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
(Approved as a REIT by the JSE)
(“Fortress” or “the Company”)
TRADING AND PRE-CLOSE OPERATIONAL UPDATE
Shareholders are referred to the final results announcement for the year ended 30 June 2020, released on SENS on
3 September 2020 and the integrated report published on 26 October 2020. We hereby provide an update on Fortress’
Direct property portfolio
Logistics and logistics developments
Since our last operational update we have made pleasing progress in letting the developments we have completed or
commenced. At 30 June 2020 we had let 38 857m2 of the 172 201m2 gross lettable area (“GLA”) of new
developments and as at 2 December 2020, the let space has increased by 61 899m2 to 100 756m2 of the 172 201m2 of
new logistics facilities completed or commenced. In addition, we have pre-let 56 792m2 of yard area to be developed
into a container terminal for an operator at Clairwood Logistics Park for a period of 10 years at an estimated total cost
of R178 million. Discussions are ongoing with several large users for our various new logistics facilities.
A summary of the progress in letting the new developments is presented below:
Total GLA GLA of Estimated Estimated
of let Lease yield for completion
Pro rata development portion term let portion date (actual
Development share (%) (m2) (m2) (years) (%) if completed)
Louwlardia Logistics Park – Building 4 100 14 310 14 310 10 7,6 Oct 2020
Longlake Logistics Park – Extension 4 (Zest Weg) 100 24 458 24 458 10 8,5 Dec 2020
Longlake Logistics Park – Extension 4 (Spec) 100 12 458 - - - Jan 2021
Clairwood Logistics Park – Pocket 4A 100 25 124 25 124 5 7,8 Jun 2021
Clairwood Logistics Park – Pocket 4B 100 24 094 8 463 5 7,8 Aug 2021
Cornubia Ridge Logistics Park – Building 2 50,1 23 727 14 002 5 7,6 Oct 2020
Eastport Logistics Park – Building 4 (Clippa) 65 14 399 14 399 10 9,4 Jan 2021
Eastport Logistics Park – Building 3 65 13 756 - - - Mar 2021
Eastport Logistics Park – Building 5 65 19 875 - - - May 2021
Sub-total per June 2020 results presentation 172 201 100 756
Clairwood Logistics Park – container terminal yard 100 56 792 56 792 10 9,2 Sep 2021
Clairwood Logistics Park – Pocket 7 100 13 283 - - - Aug 2021
Total 242 276 157 548
The pipeline of development opportunities continues to attract interest and negotiations with several large users on a
pre-let basis are ongoing. The standing logistics portfolio continues to perform well relative to our other portfolios
with a low vacancy of 3,6%. However, rental growth remains muted and negative reversions on expiry of leases are
expected to continue.
Over the past 12 months, tenant turnover figures (“turnovers”) in our retail portfolio have declined by 3,9% when
compared to the same period in 2019. This reduction is primarily due to the COVID-19-related lockdown.
However, turnovers have recovered gradually since the over 50% decline experienced during April 2020 compared to
April 2019. Turnovers for October 2020 increased by 5,1% compared to October 2019. October 2020 was the first
month since the level 5 lockdown that turnovers surpassed the comparable monthly levels of 2019.
The rural, township and suburban centres continue to show their resilience in these tough trading conditions,
supported by social grants and their convenience offering. Turnovers at the CBD centres have improved markedly
from their lows during the level 5 lockdown. As businesses are starting to return to work, turnovers at the CBD
centres is starting to increase, recording growth of 6,3% in October 2020 when compared to October 2019.
The best performing tenant categories have been grocers, pharmacies, hardware stores, cosmetics and beauty and
menswear. The tenants that have been negatively impacted are unisex wear, fast food, liquor stores, restaurants and
This non-core portfolio has been negatively impacted by financial strain in the tenant base. The letting performance,
leading to a reduction in vacancies from 17,6% at 30 June 2020 to current vacancies of 8,8%, has been a notable
achievement, albeit on short-term leases. The performance of a number of re-purposed industrial properties is proving
positive, while the appetite from the investor market to purchase smaller industrial properties and parks is growing.
The vacancy rate continued to increase from 23,6% at 30 June 2020 to 26,6% currently and this trend is likely to
continue. Rentals remain depressed due to increased competition from other landlords. An emerging positive
development from this portfolio is the possibility of converting certain appropriately located properties to residential
use, given that the residential market has seen a marked increase in demand due to the record low interest rates.
Direct property disposals
The following properties have transferred since 30 June 2020:
Net proceeds Jun 2020
Property name Sector R’000 R’000 Transfer date
Louwlardia Logistics Park – Building 1 (WAG) Logistics 154 500 154 500 Aug 2020*
(50% undivided share) ^
Protea Centre ^ Retail 83 000 83 000 Sep 2020
Eastport Logistics Park (65% interest) – land
portion only Logistics land 71 175 58 693 Nov 2020**
Shoprite Port Shepstone Retail 67 320 68 000 Oct 2020
Elliot Avenue Epping Industrial 45 000 45 000 Nov 2020
204 Rivonia Road Morningside (Block C and E) ^ Office 30 830 30 830 Aug and Sep 2020**
189 Monte Carlo Crescent Kyalami ^ Office 26 235 26 235 Sep 2020
Louis Trichardt Street Nelspruit ^ Industrial 22 500 22 500 Sep 2020
8 and 16 Harry Street Industrial 22 000 23 740 Nov 2020
Brunton Circle Founders View South Logistics 18 000 19 680 Dec 2020
Broad and Simmonds Streets ^ Industrial 14 550 14 550 Jul 2020
Groblersdal Centre ^ Retail 7 500 7 500 Nov 2020
Bart Street Wilbart Industrial 5 940 5 940 Nov 2020
568 550 560 168
^ Held for sale at 30 June 2020.
* Effective date of sale transaction. Proceeds and transfer expected in January 2021.
** Effective date of sale transaction. Proceeds have been received.
The following properties are currently classified as held for sale:
Net proceeds Jun 2020
Property name Sector R’000 R’000
Cornubia Ridge Logistics Park – Makro (49.9% interest)$ Logistics 469 060 466 710$
30 Bell Street Hennopspark Industrial 52 000 52 000
2 Drakensberg Drive Longmeadow Logistics 39 500 41 210
Modderfontein Road Longmeadow Other – Motor dealerships 32 500 31 400
122 Koornhof Road Meadowdale Industrial 24 000 23 197
617 060 614 517
$ Fortress has an effective 50,1% interest in Cornubia Ridge Logistics Park through a subsidiary and only the effective interest is
shown for management account purposes. However, for group purposes, the interest is consolidated and reflects 100% for
purposes of International Financial Reporting Standards. Fortress is disposing of 49,9% of the property via the restructuring of
the existing development and funding arrangement, with the result that funding provided by Fortress for the development of the
property will be repaid. Fortress will hold its 50,1% interest in undivided shares post the closing of the transaction. The book
value shown is the current carrying cost of the pro-rata share of the asset, post 30 June 2020.
Below we present a summary of the vacancy per sector as at 30 June 2020 and the current vacancy profile:
30 June 2020 Current
vacancy by vacancy by
Sector GLA (%) GLA (%)
Retail 6,0 4,9
Logistics 3,0 3,6
Industrial 17,6 8,8
Office 23,6 26,6
Other 2,3 1,7
Total portfolio 8,9 6,8
The overall vacancy reduction is primarily the result of letting and sales in the industrial portfolio. The retail portfolio
vacancy has decreased due to lettings at Fourways Value Mart, Monument Centre, Pineslopes Shopping Centre,
Jeffreys Bay Centre and 409 West Street.
The logistics portfolio vacancy remains low compared to historic levels.
Billings and collections
The table below reflects collections as a percentage of billings per month by sector. Over the five-month period to
30 November 2020, tenant arrears have reduced by approximately 27% from 30 June 2020.
Jul 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020 Total
Retail 100,0% 100,0% 100,0% 99,9% 100,0% 100,0%
Logistics 100,0% 100,0% 98,4% 99,1% 100,0% 99,5%
Industrial 94,0% 95,2% 100,0% 100,0% 100,0% 97,8%
Office 100,0% 98,4% 97,7% 98,7% 100,0% 98,9%
Total 99,0% 99,0% 98,7% 99,5% 100,0%
Deferrals of rental granted during the lockdown of R35,6 million have been included in billings in the table above and
NEPI Rockcastle plc (“NEPI Rockcastle”)
Shareholders are referred to the latest available operational and business updates provided by NEPI Rockcastle which
are available on their website at https://nepirockcastle.com/news/
Funding, liquidity and treasury
As at Friday, 27 November 2020 Fortress had a total of R2,7 billion available in cash and undrawn secured banking
facilities. The current facility expiry profile is as follows:
Facility expiry R’million
Jun 2021 910
Jun 2022 4 856
Jun 2023 5 274
Jun 2024 4 034
Jun 2025 4 395
Jun 2026 250
Jun 2027 206
The only note repayable under our domestic medium-term note (“DMTN”) programme in the next 12 months is a note
of R300 million maturing in February 2021.
Fortress’ loan-to-value ratio has increased to a current level of approximately 39,7% from 38,5% at
30 June 2020 primarily as a result of a decrease in the traded price of NEPI Rockcastle.
Outlook and trading update
Forecasting in the current market conditions remains challenging due to the uncertainty over lockdown restrictions and
changing financial positions of tenants both in South Africa and in Central and Eastern Europe. While the collections
against billings are pleasing, like-for-like net operating income remains under pressure due to higher administered
costs and persistently negative reversions on lease renewals.
Maintaining a strong balance sheet, retaining REIT status and ensuring sufficient available liquidity need to be
balanced against the payment of dividends.
Our distributable income and hence our dividends for the interim six-month period from 1 July 2020 to
31 December 2020 (“H1 2021” or “the first income period”) are materially dependent on the final dividend declared
by NEPI Rockcastle for its year ending 31 December 2020. Should NEPI Rockcastle pay a dividend per share (on a
like-for-like basis with a consistent methodology to prior periods and in line with recent distributable earnings
guidance provided), we currently forecast that our total distributable earnings will be lower than the Fortress A share
minimum entitlement for H1 2021, being the first income period.
The result of the total distributable earnings being below the Fortress A share minimum dividend entitlement is that
the Fortress A share H1 2021 distribution per share will be NIL and concomitantly the Fortress B share interim
H1 2021 distribution per share will also be NIL. This is a 100% reduction in distribution per share for both Fortress A
shares and Fortress B shares from the prior comparable period (being the six-month period from 1 July 2019 to
31 December 2019).
For the following six-month period from 1 January 2021 to 30 June 2021 (“H2 2021” or “the second income
period”) we forecast that the Fortress A share minimum dividend entitlement will be met and utilising an estimated
Consumer Price Index inflation rate of 3,5% for the H2 2021, we expect the distribution per Fortress A share to be
78,79 cents per share. Further to this, we expect the distribution per Fortress B share for H2 2021 to be between
10,0 cents and 15,0 cents per share for the second income period. This is an increase of between 10,0 cents and
15,0 cents per share compared to the NIL cents per share for the comparable six-month period ended
30 June 2020.
This forecast is based on the following assumptions:
– NEPI Rockcastle pays a dividend per share for the six months ending 30 June 2021 that is similar to the
distributable earnings per share for the six-month period ended 30 June 2020, adjusted for the capitalisation
issue. Note that this assumption has not been supplied nor discussed with NEPI Rockcastle and remains an
assumption by Fortress utilising historic figures;
– No material sales nor acquisitions 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.
Macro-economic and regulatory assumptions
– There is no change in the existing lockdown restrictions placed on any of our tenants in our direct portfolio;
– There is no unforeseen material macroeconomic deterioration in the markets in which Fortress has exposure; and
– The South African Reserve Bank maintains the repurchase rate at 3,5%.
This forecast has not been audited, reviewed or reported on by Fortress’ auditor.
2 December 2020
Nedbank Corporate and Investment Banking
Date: 02-12-2020 09:25:00
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