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Summarised audited consolidated financial statements for the year ended 30 June 2020
Fortress REIT Limited
Incorporated in the Republic of South Africa
(Approved as a REIT by the JSE)
Registration number: 2009/016487/06
JSE share code: FFA ISIN: ZAE000248498
JSE share code: FFB ISIN: ZAE000248506
LEI: 378900FE98E30724D75
Bond company code: FORI
("Fortress" or "the group" or "the company")
Short-form announcement for the year ended 30 June 2020
The 2020 financial year was defined by the final quarter of the
reporting period and the outbreak of the COVID-19 pandemic with the
resulting lockdown imposed by the government in South Africa and other
governments around the world. The conservative loan-to-value ("LTV")
and cash retention measures implemented by management before the
pandemic allowed us to withstand the numerous, unforeseen and
unprecedented shocks to the markets in which we operate. We were able
to react quickly to protect the people who run our business,
as well as the people who use our real estate assets. Furthermore,
we focused on protecting our liquidity and balance sheet and we feel
confident that our business is currently, and will remain, well
capitalised post the pandemic without major change to our strategy.
Lower distributable earnings and the need for a conservative approach
to cash retention led to a reduction in dividends, but had to be
balanced against the regulatory environment in which we operate and
importantly the need to maintain our status as a Real Estate Investment
Trust ("REIT").
The risk mitigation undertaken during the year now provides us with
cash and available facilities of approximately R2,8 billion, a LTV
ratio below 39% and no further exposure to Euro debt through cross-
currency swaps. These measures have reduced the overall risk our business
faces, which is welcomed at a time when focus on our existing assets
and execution of our strategy have become even more important.
At the date of this report, there are no restrictions on trading at any
of our directly owned properties following the easing of restrictions
to Level 2 of the COVID-19 lockdown. This is pleasing given that, based
on gross lettable area ("GLA"), tenants in our retail portfolio who were
allowed to trade reduced to a low of 41% during the Level 5 lockdown.
Nature of the business
Fortress REIT Limited ("Fortress") is a REIT specialising in the
logistics and retail property sectors with an established development
track record. Our focus remains on being the developer and landlord of
choice for premium-grade logistics real estate in South Africa. The core
logistics portfolio of assets is complemented by a development pipeline
on which we are able to develop one million square metres of GLA. The
retail portfolio comprises 59 shopping centres, which includes properties
co-owned with partners. We have continued with the strategy of holding,
developing and selectively acquiring core logistics facilities in prime
locations, while continuing to invest in commuter-oriented convenience
retail shopping centres.
In addition to our property portfolio, we have a 23,3% interest in NEPI
Rockcastle plc ("NEPI Rockcastle"), valued at R12,4 billion at
30 June 2020.
We exited our entire investment in Resilient REIT Limited ("Resilient")
during the second half of the financial year, mostly by way of a
distribution in specie of the dividends declared on the Fortress A ("FFA")
and Fortress B ("FFB") shares for the six months ended 31 December 2019.
The remaining Resilient shares were disposed of through the market.
Capital structure
The current capital structure comprises two classes of ordinary shares,
each with equal voting rights, but different entitlements to distributions
and capital participation on redemption or winding up. The Fortress A
ordinary share (share code: FFA) has a preferential right to distributions
of income in any income period if a distribution is declared and to capital
participation upon winding up or redemption, which is calculated as the
60-day volume-weighted average price on the JSE Limited ("JSE") subject to
a floor of R8,11 if redeemed. The Fortress B ordinary share (share code: FFB)
has entitlement to the residual distribution of income in any income period
if a distribution is declared and to the residual capital upon winding up.
The board considered and embarked on a process to optimise the capital
structure during the year. However, due to the volatility and uncertainty
created by the COVID-19 pandemic and factoring in the feedback from
engagements with shareholders, the sub-committee was dissolved and the
capital structure remains unchanged.
Summary of financial performance
Jun 2020 Jun 2019 % change
Dividend per share
- FFA (cents) 100,67 148,35 (32,1)
- FFB (cents) 74,84 155,50 (51,9)
International financial reporting standards ("IFRS") information
Jun 2020 Jun 2019 % change
Revenue from direct property
operations (R'000) 3 401 534 3 413 832 (0,4)
Total revenue (including revenue
from investments) (R'000) 3 617 183 3 628 427 (0,3)
Net asset value ("NAV")
(R'000) 24 116 771 34 897 324 (30,9)
NAV per equity share
(going concern)^ (Rand) 11,17 16,19 (31,0)
NAV per FFA share* (Rand) 11,08 19,77 (44,0)
NAV per FFB share (Rand) 11,29 11,78 (4,2)
Basic (loss)/earnings per share
- FFA (cents) (390,15) 116,83 (433,9)
Basic (loss)/earnings per share
- FFB (cents) (390,15) 116,83 (433,9)
Headline (loss)/earnings per share
- FFA (cents) (64,07) 104,12 (161,5)
Headline (loss)/earnings per share
- FFB (cents) (64,07) 104,12 (161,5)
^ The NAV per equity share is calculated as the total NAV divided by the
aggregate number of FFA and FFB shares in issue, less shares held in
treasury.
*60-day volume-weighted average traded price at reporting date, limited
to combined NAV.
Management accounts information
Jun 2020 Jun 2019 % change
LTV ratio* (%) 38,5 32,2 #
NAV (R'000) 24 306 154 35 672 834 (31,9)
NAV per equity share
(going concern)^ (Rand) 10,94 16,07 (31,9)
NAV per FFA share** (Rand) 11,08 19,77 (44,0)
NAV per FFB share (Rand) 10,77 11,80 (8,7)
Direct property portfolio
(completed buildings, including
held for sale) (R'million) 25 018 26 341 (5,0)
Investment property under
development (R'million) 3 422 3 827 (10,6)
Direct property disposals
(R'million) 877 803 9,2
Listed equity portfolio (R'million) 12 426 20 621 (39,7)
Vacancy based on GLA (%) 8,9 7,2 #
# % change not meaningful to disclose.
* The LTV ratio is calculated by dividing the total interest-
bearing borrowings adjusted for cash on hand by the total of investments
in property, listed securities and loans advanced, and is based on
management accounts information.
^ The NAV per equity share is calculated as the total NAV divided by the
aggregate number of FFA and FFB shares in issue, less shares held in
treasury.
** 60-day volume-weighted average traded price at reporting date,
limited to combined net asset value.
Dividends
We are appreciative for the overwhelming support received from our
shareholders in the alteration of our Memorandum of Incorporation, which has
given the board the required flexibility to distribute a dividend less than
the FFA dividend entitlement, but greater than nil, in order to maintain our
REIT status. As a result of our distributable income falling short of the
FFA dividend entitlement, the board has taken the decision to declare a
dividend of 23,00 cents per FFA share for the final six-month income period
of the 2020 financial year. The FFB shares will not receive a dividend for
the second income period of the 2020 financial year.
The dividend entitlement for the FFA share is increased by the lower of the
Consumer Price Index ("CPI") or 5,0% over the prior comparable period, using
data supplied by Statistics SA. CPI for the second six-month period of the
2020 financial year was 3,41% and the entitlement is therefore 76,13 cents
per FFA share. This becomes the reference base for future dividends on the
FFA share should the minimum distributable income be available.
Given these unprecedented times, the REIT sector has engaged with the JSE
and National Treasury with a view to reduce the minimum payout ratio to
maintain REIT status per the JSE Listings Requirements. We are supportive of
these discussions which are ongoing and complicated. Our aggregated dividend
declared for the full year ended 30 June 2020 meets the JSE requirement for a
REIT to distribute 75% of its defined distributable profit.
Final dividend and timetable
The board has approved, and notice is hereby given of a final dividend of
23,00000 cents per FFA share for the six months ended 30 June 2020. No
dividend has been declared on the FFB share for this period. The dividend is
payable to Fortress shareholders in accordance with the timetable set out
below:
Last date to trade cum dividend Monday, 21 September 2020
Shares trade ex dividend Tuesday, 22 September 2020
Record date Friday, 25 September 2020
Payment date Monday, 28 September 2020
Share certificates may not be dematerialised or rematerialised between
Tuesday, 22 September 2020 and Friday, 25 September 2020, both days inclusive.
In respect of dematerialised shareholders, the dividend will be transferred to
the CSDP accounts/broker accounts on Monday, 28 September 2020. Certificated
shareholders' dividend payments will be posted on or about Monday,
28 September 2020. An announcement informing shareholders of the tax treatment
of the dividends will be released separately on SENS.
Prospects
The COVID-19 pandemic has had devastating effects on local and foreign
economies to date. In addition, the pandemic has introduced significant
uncertainty about the future for individuals, families, businesses and
entire sectors. Given this high degree of uncertainty in local and foreign
markets to which we have exposure, guidance of distributable earnings or
dividends per share will not be provided until such time as a clearer picture
of the impact and length of disruption emerges.
Notwithstanding, we are encouraged by some positive signs emerging post
year-end from the majority of our portfolio and feedback received from our
tenants in August 2020. The various risk mitigation measures undertaken
before and during the COVID-19 pandemic, place Fortress in a position to
return to growth once trading conditions stabilise and to take advantage
of opportunities should they arise.
We will keep our shareholders and other stakeholders apprised of changes to
the above. The board is of the view that the focus for the foreseeable future
should be on value protection, balance sheet strength and ensuring a healthy
liquidity position.
Short-form announcement
This short-form announcement of the summarised audited consolidated financial
statements ("full announcement") for the year ended 30 June 2020 is a summary
of the information in the full announcement and does not contain full or
complete details of the financial results that were published on SENS on
3 September 2020 and is the responsibility of Fortress' board of directors.
The information in this short-form announcement has been extracted from the
full announcement for the year ended 30 June 2020. Any investment decisions
should be based on consideration of the full announcement published on
Fortress' website:
https://cmsignition.co.za/download/files_1184/Summarisedaudited
consolidatedfinancialstatements-30June2020.pdf and available on the
JSE's website at:
https://senspdf.jse.co.za/documents/2020/jse/isse/FFAE/FY2020.pdf.
In accordance with section 3.46A(g) of the JSE Listings Requirements, the
audited consolidated annual financial statements together with the audit
report thereon have been published on Fortress' website and are available at:
https://cmsignition.co.za/download/files_1184/Annualfinancialstatements
-30June2020.pdf
The audit report on the annual financial statements in respect of which an
unmodified opinion was expressed, notes the valuation of investment
properties as a key audit matter.
Copies of the full announcement and the audited consolidated annual
financial statements 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. Such inspection will be at no charge and investors may request
a copy of Fortress' condensed audited consolidated financial statements
for the year ended 30 June 2020 from tamlyn@fortressfund.co.za.
The short-form announcement has not been audited or reviewed by Fortress'
auditor.
By order of the board
Steven Brown Ian Vorster Johannesburg
Chief executive officer Chief financial officer 3 September 2020
Block C, Cullinan Place, Cullinan Close, Morningside, 2196
PO Box 138, Rivonia, 2128
Date: 03-09-2020 05:25:00
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