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Audited financial results for the year ended 30 June 2024 and prospects
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")
Audited financial results
for the year ended 30 June 2024 and prospects
"We achieved a better result than forecast for the year ended 30 June 2024,
which is notable in light of the numerous challenges we faced, including
stagnant local economic growth and high interest rates imposed by central
banks around the world to combat inflation not experienced for several
decades. We ended the year with a definitive sentiment shift towards a
more positive global real estate outlook. On the global front, a more
dovish shift in central bank forecasts and expectations of lower interest
rates have led to indications of investment returning to global real
estate, albeit in certain sub-sectors more so than others. On the local
front, we had a smooth transition of power to a government of national
unity and witnessed significant funds flowing back into our local market.
While we saw little change in the value of our local assets, with a
moderate increase of less than 2% on a like-for-like basis, we are
witnessing signs of a generally more positive local real estate market,
with investors returning and an improvement in tenant enquiries for
additional space.
The simplified single-share corporate structure allows us to shift
our focus from the constraints of the previous dual-share REIT structure
to the opportunities that this new structure presents. Management and the
board are focused on how to enhance total shareholder returns by using
the various tools at our disposal in an appropriate manner, without
compromising the future sustainability of the business.
Our asset management and development teams have performed exceptionally
well during the financial year. The trading density growth of 6,4% in
our retail portfolio, in what remains a consumer-constrained environment,
is pleasing. The strong performance of the core retail portfolio has
been led by the centres which were recently refurbished and extended,
and we will continue to ensure that these centres are relevant and
remain attractive to consumers and tenants. The logistics portfolio has
performed above our expectations and demand for high-quality warehouses
in prime locations remains strong. A further highlight of the year was
the 19,2% premium achieved over book value on the property disposals.
Our associate NEPI Rockcastle continues to grow, and they have
established themselves as the leading CEE retail real estate business.
We are extremely pleased with their performance and wish to compliment
the management and board on another set of outstanding results.
Our total distribution for the 2024 financial year of R1,789 billion
is approximately 5,2% higher than our forecast. This contributed to a
higher final dividend of 70,19 cents per share for 2H2024, compared to
our forecast of 62,64 cents per share. The total distribution for FY2024
amounted to 151,63 cents per share. With the more flexible corporate
structure and previously noted focus on enhancing total shareholder
returns, we are pleased to announce that an option will be granted to
shareholders to receive the final dividend of 70,19 cents per share
in cash or, alternatively, at the shareholders' election, to receive
0,00662 NEPI Rockcastle shares for every Fortress B share held. This
alternative to receive NEPI Rockcastle shares represents additional
value of between 25% and 30% compared to the default cash dividend."
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 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 report, a 16,3% interest in NEPI Rockcastle N.V.
("NEPI Rockcastle"), the largest listed property company on the JSE,
with a EUR7 billion portfolio across nine CEE countries. This
holding reduced from 24,2% at 31 December 2023.
CAPITAL STRUCTURE AND DISTRIBUTIONS
During 2H2024, 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 Scheme of Arrangement ("SOA")
circular, we now have a single class of share in issue, comprising
only FFB shares. The result of the SOA is that the previous restrictions
to paying distributions no longer apply, and the board is thus
empowered to declare distributions to shareholders.
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
industry guidelines.
For the 2H2024 reporting period, the board has declared a dividend
of 70,19 cents per FFB share with an alternative to receive the
dividend in the form of NEPI Rockcastle shares in a ratio of
0,00662 NEPI Rockcastle shares for every FFB share. The election
to receive NEPI Rockcastle shares enables the company to retain
cash and reduce gearing against the direct portfolio. Considering
the price of a NEPI Rockcastle share against the cash distribution,
the premium offered to shareholders who elect the NEPI Rockcastle
share alternative is between 25% and 30%. Salient details of the
dividend alternative will be communicated to shareholders in a
circular to be published in due course.
SUMMARY OF FINANCIAL PERFORMANCE
Jun 2024 Jun 2023 % change
Distributable earnings
(R'000) 1 788 505 1 797 267 (0,5)
Dividend declared per share
- FFA (cents) - - -
- FFB (cents)$ 151,63 - #
$ 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
Jun 2024 Jun 2023 % change
Revenue from direct
property operations (R'000) 4 383 507 3 787 954 15,7
Total revenue (including revenue
from investments) (R'000) 4 383 507 3 787 954 15,7
Net asset value ("NAV") (R'000) 29 865 807 33 330 390 (10,4)
NAV per share^ (Rand) 25,09 15,82 58,6
Basic earnings per share
- FFA (cents) - 281,92 #
Basic earnings per share
- FFB (cents) 370,03 281,92 (31,3)
Headline earnings per share
- FFA (cents) - 90,99 #
Headline earnings per share
- FFB (cents) 121,02 90,99 33,0
^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
Jun 2024 Jun 2023 % change
NAV per share (Rand) 23,85 14,85 60,6
Loan-to-value ("LTV") ratio (%) 38,2 35,9 #
Funds from operations (R'000) 1 957 364 2 188 936 (10,6)
# Percentage change not meaningful to disclose or not applicable.
DISTRIBUTABLE EARNINGS
Distributable earnings amounted to R835,6 million for 2H2024, compared to
R996,3 million for 2H2023. Full year earnings for FY2024 amounted to
R1 788,5 million, compared to R1 797,3 million for FY2023. The board
has declared the full distributable earnings available for 2H2024 as a
dividend, which amounts to 70,19 cents per FFB share.
Shareholders may further elect to receive the 2H2024 distribution in cash,
as the default option, or in the form of shares in NEPI Rockcastle held by
Fortress in a ratio of 0,00662 NEPI Rockcastle shares for every FFB share.
Full details of the alternative will be communicated to shareholders in
due course.
Post the implementation of the SOA, the distributable earnings benchmark
is no longer applicable.
PROSPECTS
We previously communicated that our distributable earnings for the year ended
30 June 2024 would be at least R1,7 billion. Our actual distributable
earnings for FY2024 amounted to R1,789 billion.
We revise our previous guidance of approximately R1,73 billion for FY2025 to
R1,75 billion following NEPI Rockcastle's updated outlook for its 2024
financial year, published on 20 August 2024. Further detail is presented
in the table below.
1H2024 2H2024 FY2024 FY2025 Change
(actual) (actual) (actual) (forecast) %
Total
distributable
earnings
(R'000) 952 868 835 637 1 788 505 1 750 000 (2,2)
Shares in
issue
(net of
treasury
shares) 1 169 980 307 1 190 536 893 1 190 536 893 1 190 536 893
Distributable
earnings per
share (cents) 81,44 70,19 151,63# 146,99 (3,1)
FY2024
1H2024 (norma-
Normalisation (norma- 2H2024 lised FY2025 Change
adjustments lised) (actual) actual) (forecast) %
Exclusion of
dividend on
53 134 372
NEPI Rockcastle
shares
(R'000)
received in
September
2023* (266 365) - (266 365) - -
Adjusted total
distributable
earnings (R'000)
(normalised
for the effects
of the SOA) 686 503 835 637 1 522 140 1 750 000 15,0
Adjusted
distributable
earnings per
share (cents)
(normalised
for the effects
of the SOA) 58,68 70,19 128,87 146,99 14,1
* The 53 134 372 NEPI Rockcastle shares were used to fund the buy-back of all
the Fortress B ordinary shares in issue at the time of implementation of
the SOA. The adjustment includes related foreign currency hedges on this
income.
# Sum of the 1H2024 and 2H2024 actual distributable earnings per share.
The forecast is based on the following assumptions: Fortress-specific assumptions
- Our distributable earnings methodology will remain consistent with that of
prior periods, as previously communicated;
- NEPI Rockcastle maintains a 90% payout ratio and meets their published
distributable earnings per share guidance for their 2024 financial year ended
31 December 2024;
- No material sales, or acquisitions, outside of our planned pipeline occur
which 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 the recovery of rising utility costs and
municipal rates.
Macroeconomic and regulatory assumptions
- There is no unforeseen material macroeconomic deterioration in the markets
in which Fortress has exposure;
- There are no unforeseen adverse socio-political events in the jurisdictions
in which Fortress has exposure;
- There are no changes to current tax legislation in the jurisdictions in
which the company operates; and
- There are no interest rate changes by the European Central Bank or the
South African Reserve Bank.
The forecast and normalisation adjustments, including the assumptions on
which they are based and the financial information from which they have
been prepared, are the responsibility of the directors of the company.
The forecast and normalisation adjustments have not been reviewed or
reported on by the company's external auditor.
Financial periods defined as follows:
- 2H2023 - Final reporting period for the six months ended 30 June 2023;
- 1H2024 - Interim reporting period for the six months ended 31 December 2023;
- 2H2024 - Final reporting period for the six months ended 30 June 2024;
- FY2023 - Financial year ended 30 June 2023;
- FY2024 - Financial year ended 30 June 2024; and
- FY2025 - Financial year ending 30 June 2025.
This results announcement is the responsibility of Fortress' board of
directors and is only a summary of the audited consolidated financial
statements for the year ended 30 June 2024 ("FY2024 AFS") and does not
contain full or complete details. Any investment decision by investors
and/or shareholders should be based on the FY2024 AFS. The auditor, KPMG Inc.,
has issued an unmodified audit opinion on the FY2024 AFS and notes the
valuation of investment properties as a key audit matter. The FY2024
AFS, including the audit report, have been released on SENS and are available
on the JSE website at
https://senspdf.jse.co.za/documents/2024/jse/isse/FFBE/FY2024.pdf and on
the company's website at https://fortressfund.co.za/financials/view-pdf?id=
Annual%20financial%20statements%2030%20June%202024
Fortress' summary consolidated financial statements for the year ended
30 June 2024 which include directors' commentary have been published on
Fortress' website at: https://fortressfund.co.za/financials/view-pdf?id=
Summary%20consolidated%20financial%20statements%2030%20June%202024
Copies of the FY2024 AFS, including the audit opinion, are available for
inspection during business hours at the registered offices of Fortress
or its sponsors, Java Capital and Nedbank Limited, acting through its
Corporate and Investment Banking Division and/or through a secure
electronic manner at the election of the person requesting inspection.
Such inspection will be at no charge and investors may request a copy of
Fortress' audited consolidated financial statements for the year ended
30 June 2024 from tamlyn@fortressfund.co.za.
This results announcement itself is not audited or reviewed by
Fortress' auditor, but extracted from audited results.
By order of the board
Steven Brown
Chief executive officer
Ian Vorster
Chief financial officer
Johannesburg
29 August 2024
Block C, Cullinan Place, Cullinan Close, Morningside, 2196.
PO Box 138, Rivonia, 2128
Date: 29-08-2024 05:15:00
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