller units in our industrial parks and successful disposals, as detailed in the section on direct property disposals.
In collaboration with Inospace, we have transferred 12 properties from Fortress and 10 from Inospace, with a combined
value of R1,2 billion, into a new entity and look forward to a successful and innovative partnership.
The office portfolio remains part of the non-core, direct property portfolio and represents only c. 4,5% of our total assets
by value. Approximately 8 000m2 of the 29,4% vacancy relates to a property that is under due diligence and rezoning for
a potential residential conversion by the prospective purchaser.
Direct property disposals
We continue to successfully dispose of non-core properties. Total disposals to date for the financial year ending
30 June 2022 ("FY2022") are R531 million in net proceeds at a combined profit to book value of R25,8 million. The
following properties have transferred since 30 June 2021:
Book value
Net proceeds June 2021
Property name Sector (R'000) (R'000) Transfer date
3 & 6 Cedarfield Close Springfield Park Logistics 108 000 108 000 Sep 2021
Harries Street Germiston Industrial 64 000 51 340 Apr 2022
47 Jeffels Road Prospecton ^ Logistics 54 400 55 000 Jan 2022
Cambridge Motor Paulshof Other - Motor dealership 47 900 44 000 Dec 2021
James Crescent Midrand Industrial 37 450 37 330 Dec 2021
4 6th St Wynberg ^ Industrial 27 600 27 230 Feb 2022
12 Stockwell Road Pinetown ^ Logistics 23 877 20 400 Jan 2022
286 Sixteenth Road Logistics 21 500 21 500 Aug 2021
56 Kelly Road Jet Park Industrial 19 600 16 500 Nov 2021
Latei Street Isando ^ Industrial 15 600 14 250 Jan 2022
Rudo Nel Jet Park (Erf 84 Hughes Ext 10 only) Industrial 14 000 13 000 May 2022
Lakeview Business Park (no 15) Industrial 13 200 10 850 Nov 2021
Highveld Technopark Office 13 100 14 500 May 2022
19 Spartan Road Industrial 13 000 12 980 Nov 2021
Unit 5 Northlands Décor Park Industrial 13 000 12 710 May 2022
Selby Mini Units ^ Industrial 10 525 12 200 May 2022
64 Kelly Road Jet Park Industrial 9 800 9 090 Nov 2021
Director Road Spartan ^ Industrial 8 150 8 230 Mar 2022
Bevan Road Roodekop (vacant land only) Land 8 070 8 100 Sep 2021
City Deep Production Park Industrial 5 000 5 000 Oct 2021
London Lane (Erf 129 Park Central only) Industrial 3 230 2 958 Nov 2021
531 002 505 168
^ Held for sale at 31 December 2021.
The following properties are classified as held for sale at 31 May 2022:
Book value
Net proceeds June 2021
Property name Sector (R'000) (R'000) Transfer date
Midrand Protea Hotel ^ Other - Hotel 117 500 120 000 *
Philippi Shopping Centre Retail 91 080 90 000 *
Eastport Logistics Park - Clippa # ^ Logistics 55 038 57 525 *
Cambridge Manor Paulshof ^ Offices 28 750 28 750 *
Chelsea Office Park Rivonia ^ Offices 17 890 15 400 *
488 Sixteenth Road Logistics 16 400 14 620 *
Le Roux Avenue Midrand ^ Industrial 7 970 6 810 *
334 628 333 105
^ Held for sale at 31 December 2021.
# Clippa exercised its option to purchase a 50% undivided share in this property, in which Fortress group owns a
65% undivided share.
* Not yet transferred.
NEPI Rockcastle
On 18 May 2022 NEPI Rockcastle S.A. ("NEPI Rockcastle") released a comprehensive business update for the three
months to 31 March 2022, in which it reaffirms the guidance released in February 2022, that distributable earnings per
share for the year ending 31 December 2022 will be at least 24% higher than distributable earnings per share for the year
ended 31 December 2021. (www.nepirockcastle.com).
Funding, liquidity and treasury
At 31 May 2022, Fortress had a total of R3,0 billion in cash and available facilities and remains comfortably within all
debt covenants.
Our loan-to-value ("LTV") ratio at 31 May 2022 was approximately 39,8%.
Consideration of share merger
Shareholders and noteholders are referred to the SENS announcement released by Fortress on 23 May 2022, wherein
shareholders were advised that the board of directors of Fortress (the “Board”) had commenced a process with regard to a
potential collapse of Fortress's dual share structure into a single class of ordinary shares.
The Board anticipates that this process may result in a proposal to Fortress shareholders in the short term. Shareholders
will be updated in due course.
Outlook
As communicated previously, we now include the NEPI Rockcastle distributions in our distributable earnings in the
period in which they are received, which better enables us to provide a forecast for distributable earnings for the financial
year ending 30 June 2023 ("FY2023").
Based on the assumptions below and on the distribution methodology outlined above, which is aligned with IFRS and tax
in relation to the NEPI Rockcastle dividends, we estimate our total distributable earnings for FY2023 to be
approximately R1,91 billion, an increase of 12,4% over the R1,7 billion forecast for FY2022.
This forecast is based on the following assumptions:
Fortress-specific assumptions
- NEPI Rockcastle's distributable earnings per share will increase by 24% for the year ending 31 December 2022,
in line with the guidance provided to the market and on the basis that NEPI Rockcastle will pay 100% of
distributable earnings as a dividend;
- In accordance with Fortress' existing distribution policy, we have assumed that 100% of Fortress' distributable
earnings for FY2022 and FY2023 will be paid as dividends;
- Fortress maintains its status as a REIT for FY2022 and FY2023;
- No material sales or acquisitions occur which will necessitate a revision to this forecast;
- There is no unforeseen failure of material tenants in our portfolio;
- Contractual escalations and market-related renewals will be achieved with no major change in vacancy rates; and
- Tenants will be able to absorb rising utility costs and municipal rates.
Macroeconomic and regulatory assumptions
- There are no COVID-19 related lockdowns or similar restrictions placed on our tenants or those of our associates'
tenants;
- There is no unforeseen material macroeconomic deterioration in the markets in which Fortress has exposure, being
South Africa and CEE;
- The South African Reserve Bank increases the repurchase rate by 50 basis points to 5,25% during FY2023; and
- There is no resurgence in civil unrest in South Africa.
This forecast has not been audited, reviewed or reported on by Fortress' auditor.
6 June 2022
Lead sponsor Joint sponsor Debt Sponsor
Java Capital Nedbank Corporate and Investment Banking Rand Merchant Bank
(a division of Nedbank Limited) (a division of FirstRand Bank Limited)
Date: 06-06-2022 03:40:00
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