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FORTRESS REAL ESTATE INVESTMENTS LIMITED - Trading and pre-close operational update

Release Date: 01/12/2023 16:35
Wrap Text
Trading and pre-close operational update

(Formerly 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
LEI: 378900FE98E30F24D975
("Fortress" or "the Company")


Shareholders and noteholders are referred to the final results announcement for year ended
30 June 2023 ("FY2023"), released on SENS on 31 August 2023. We hereby provide an update on Fortress'
operations for the period subsequent to 30 June 2023.

We continue to experience strong demand for well-located, high-quality logistics space and this has translated into a
sustained record low logistics vacancy of 0,5% by rental. We currently have 173 610m2 of logistics space under
development. The success of our strategy to dispose of non-core assets and recycle this capital into high-quality
logistics developments and relevant retail redevelopments is evident in our low vacancy rates and positive rental
growth in tough operating environments. Post FY2023, we have disposed of non-core properties for proceeds of
R883 million and recycled this capital into new logistics developments and strategic retail redevelopments and
extensions. Given the prevailing challenges in the real estate market globally, resulting from the higher interest rate
environment, we view the disposals since 30 June 2023 as a strong result.

The continued investment into our retail portfolio, to keep it relevant to our tenants, is evidenced in our low vacancies
across our portfolio. We recently completed a refurbishment and extension of our mall in Vryheid, AbaQulusi Plaza,
and have plans to uplift and extend other strategic retail assets. Our SA retail portfolio has performed well, despite
a deteriorating consumer environment, achieving 7,2% like-for-like tenant turnover growth and an improved vacancy,
by rental, of 1,3%. We will continue to focus on our performing assets with potential and dispose of assets in
deteriorating markets or that are not dominant in their respective catchment areas. Steven Brown, CEO.

SA logistics and logistics developments

Vacancies, based on rental, in our SA logistics portfolio remained flat at 0,5% at
31 October 2023. These low vacancies are a result of effective asset recycling, well-executed management initiatives
in our standing portfolio and healthy demand for well-located, high-quality logistics developments.

Eastport continues to experience high demand and Teraco intends to expand the large data centre developed within
Eastport. As such, we have entered into a conditional agreement with Teraco for the sale of 108 000m2 of land adjacent
to their current site. This additional land will be sub divided but will remain within the boundary of our Eastport
Logistics Park. The subdivision process is expected to take at least 12 months. The expected sales price is
approximately R1 890/m2.

Construction of the new Retailability warehouse of 13 026m2 at Cornubia Ridge Logistics Park was completed on
schedule in July 2023. We secured a 10-year lease with Dromex for a 24 590m2 facility at Cornubia, with completion
expected during December 2023.

Construction of a new 38 169m2 warehouse at Clairwood for Sammar Logistics is progressing well. The 15-year lease,
underpinned by Sasol South Africa, is on track to be completed during December 2023. We have commenced bulk
earthworks on Clairwood Pocket 5B and have signed a 15-year lease with CHC Supply Chain Management for a
14 071m2 warehouse. In addition, we expect construction of the warehouse on Pocket 3C, totalling 20 514m2, to be
completed in April 2024, with strong interest from prospective tenants. Given the proximity to the port, access to the
M4 highway, security at the park and the high-quality offering, Clairwood Logistics Park remains the preferred
location for prospective tenants.

Central and Eastern European ("CEE") logistics and logistics developments

CEE logistics vacancies, by rental, increased from 3,9% at 30 June 2023 to 6,4% at 31 October 2023. This vacancy
represents two buildings, being 3 849m2 in Hall A at Stargard (Poland) and 5 450m2 in Hall E at Bydgoszcz (Poland).

Construction of a 50 200m2 warehouse building at our site in Lodz (Poland) commenced in July 2023, of which 28 509m2
has been pre-let to Notino on a 10-year lease. Occupation is scheduled for the third quarter of 2024. The balance of the
space being constructed has been offered to various potential tenants and we expect part of this space to be leased prior to
construction completion. The project provides further development potential of approximately 30 000m2 of GLA in the
second building, which is to be developed, based on adequate pre-lease commitments, once the available space in the first
building has been fully let.

We have commenced construction of phase 1, a 22 950m2 warehouse at our site in Zabrze (Poland). Half of phase 1 has
been pre-let to Lit Logistyka Polska (11 675m2) on a five-year lease. This development is expected to be completed during
the second quarter of 2024. Discussions with interested tenants for the balance of phase 1 are ongoing and progressing
well. Given the advance nature of many of these discussions, we are confident to conclude further leases in respect of this
project in 1Q2024.

The table below provides a summary of our logistics park developments in SA and CEE:

                                                                                %         GLA         Let        Lease      Estimated   Completion
 Logistics park                      Detail                                 owned          m2         GLA         term          yield         date
                                                                                       (100%)                  (years)            (%)

 Developments completed post 30 June 2023

 Cornubia Ridge Logistics Park       Retailability re-build                  50,1      13 026      13 026           10            7,0     Jul 2023
 Eastport Logistics Park             Crusader Logistics ^                      65      19 787      19 787           10            8,3     Oct 2023
 Total                                                                                 32 813      32 813

 Developments currently under development

 Clairwood Logistics Park            Pocket 2A - Sammar Logistics              65      38 169      38 169           15            8,0     Dec 2023
 Clairwood Logistics Park            Pocket 3C                                100      20 514           -            -                    Apr 2024
 Clairwood Logistics Park            Pocket 5B – CHC                          100      14 071      14 071           10            8,3     Aug 2024
 Cornubia Ridge Logistics Park       Lower platform – Dromex                 50,1      24 590      24 590           10            8,0     Dec 2023
 Lodz (Poland)                       Hall A – Notino $                       50,1      28 509      28 509           10            7,4     Jun 2024
 Lodz (Poland)                       Hall A $                                 100      24 742           -            -              *     Jun 2024
 Zabrze (Poland)                     Phase 1 – Lit Logistyka $                100      23 015      11 675           10            6,8     Jun 2024
 Total                                                                                173 610     117 014
 Total: 100% of developments                                                          206 423     149 827
 $ Yield shown in Euro
 * Estimated net initial yields on unlet developments are forecast at approximately 7%
 ^ Initial lease period is 5 years, with an option in favour of the Landlord to extend for 5 years, which we intend to exercise


Our retail portfolio, which is commuter-centric and focussed on convenience retail nodes, is well-positioned given
current macroeconomic conditions and a tough consumer environment. Turnover for the 12 months ended 31 October
2023 increased by 7,2% compared to the corresponding period of the previous year. The retail portfolio collection rate
for the period 30 June 2023 to 31 October 2023 was 99,5%. Retail vacancies, by rental, decreased from 1,5% at 30 June
2023 to 1,3% at 31 October 2023.

In line with our strategy of selling non-core assets, during the period we sold and transferred Game Paarl at a price of
R29,3 million, in line with book value.

The recent introduction of Capitec and Clicks at Park Central, as well as the new First National Bank and Fashion Fusion
stores at Central Park Bloemfontein, will reinforce the tenant mixes and dominance of these CBD centres. Sterkspruit
Plaza is fully let and continues to show consistent strong performance. We are at advanced planning and leasing stages
for an extension of this centre by approximately 5 000m2.

Weskus Mall continues to achieve improved foot traffic and trading, and is anticipated to benefit from the recent opening
of Volpes, Uniq, Lovisa and KFC.

The AbaQulusi Plaza (previously Vryheid Plaza) extension of 8 370m2 was completed during November 2023 and
officially opened on 22 November 2023. New tenants to the centre include Shoprite, Clicks, Jet, Woolworths Edit,
Totalsports, Sportscene and Markham.

During October 2023, the new 2 500m2 Shoprite store at Morone Shopping Centre opened. Trading is in line with
expectations and the centre now benefits from a strong anchor.

The redevelopment at 204 Oxford (previously Thrupps Shopping Centre) is progressing well. The parking
reconfiguration project has been completed and the remaining construction will be finalised by 30 June 2024.

Renewable energy

We remain committed to establishing a significant solar photovoltaic ("solar PV") footprint across our property
portfolio. We now have 33 operational plants totalling 11.8 MWac, compared to 25 plants totalling 9.633 MWac at
30 June 2023. We are on site with a further 15 plants totalling 5.7 MWac and have approved a further three plants
totalling 1.5 MWac to commence early next year. Furthermore, we have completed our first solar installation of
150 KWac at Bydgoszcz in Poland. We have also purchased the existing solar PV installation at Longmeadow Inland
1 which has an installed capacity of 1 700KWac. Backup generators have been installed at six retail centres and the
remaining sites have been targeted for completion by June 2024 as part of the Fortress energy security strategy.

Office and Industrial

Vacancies, by rental, in the industrial portfolio increased slightly from 6,8% at 30 June 2023 to 7,8% at 31 October
2023. Of the 43 837m2 of Industrial vacancy, more than 23 850m2 comprises offices, with the bulk of this in Spartan
and Isando. There is still strong demand for well-located smaller industrial units from tenants and also interest from
potential purchasers for the multi-user industrial parks. The joint portfolio co-owned with and managed by Inospace
continues to attract tenants resulting in good net operating income growth from this portfolio.

The office portfolio comprises less than 4% of our total assets by value and remains part of the non-core, direct
property portfolio. Vacancies, by rental, in the office portfolio increased marginally from 22,3% at
30 June 2022 to 23,1% at 31 October 2023. We continue to observe a return to offices in our portfolio, partly due to
the prevalence of load shedding. The asset management initiatives which are underway to refurbish four of the
buildings with the highest vacancies, focused on improved security, backup electricity and water and high-speed
internet connectivity. Energy efficiency is also a major area of focus, including LED lighting, and where feasible,
solar installations and battery storage. These initiatives have proven successful, with half of the vacant space at Parc
Nicol being let and an offer to purchase being received for the entire Fourways Office Park. The sale of Oxford Manor
is progressing well, with an expected transfer date of February 2024.


Total vacancies, based on rental, remained flat at 3,3% from 30 June 2023 to 31 October 2023.

                                                  Based on rental                                     Based on GLA
                                        Oct 2023                  Jun 2023                  Oct 2023               Jun 2023
Sectoral vacancy                               %                         %                         %                      %
Total                                        3,3                       3,3                       3,7                    3,7
Logistics – SA                               0,5                       0,5                       0,5                    0,5
Logistics – CEE                              6,4                       3,9                       6,5                    3,8
Retail                                       1,3                       1,5                       1,8                    2,3
Industrial                                   7,8                       6,8                       7,8                    7,4
Office                                      23,1                      22,3                      23,8                   22,9
Other ^                                      0,0                       0,7                       0,0                    0,8

Information based on Fortress' economic interest in wholly-owned and co-owned properties
^ Includes residential units, and serviced apartment properties

Direct property disposals

We continue to dispose of non-core properties, with total disposals post FY2023 amounting to R883 million in net
proceeds with a combined book value of R665 million.

The following properties have transferred since 30 June 2023:
                                                                                                                 Book value
                                                                                            Net proceeds           Jun 2023         Transfer
    Property name                                                   Sector                       (R'000)            (R'000)             date
    Longmeadow Inland 1                                             Logistics                    493 290            284 103         Nov 2023
    Louwlardia Logistics Park – Building 2 (WAG)              @     Logistics                    207 697            201 000         Nov 2023
    22 On Sloane                                                    Office                        50 000             50 000         Sep 2023
    10 Covora Road                                                  Industrial                    37 700             37 700         Aug 2023
    Director and Megawatt Roads                                     Industrial                    36 300             36 300         Aug 2023
    Game Paarl                                                      Retail                        29 000             29 000         Nov 2023
    78 Loper Avenue Aeroport                                        Logistics                     12 500             12 500         Aug 2023
    Greenbushes                                                     Land                           5 698              3 689         Aug 2023
    Lakeview Business Park 6                                        Industrial                     4 850              4 850         Aug 2023
    15 Kouga Street Stikland                                        Industrial                     3 800              3 800         Jul 2023
    3 Watkins Street                                                Industrial                     2 300              2 301         Sep 2023
                                                                                                 883 135            665 243

    ~ Erf 137 Longmeadow was acquired in August 2023 for R500 million and this portion was sold in November 2023 to Dis-Chem. The figure in
    the book value column represents the apportioned cost. The remainder of the site, held by us, has been formally valued at R382 million. Repair
    costs incurred on the entire site is estimated at R65 million.
    ^ Portion of the property
    @ 50% undivided share

The following properties are currently held for sale:
                                                                                                                 Book value
                                                                                            Net proceeds           Jun 2023            Expected
    Property name                                                   Sector                       (R'000)            (R'000)       transfer date
    Eastport Logistics Park                                   ^#    Land                         133 250            110 103              4Q2024
    Oxford Manor Illovo                                             Office                       110 674            105 000              1Q2024
    Fourways Office Park                                            Office                       103 700            105 000              1Q2024
    Monyetla Office Park                                      ^     Office                        41 932             41 932              1Q2024
    50 Tsessebe Crescent                                            Logistics                     13 900             11 996              1Q2024

                                                                                                   403 456          374 031
^ Portion of the property
    Conditional sale agreement with Teraco for the sale of 108 000m2 of land adjacent to their current site.

NEPI Rockcastle

By electing the scrip dividend option in September 2023, we increased our shareholding in NEPI Rockcastle N.V.
("NEPI Rockcastle") to 24,2% from 23,9% at 30 June 2023. NEPI Rockcastle released its interim results for the six
months to 30 June 2023 on 22 August 2023 and subsequently released a comprehensive business update on
16 November 2023. The value of our investment in NEPI Rockcastle is currently approximately R18,6 billion. These
results and announcements are available on its website at

Funding, liquidity and treasury

Subsequent to the results announcement dated 31 August 2023, we repaid an expiring three-year bond of R560 million
in October 2023. A new three-year bond, expiring in November 2026, of R250 million was issued to ABSA at three-
month JIBAR plus 148 basis points.

A new €50 million four-year facility with Standard Bank Isle of Man has been finalised for our CEE portfolio. The
facility comprises a €40 million term loan and a €10 million revolving credit facility, with an interest rate of six-
month Euribor plus 2,25%. At the date of this announcement, €15,3 million has been drawn against this facility.

Our hedge profile comprises 63% of caps and 37% swaps. The higher proportion of caps will benefit our funding
costs if interest rates decline from their current relatively high levels, while still providing protection if rates increase.

Consistent with all prior reporting periods where sustainability-linked notes were in issue, we remain compliant with
the set KPI's and are on track to achieve the targets for June 2024.

We currently have a total of R3,6 billion in cash and available facilities at group level and remain comfortably within
all debt covenants. Our unencumbered asset ratio is 38% and our loan-to-value ratio is approximately 35,5% at the
date of this announcement.

The information contained in this trading and pre-close operational update has not been reviewed or reported on by
the Company's auditors.

Scheme of arrangement

Shareholders are referred to the firm intention announcement published on SENS on 5 October 2023, and subsequent
scheme circular published on 30 November 2023, detailing the terms of the proposed scheme of arrangement between
Fortress and Fortress B shareholders and the proposed conversion of the Fortress A shares in issue to Fortress B shares.

The shareholder meetings convened in respect of the scheme and the conversion will take place on 19 January 2024
and will commence at 10:00am at Fortress' offices.

For additional information, salient dates and times, please refer to the published scheme circular at:

1 December 2023

Lead sponsor           Joint sponsor                                Debt sponsor
Java Capital           NedbankCorporate and Investment Banking,     Rand Merchant Bank
                       (a division of Nedbank Limited)              (a division of First Rand Bank Limited)
Date: 01-12-2023 04:35:00
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