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Unaudited consolidated interim financial statements for 6 months ended 31 December 2020, changes to board committees
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: 378900FE98E30F24D975
Bond company code: FORI
("Fortress" or "the group" or "the company")
Block C, Cullinan Place, Cullinan Close, Morningside, 2196
PO Box 138, Rivonia, 2128
Short-form announcement and changes to board committees condensed unaudited
consolidated interim financial statements for the six months ended
31 December 2020
The interim reporting period of our 2021 financial year was characterised by
the continued effects of the COVID-19 pandemic, which has now been prevalent
for over a year and the impact of which was once again felt in the second
quarter of this financial year. The pandemic has inevitably brought about a
challenging economic environment, which saw South Africa's gross domestic
product ("GDP") being 7,0% lower in 2020 compared to 2019. There is also
continued uncertainty in the overall business environment and future
macroeconomic conditions. Despite these challenging times, we remain focused
on continuing our journey of rolling out the largest development pipeline of
logistics real estate in South Africa, and ensuring that our defensively
positioned convenience and commuter-oriented retail real estate assets
continue to perform.
Since our 30 June 2020 year-end ("FY2020"), we have managed to complete,
let and secure tenants for approximately 340 000m2 of our 1,0 million square
metre gross lettable area ("GLA") logistics development pipeline in South
Africa, an achievement that we are proud of in these especially challenging
times. Added to this, we sold R1,1 billion of properties at above book value,
acquired two logistics parks in Poland, reduced our overall vacancies from
8,9% to 6,8%, maintained the trading densities in our retail portfolio at
the same level as 2019 and shored up the balance sheet with additional
liquidity, while reducing the loan-to-value ("LTV") ratio to 38,1%.
Over the past 18 months, various proactive steps were taken by management
and the board of directors that were principally aimed at protecting the
balance sheet, preserving liquidity and focusing on setting a solid base
for the company for the future, which has allowed us to position the
business for growth going forward.
Nature of the business
Fortress REIT Limited ("Fortress") is a Real Estate Investment Trust ("REIT")
specialising in the logistics and retail property sectors with an established
in-house development track record.
Our focus is on developing and in 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 which currently
comprises 56 shopping centres, which includes properties co-owned with partners.
In addition to our property portfolio, we have a 23,6% interest in NEPI
Rockcastle plc ("NEPI Rockcastle"), valued at R13,5 billion at
31 December 2020.
Capital structure
The 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
("FFA"; 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 ("VWAP") on the JSE Limited ("JSE") subject to a floor of R8,11
if redeemed. The Fortress B ordinary share ("FFB"; 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 Memorandum of Incorporation ("MOI") governs the distribution in any income
period. The MOI defines a first and a second income period. The FFA share is
entitled in any income period to a distribution equal to the prior comparative
period’s distribution escalated by the lower of the Consumer Price Index
("CPI") or 5% ("the FFA entitlement") and the FFB share is entitled to any
residual income in an income period. Should the company not earn sufficient
distributable income to meet the FFA entitlement, the board may not distribute
any income to FFA shareholders and as a result, no distribution may be declared
to FFB shareholders. The FFA share dividends are non-cumulative.
Summary of financial performance
Dec 2020 Dec 2019 % change
Dividend per share
– FFA (cents) – 77,67 (100,0)
– FFB (cents) – 74,84 (100,0)
International financial reporting standards ("ifrs") information
Dec 2020 Dec 2019 % change
Revenue from direct property
operations (R'000) 1 614 033 1 810 977 (10,9)
Total revenue (including revenue
from investments) (R'000) 1 614 033 1 919 091 (15,9)
Net asset value ("NAV") (R'000) 25 023 071 34 131 431 (26,7)
NAV per equity share (going
concern)^ (Rand) 11,59 15,81 (26,7)
NAV per FFA share* (Rand) 12,96 20,35 (36,3)
NAV per FFB share (Rand) 9,91 10,22 (3,0)
Basic earnings per share
– FFA (cents) 52,69 35,97 46,5
Basic earnings per share
– FFB (cents) 52,69 35,97 46,5
Headline earnings per share
– FFA (cents) 35,73 68,68 (48,0)
Headline earnings per share
– FFB (cents) 35,73 68,68 (48,0)
^ 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
Dec 2020 Dec 2019 % change
LTV ratio* (%) 38,1 33,3 #
NAV per equity share (going
concern)^ (Rand) 11,35 15,59 (27,2)
NAV per FFA share** (Rand) 12,96 20,35 (36,3)
NAV per FFB share (Rand) 9,48 10,08 (6,0)
# % 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 NAV.
Distributable income
Distributable income, based on our communicated Fortress distribution
methodology, was less than the FFA entitlement and accordingly no dividends
have been declared for the first income period to either FFA or FFB
shareholders. The total FFA entitlement for the first income period is
R954,5 million, with actual distributable income achieved of R820,5 million.
Despite not declaring dividends for the first income period, and based on
Fortress receiving capitalisation shares in lieu of a cash dividend from NEPI
Rockcastle in the first income period, we are confident that we will retain our
REIT status for the financial year ending 30 June 2021.
Dividends and dividend policy
No dividends for either the FFA share or the FFB share have been declared for
the first income period of the 2021 financial year.
The dividend entitlement for the FFA share is increased by the lower of CPI or
5,0% over the prior comparable income period, using the CPI figures supplied by
Statistics SA. CPI growth for the first income period was 3,13% and the FFA
entitlement is 80,10 cents per share. This becomes the base for the FFA
entitlement for future income periods.
Consistent with the more conservative distribution policy of recent reporting
periods as previously communicated, we do not distribute capitalised interest
in order to ensure balance sheet strength and sufficient liquidity in an
uncertain economic environment.
Prospects
Forecasting in the current market conditions remains challenging due to the
uncertainty over lockdown restrictions and the changing financial position of
tenants both in SA and in CEE. Fortress' forecast in respect of the FFA share
dividends for 2H2021 remains unchanged at 78,79 cents per share (utilising an
estimated CPI inflation rate of 3,5% for 2H2021) while the forecast in respect
of the FFB share dividend for the same period has been lowered from a previous
range of 10 cents to 15 cents per share to approximately 10 cents per share due
to the lower dividends expected from NEPI Rockcastle.
Maintaining a strong balance sheet, retaining REIT status and ensuring
sufficient available liquidity will continue to be balanced against the payment
of dividends.
This forecast is based on the following assumptions:
Fortress-specific assumptions
- NEPI Rockcastle achieves its expected distributable earnings for its 2021
financial year and adheres to its payout ratio policy;
- 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.
Changes to the board of directors and board committees
The following changes to the board of directors were made since our previous
report for the period ended 30 June 2020:
- Ms Tshiamo Matlapeng-Vilakazi passed away on 20 September 2020;
- Mr Ian Vorster was appointed as Debt Officer of Fortress on 2 October 2020 in
terms of paragraphs 6.39(a) and 7.3(g) of the Debt Listings Requirements;
- Mr Benjamin Kodisang was appointed as an independent non-executive director on
9 February 2021 to fill a vacancy;
- Mr Thavanesan Chetty was appointed as an independent non-executive director on
9 February 2021 to fill a vacancy; and
- Mr Djurk Venter has announced his intention to resign from the board during
2H2021.
Due to the changes to the board of directors, the following changes to
the board committees have been made:
- Ms Ina Lopion was appointed as a member of the risk committee and resigned as
a member of the nomination committee on 9 March 2021; and
- Ms Vuyiswa Mutshekwane was appointed as a member of the nomination committee
on 9 March 2021.
There have been no other changes to the board of directors.
Short-form announcement
This short-form announcement of the condensed unaudited consolidated interim
financial statements ("full announcement") for the six months ended
31 December 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 10 March 2021 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 six months ended 31 December
2020. Any investment decisions should be based on consideration of the
full announcement published on Fortress' website:
https://cmsignition.co.za/download/files_1184/Interim_results_
announcement_31_December_2020.pdf
and available on the JSE's website at:
https://senspdf.jse.co.za/documents/2021/jse/isse/FFAE/HY2021.pdf
A copy of the full announcement is 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 unaudited consolidated interim financial statements for the
six months ended 31 December 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 10 March 2021
Lead sponsor Joint sponsor Debt sponsor
Java Capital Nedbank CIB RMB
Date: 10-03-2021 05:05:00
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