Fortress REIT’s Annual Results reflect strong growth in NAV from continued investment despite short-term volatility

Fortress REIT Limited annual results for the year ending 30 June 2021

Fortress REIT’s long-term strategy to pivot the business to a one-third convenience retail and two-thirds logistics real estate portfolio in South Africa and invest further into Europe has helped the country’s leading logistics operator to show significant growth in net asset value of 12.9% during this volatile Covid-19 trading period and recent uptick in political unstability in South Africa.

“The long-term focus in the business, even when the effects of the pandemic hit, allowed us to continue to shore up our balance sheet and grow liquidity through the sales of non-core assets. The recycled capital has been invested in acquiring and developing best-in-class, well-located premium logistics parks in South Africa and more recently, Central and Eastern Europe (CEE)” said Steven Brown, CEO of Fortress REIT Limited.

“Our global diversification strategy is gaining traction. We concluded our second successful deal in CEE by finalising the acquisition of our first directly held logistics park in Romania in July 2021. This follows our recent two logistics park aquistions in Poland in December last year. We are also the largest shareholder in NEPI Rockcastle who are active in high-growth retail real estate in CEE and recently produced strong results despite the pressures from lockdowns over the period.”

“With a strong global vaccination drive on the horizon, we look forward to a more normalised operating environment. The recent volatility has resulted in more demand in our logistics portfolio as well as our pipeline of logistics developments both in SA and CEE.”

“Modern and safe logistics parks are in demand, with more clients looking to have a robust and localised supply chain. Retailers investing in e-commerce are also needing more warehouse space. We have received a significant uptake in enquiries about our secure logistics developments and have managed to let all of our newly developed warehouses measuring a staggering 163,127 m², all located in our own logistics parks. Over the last 18 months we have concluded leases for the development of over 400 000 m² of state-of-the art logistics boxes at key nodes in Gauteng and KZN”

Fortress remains committed to the rollout of their development pipeline both locally and in CEE. Fortress’s strong balance sheet and increased liquidity has been made possible by high levels of disposals of their non-core assets. Significantly, “the sale of these assets was largely achieved at a premium to book values,” says Brown. The business sold R1,65 billion of property assets at 2.8% premium to book values.

“We have also experienced a resurgence in trading in our commuter and convenience retail portfolio which had better trading than the comparatives for 2019 - a pre-pandemic period - which has been encouraging.”

“The significant progress we have made in the recent months from a focused strategy and a coninuation in investment in our assets through the short-term volatility as well as our balance sheet management has resulted in a more robust business with a better ability to withstand unforeseen events.”

Brown concluded that a dividend of R870 million will be declared for the period under review.

Highlights for the year ended 30 June 2021 are:
• Completed 163 127m2 of new logistics developments, all of which were let by year-end;
• Commenced construction on pre-let developments of 244 426m2, including a new 164 470m2 distribution centre for Pick n Pay at Fortress Logistics Eastport Park;
• Commenced construction on speculative developments of 80 219m2 which will be completed in the next 12 to 18 months;
• Disposed of 29 properties for proceeds of R1,65 billion at a 2,8% premium to book value;
• Reported a lower LTV ratio of 36,7% compared to 38,1% at 31 December 2020;
• Improved trading conditions in our retail portfolio which saw better trading densities than the comparable period in 2019 and 2020;
• Reduced the overall vacancy in the property portfolio from 8,9% at 30 June 2020 to 7,4% at 30 June 2021 (based on GLA), albeit marginally higher than the 31 December 2020 vacancy of 6,8%;
• Acquired two logistics parks in Poland totalling approximately 60 000m2 of GLA, with available land for a further 110 000m2 of developments;
• Acquired a logistics park in Romania totalling approximately 50 000m2 of GLA in July 2021;
• Issued two sustainability-linked bonds, post year-end, for a combined total of R900 million in the three- and five-year tenors;
• Installed eight new solar PV plants, with a further 10 at various stages of procurement or feasibility assessment. Installed plant capacity across our portfolio has now reached 4.735mWp at 30 June 2021 compared to 2.808mWp at 30 June 2020;
• Repurchased 26 861 996 FFA and 25 373 229 FFB shares at an average price of R14,34 and R3,02, respectively, post year-end; and
• Achieved an improved B-BBEE rating of Level 4, compared to Level 5 in 2020.