All-time high occupancy levels boost Fortress REIT’s Interim Results
Johannesburg, 11 March 2022: Fortress REIT’s positive interim results represent a further step towards the successful implementation of the long-term strategy to simplify their business and continue the focus on their core strength of logistics and convenience retail. Fortress REIT has continued to successfully pivot the business to a one-third convenience retail and two-thirds logistics real estate portfolio in South Africa. This strategy has been key for South Africa’s leading logistics operator to show continued resilience as the demand for logistics, both locally and offshore, remains buoyant despite the tough trading period. This was reflected in the reduction of the overall vacancy in the property portfolio from 7,4% at 30 June 2021 to 6,5% at 31 December 2021 (based on GLA) which is the lowest vacancy rate in four years.
“The long-term focus for the business, despite the negative economic environment and COVID-19 impact, allowed us to continue to shore up our balance sheet, grow liquidity through the sales of non-core assets and recycle this capital to invest in both acquiring and developing best-in-class, well-located premium logistics parks in South Africa and more recently, in Central and Eastern Europe (CEE),” said Steven Brown, CEO of Fortress REIT Limited. “Our core portfolios have performed well and proved their defensiveness yet again.”
Fortress Logistics has continued to experience strong demand for state-of-the-art warehousing space in secure logistics parks that are well-located and in good proximity to developed road infrastructure. This is evidenced by the completion and letting of three developments totalling c.94,000m² in the first half of 2022.
In addition to the strong demand for logistics property, Fortress Retail has seen positive growth in its portfolio with like-for-like retail sales increasing by 8,2% on a like-for-like basis over the year to December 2021.. On the performance of the retail portfolio, Brown added, “Sales growth benefited from the continued relaxation of COVID-19 restrictions and consumers returning to the shopping centres with the pandemic abating, coupled with government’s social grant initiatives. Our retail portfolio remains concentrated on commuter focused and convenient locations which has certainly experienced an increasing number of people returning to the shops and this has gone a long way in reducing the negative impact created by COVID. We continue to improve trading densities at our retail assets and despite economic headwinds we are optimistic for future growth.”
Fortress took key steps during the year to shore up its balance sheet and create liquidity in the business. This included the disposal of 11 properties at a c.4% premium to book value with net proceeds of R287 million. A further 11 properties are held for sale which should net a further R367 million. Part of the proceeds has been used to fund the rollout and enhancement of the significant development pipeline of logistics parks.
The market has had a favourable response to Fortress’ positive trading position and more conservative distribution policy, demonstrated through the strong appetite experienced for the three sustainability-linked bonds amounting to R1,3 billion issued earlier this month with three-, five- and five-and-a-half year tenors which follows the two sustainability-linked bonds issued at the end 2021 that brought in a combined total of R900 million in the three- and five-year tenors. Other financial initiatives included rolling forward the collar derivative structure on 11,47 million NEPI Rockcastle shares with a put strike of R76,76 and a call strike of R116,68. This was undertaken to ensure ample liquidity is maintained for funding the development pipeline, while also retaining the dividends on these shares.
Brown concluded that he was pleased with the results achieved by the Fortress team both in SA and Europe and remains confident about the future of the business. “The various proactive steps we have taken, principally aimed at protecting the balance sheet during the pandemic, enabled us to continue developing our logistics property pipeline while at the same time growing our offshore presence without compromising a sustainable level of gearing. While we navigate the macroeconomic headwinds in South Africa and monitor the ongoing crisis in Ukraine, we remain optimistic about the prospects for our business and the sectors within which we operate.”