The future according to Fortress

Thank you for your interest in the first edition of our FOURsight newsletter. We will be sharing our views and news about the future of the real estate market with our business partners, clients, tenants, investors and others who are involved in the logistics and retail industries. The recent presentation of our annual results for the 2020 financial year (which ended in June) showed that Fortress, like other REITs in South Africa, are going through a tough time. Particularly, the last quarter of our financial year, as this is when the pandemic and resultant lockdown impacted us.

Vacancies - although they are slightly above where they were at the beginning of the year – are now under control. Our rental collections are close to 100% now with tenants paying what we are invoicing them. As we reported, our logistics portfolio is valued at about R10billion and has a 3% vacancy, the lowest we’ve ever seen in this portfolio.

In our retail portfolio, people are back in the shops, feedback from most of our major tenants is that trade is similar to where they were pre-pandemic, which is fantastic. What’s exciting for me is the request for proposals on new logistics assets that we are fielding, all of which are driven by the retailers who are looking to enhance their supply chains. We have found that South African retailers that are well-run and well-capitalised are looking to grow their online offerings.

Even though we have gone through a tough patch, our portfolios are very resilient.

In the next six months, we will progress with our new warehousing developments and partner with tenants who want to be in our secure logistics parks so that we can really grow that portfolio. We will continue to look for opportunities to offload our non-core properties.

Pleasingly, the interest rate cuts have started to underpin the sales of the smaller properties that are on the market. There is still a lot of interest in the South African real estate market, especially when you compare it to the hunt for yield globally. For the first time in my memory of the South African real estate industry, we are getting a positive yield pick up on acquisitions.

In Europe, the United States and Asia, there’s very little yield that investors can access. Here investors are getting high yield, quality properties at around 9%. You can now buy property at 9% and you can fund it at 7%, in return you get a cash on cash return. This will bring back a lot of the smaller investors who had seemingly exited the market twelve, twenty-four months ago. This is positive news for us! Our portfolio is quite large, with about 290 properties. By selling off the smaller properties, they will be better managed and more value accretive in someone else’s portfolio.

Although there is still a bit of uncertainty in the market because of the pandemic, it seems like things are returning to normal. Everything is starting to stabilise and long may it continue! We look forward to engaging with you as we focus on powering growth for our tenants, and in turn, grow the economy together.