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Condensed unaudited consolidated interim results for the six months ended 31 December 2023 and dividend declaration
Fortress Real Estate Investments Limited
Incorporated in the Republic of South Africa
Registration number: 2009/016487/06
JSE share code: FFB
ISIN: ZAE000248506
LEI: 378900FE98E30F24D975
Bond company code: FORI
("Fortress" or "the group" or "the company")
Short-form announcement:
Condensed unaudited consolidated interim results
For the six months ended 31 December 2023 and dividend declaration
"The highlight of our 2024 financial year so far has been the approval by
our shareholders of the simplification of our capital structure through
the repurchase of all the FFB shares. This leaves a single class of
share in issue following the full implementation of the scheme. We are
grateful to our shareholders for their support and proactive approach
in simplifying a complex capital structure. Going forward, this single
share structure provides more flexibility to unlock value for
shareholders, while we continue to enhance our core logistics and
retail portfolios in SA and CEE.
The 1H2024 reporting period saw a continuation of the robust operational
performance of our direct portfolio and an outstanding performance of our
associate, NEPI Rockcastle. The retail trading density growth of 6,9% in
our direct retail portfolio was solid in the context of the general state
of the consumer market and economy. Expansions and refurbishments to our
core retail assets, combined with sales of smaller and lower growth assets,
will add to the overall portfolio quality in the future.
The roll-out of the logistics developments continued as planned. The market
remains healthy for new and well-located warehouses, evidenced by a
recently signed pre-let transaction for a new warehouse of 20 000m² for an
existing tenant expanding within Eastport Logistics Park. The local market
for existing logistics real estate remains buoyant, with very low vacancies
in prime locations.
A consequence of the repurchase of all the FFB shares, in exchange for
roughly one-third of our interest in NEPI Rockcastle, is the reduction in
our shareholding from 24,2% to 16,2%. The performance of NEPI Rockcastle
has once again been excellent, with strong NOI growth and well-managed
debt refinancings in a challenging market.
With the new capital structure and single share class, we are pleased,
for the first time in our history, to be able to offer our shareholders a
scrip dividend alternative. This will enable our shareholders optionality
between a cash distribution or additional shares, another positive feature
of the single share structure."
Steven Brown
CEO
Nature of the business
Fortress is a real estate investment company with a focus on developing and
letting premium-grade logistics real estate in South Africa ("SA") and Central
and Eastern Europe ("CEE"), as well as growing our convenience and
commuter-oriented retail portfolio. Fortress also holds, at the date of
this announcement a 16,2% interest in NEPI Rockcastle N.V. ("NEPI
Rockcastle"), the largest listed property company on the JSE Limited
("JSE"), with a EUR7 billion portfolio across nine CEE countries. This
holding reduced from 24,2% at 31 December 2023 to 16,2% at the date of this
announcement.
Capital structure and distributions
Subsequent to the interim reporting period for the six months ended
31 December 2023 ("1H2024"), shareholders approved the repurchase of all the
FFB shares in exchange for shares in NEPI Rockcastle. The remaining shares
comprised only FFA shares in issue, which FFA shares were then converted
to FFB shares. With the completion on 26 February 2024 of all the
implementation steps outlined in the circular to shareholders dated
30 November 2023 (the "Circular"), we now have a single class of share
in issue, comprising only FFB shares. The result of the scheme of arrangement
("SOA") as per the Circular is that the previous restrictions to paying
distributions no longer apply, and the board is thus empowered to
declare distributions to shareholders.
For the 1H2024 interim period, the board has declared a dividend of
81,44 cents per FFB share. The board has a policy of paying out
100% of the Fortress-defined distributable earnings on a semi-annual
basis. The Fortress distribution methodology is generally more
conservative than our industry peers.
Summary of financial performance
Dec 2023 Dec 2022 % change
Distributable earnings (R'000) 952 868 800 947 19,0
Dividend declared per share
- FFA (cents) - - -
- FFB (cents)$ 81,44 - #
$ The FFB shares on which the dividend is declared were converted from
FFA shares post 31 December 2023.
# Percentage change not meaningful to disclose or not applicable.
International Financial Reporting Standards ("IFRS") information
Dec 2023 Dec 2022 % change
Revenue from direct property
operations (R'000) 2 139 767 1 871 919 14,3
Total revenue (including revenue
from investments) (R'000) 2 139 767 1 871 919 14,3
Net asset value ("NAV") (R'000) 36 363 959 29 711 989 22,4
NAV per share^ (Rand) 17,18 14,11 21,8
Basic earnings per share
- FFA (cents) 140,12 132,98 5,4
Basic earnings per share
- FFB (cents) 140,12 132,98 5,4
Headline earnings per share
- FFA (cents) 29,42 38,86 (24,3)
Headline earnings per share
- FFB (cents) 29,42 38,86 (24,3)
^ The NAV per share is calculated as the total NAV divided by the aggregate
number of FFA and FFB shares in issue, less shares held in treasury.
SA REIT Best Practice disclosure
Dec 2023 Dec 2022 % change
NAV per share 16,24 13,70 18,5
Loan-to-value ("LTV") ratio (%) 34,2 36,9 #
Funds from operations 949 041 1 088 334 12,8
# Percentage change not meaningful to disclose or not applicable.
Distributable earnings
Distributable earnings amounted to R952,9 million for 1H2024, compared to
R800,9 million for the interim reporting period for the six months ended
31 December 2022 ("1H2023"), representing an increase of 19,0%. The
board has declared the full distributable earnings available as a dividend,
which amounts to 81,44 cents per FFB share.
Shareholders may also elect to receive the distribution in the form of
a scrip dividend, as an alternative election to the default cash option.
The scrip option will be priced at a 5% discount to the five-day
volume-weighted average price ("VWAP") of the FFB shares as traded on
the JSE, less the cash distribution of 81,44 cents per share. Salient
details of the dividend alternative will be contained in a circular to
shareholders to be released once all regulatory approvals have
been received.
The distributable earnings benchmark is no longer applicable post
the implementation of the SOA.
Prospects
As announced on 29 February 2024, we revised our forecast total distributable
earnings for the financial year ending 30 June 2024 ("FY2024") to be within
the range of R1,660 billion to R1,720 billion from the previous guidance
of R1,930 billion. The reduction in forecast distributable earnings is
primarily a result of the reduction in our shareholding in NEPI Rockcastle,
following the SOA.
Forecast distribution per share for FY2024, split between 1H2024 and
the final reporting period for the six months ending 30 June 2024
("2H2024"), is summarised below:
1H2024 - FFB actual interim dividend
(cents per share) 81,44
2H2024 - FFB forecast final dividend
(cents per share) 60,44 - 65,57
The forecast is based on the following assumptions:
Fortress-specific assumptions
- 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;
- Tenants will be able to absorb the recovery of rising utility costs,
municipal rates and electricity interruption costs; and
- There are no changes to current tax legislation in the jurisdictions
in which the company operates.
Macroeconomic and regulatory assumptions
- There is no unforeseen material macroeconomic deterioration in the
markets in which Fortress has exposure;
- The South African Reserve Bank repurchase rate remains unchanged
during the forecast period; and
- The key European Central Bank interest rates remain unchanged
during the forecast period.
This forecast has not been audited, reviewed or reported on
by Fortress' external auditor.
Short-form announcement
This short-form announcement is the responsibility of the directors and
is only a summary of the information in the full announcement and does
not include full or complete details. The full announcement has been
released on SENS and is available on the JSE website at
https://senspdf.jse.co.za/documents/2024/jse/issb/fori/HY2024.pdf,
and on the company's website at
https://fortressfund.co.za/financials/view-pdf?id=Interim%20results%20
announcement%2031%20December%202023co.za. Any investment decision
should be based on the full announcement available on the company's website.
The short-form announcement itself is not audited or reviewed by Fortress'
auditor.
By order of the board
Steven Brown
Chief executive officer
Ian Vorster
Chief financial officer
Johannesburg
8 March 2024
Block C, Cullinan Place, Cullinan Close,
Morningside, 2196. PO Box 138, Rivonia, 2128
Lead sponsor
Java Capital
Joint sponsor
Nedbank CIB
Debt sponsor
RMB
Date: 08-03-2024 03:30:00
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