All-time high occupancy levels boost Fortress REIT’s Interim Results

All-time high occupancy levels boost Fortress REIT’s Interim Results

All-time high occupancy levels boost Fortress REIT’s Interim Results

Welcome to this edition of our FOURsight newsletter. We recently released our Interim Results for the six months ended 31 December 2021. It was an interesting period: July 2021 saw us having to deal with the riots and looting, primarily around KZN and Gauteng. It was a challenging time for all of us in the retail real estate industry seeing what happened to some of our malls and how some tenants struggled. What I felt was most telling about the situation was how the country worked together post these events: SASSRIA really came to the fore, government came to the fore to support SASSRIA and as a result, we have been paid for the bulk of our claims. We have since seen our retail sales increase by 8.2% like-on-like for the period.

SA Inc is currently going through a far more positive cycle. We’re seeing commodities boom and we are experiencing a lot more positivity in various parts of our business, including our logistics developments. There is far more interest in enquiries relating to the purchase of our non-core assets, which is an important part of our portfolio transformation at Fortress, as we sell those non-core assets and use that cash to roll out our extensive development pipeline.
A few years ago, the logistics development pipeline was approximately 1 million square metres, and today, we’ve only got about 360,000m² of the pipeline left that isn’t under construction or already been developed. That leaves us with about a third left to develop. I think we’ve done a really great job of chewing through the land we bought several years ago and transforming our portfolio to be the largest logistics real estate developer and owner in South Africa.

Another positive highlight for the period is that our vacancies are at the lowest level we have seen in four years. Our retail portfolio has once again proved its defensiveness. I think this speaks to the fact that we have focused on tenant retention and that things haven’t ‘fallen off a cliff’ in South Africa. We tend to see huge highs and very deep lows, and in my view, what we’re seeing on the ground is really good. The rental levels aren’t ‘going gangbusters’ as they say in the US, but there is certainly steady growth in the asking rentals in our logistics portfolio. Our other portfolios such as industrial and office also have reasonably low vacancy levels, with positive signs of growth.

Our joint venture with Inospace saw us put together a portfolio combined with their assets, which is worth around R1,25 billion. What’s exciting about this deal is that it is proof of something that we have been saying for years - specialisation in real estate is key. In the US, real estate industry players are highly specialised. This is something we have been quite focused on in our own business, mainly in our two core portfolios of logistics real estate and retail real estate. We really liked the Inospace concept, we liked the team’s entrepreneurial mindset and how they approached last-mile logistics by making our older industrial stock buildings more relevant for what tenants are looking for in the market today. I am positive that the team will grow into a successful business and hopefully they will take on more of our non-core assets and give them a new lease on life.

In summary, the Fortress business is doing very well. The SA macro economy certainly does seem to have recovered from the pandemic, albeit slowly. We are seeing a lot of positive signs in our low vacancy rates and slightly higher rentals for our new logistic boxes.

I thank you for your encouragement and I look forward to continuing to engage with you as partners powering growth together.

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