Wrap Text
Trading and pre-close operational update
FORTRESS REAL ESTATE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share code: FFB
ISIN: ZAE000248506
Bond company code: FORI
LEI: 378900FE98E30F24D975
("Fortress" or "the Company")
TRADING AND PRE-CLOSE OPERATIONAL UPDATE
Shareholders and noteholders are referred to the results announcement for the interim period ended
31 December 2023 ("1H2024"), released on SENS on 8 March 2024. Fortress hereby provides an update on its
operations for the period subsequent to 31 December 2023.
Fortress will host a pre-close update at 10:00 on Thursday, 20 June 2024. Shareholders and noteholders can register to
participate via the following link:
https://events.teams.microsoft.com/event/45e70ce6-aa39-4a6b-b6ac-e322ecb92474@5be1f46d-495f-465b-9507-
996e8c8cdcb6
"The buoyant demand for high-quality, well-located logistics space is evidenced by the development of 268 982m2 of
lettable area that we commenced or completed during the current financial year, of which over 90% is let with a
weighted average lease expiry of approximately 10 years. The successful roll-out of the development pipeline is
underpinned by strong fundamentals, healthy demand and our strategy to dispose of non-core assets and recycle this
capital accordingly.
For the current FY2024 financial year, we estimate that non-core asset disposals will amount to approximately
R1,8 billion. The proceeds from these disposals have been recycled into the logistics development pipeline and strategic
retail refurbishments, extensions and redevelopments. The new developments will contribute to significant growth in
net operating income from our direct standing portfolio for the FY2025 financial year, for which we forecast growth of
20% off the FY2024 base, after adjusting for the impact of the Scheme of Arrangement implemented in February 2024.
We forecast total distributable earnings for FY2025 to be marginally ahead of FY2024. This is noteworthy given that
we used one-third of our c.R21 billion investment in NEPI Rockcastle shares at the time to facilitate the simplification
of our capital structure to a single class of share by buying out one class entirely for c.R7 billion.
Despite the continued challenges faced by the real estate market, disposals were concluded at a premium to their book
values, which highlights the stark contrast between the direct market and our share price, which trades at a material
discount to net asset value per share.
Notwithstanding the tough macroeconomic and consumer environment, stubborn inflation and elevated interest rates,
the South African retail portfolio has achieved like-for-like tenant turnover growth of 7,1% and maintained a low
vacancy rate, by rental, of 1,3%. The recently completed refurbishment and extension of AbaQulusi Plaza, in Vryheid,
is trading ahead of expectations. In addition, the newly opened Shoprite at Morone Shopping Centre is trading well
and has catalysed increased foot traffic and reduced vacancies at the centre. Our continued focus on improving the
performance of our core portfolio, while disposing of the underperforming assets, has delivered positive results and we
will continue to drive this strategy while remaining prudent in the allocation of capital across the various
opportunities." Steven Brown, CEO.
SA logistics and logistics developments
Vacancies, based on rental, in our South African ("SA") logistics portfolio increased from 1,1% at 31 December 2023
to 2,0% at 31 May 2024. This low vacancy rate reflects the healthy tenant demand for our quality logistics
developments, our successful recycling of non-core assets and well-executed management initiatives in the standing
portfolio. The low vacancy allows us to increase asking rental rates, which may result in marginally higher vacancies
in the short term.
We have received an offer to lease from Crusader Logistics, an existing tenant in our portfolio, for a five-year lease
term for a new warehouse at Eastport Logistics Park ("Eastport"), comprising 19 970m2 of gross lettable area ("GLA"),
with development commencing in July 2024. Liquor Runners has signed a five-year offer to lease on a new 31 481m2
warehouse at Eastport, with beneficial occupation planned for October 2025.
We have received numerous enquiries for space at our Longlake Logistics Park and expect to commence a pre-let
development shortly.
Construction of the 24 537m2 warehouse for Dromex at Cornubia Ridge Logistics Park ("Cornubia") was completed,
on schedule, during February 2024. The 10-year lease commenced on 1 March 2024.
The new 38 169m2 warehouse at Clairwood Logistics Park ("Clairwood") for Sammar Logistics was completed and
the 15-year lease, which is underpinned by Sasol South Africa, commenced on 1 April 2024. Construction of the
14 071m2 warehouse at Clairwood on Pocket 5B, for CHC, is progressing well and is on schedule for completion in
September 2024. The 10-year lease with CHC is expected to commence on 1 November 2024. Construction of the
20 682m2 warehouse on Pocket 3C, for ASL, achieved practical completion on 24 April 2024. ASL is an existing tenant
in the park and has signed a five-year lease. Demand for the last pocket at Clairwood, Pocket 6, is strong. We expect to
let the final portion, consisting of approximately 30 000m2 of GLA, during the remainder of the 2024 calendar year.
Post the construction and letting of Pocket 6, Clairwood will comprise approximately 300 000m2 of fully-let, high-
quality and well-located secure logistics space.
Central and Eastern European ("CEE") logistics and logistics developments
CEE logistics vacancies, by rental, reduced from 6,5% at 31 December 2023 to 5,2% at 31 May 2024. This vacancy
represents two buildings, being 3 849m2 in Hall A at Stargard (Poland) and 5 450m2 in Hall E in Bydgoszcz (Poland).
A 12-year lease has been signed with MediVet for 6 425m2 of Hall C in Bydgoszcz. Construction commenced in April 2024,
with the lease commencement expected in December 2024.
Construction of a 50 200m2 warehouse at our site in Dromex (Poland) commenced in July 2023, of which 28 509m2 has been
pre-let to Notino, who has already taken occupation, on a 10-year lease. The balance of the space currently under construction
remains unlet at present, which will cause a temporary increase in the vacancy. The project provides further development
potential of approximately 30 000m2 of GLA in the second building. Development will commence once the available space
in the first building has been fully let, and based on adequate pre-lease commitments.
Construction of the 23 015m2 warehouse at our site in Zabrze (Poland) has been pre-let to Lit Logistyka Polska (11 675m2)
and INNPRO (11 340m2), both on five-year leases. The 11 675m2 warehouse for Lit Logistyka was completed during
May 2024 and the 11 340m2 facility for INNPRO is expected to be completed by September 2024. The demand for new
space in this location is encouraging and bodes well for the remainder of this c.77 500m2 development.
The table below provides a summary of our logistics park developments in SA and CEE:
Fortress' GLA Let Lease Estimated Estimated
Logistics park Description ownership m2 GLA term yield completion
% (100%) (100%) (years) (%) date
Developments completed during FY2024
Cornubia Retailability re-build 50,1 13 026 13 026 10 7,0 Jul 2023
Cornubia Lower platform – Dromex 50,1 24 537 24 537 10 8,0 Feb 2024
Eastport Crusader Logistics ^ 65 19 736 19 736 10 8,3 Oct 2023
Clairwood Pocket 2A - Sammar Logistics 100 38 169 38 169 15 8,0# Dec 2023
Clairwood Pocket 3C – ASL 100 20 682 20 682 5 8,3 Apr 2024
Total 116 150 116 150
Developments currently under development
Clairwood Pocket 5B – CHC 100 14 071 14 071 10 8,3 Sep 2024
Lodz (Poland) Hall A – Notino $ 100 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 11 675 11 675 5 7,0 May 2024
Zabrze (Poland) Phase 1 – INNPRO $ 100 11 340 11 340 5 7,0 Sep 2024
Bydgoszcz (Poland) Hall C (phase 1) – Medivet $ 100 6 425 6 425 12 7,0 Dec 2024
Eastport Crusader Logistics 2 65 19 970 19 970 10^ 8,5 Aug 2025
Eastport Liquor Runners 65 31 481 31 481 5 8,5 Sep 2025
Eastport John Deere 65 4 619 4 619 10 8,5 Nov 2024
Total 152 832 128 090
Total: 100% of developments 268 982 244 240
$ Yield shown in Euro.
** Estimated net initial yields on unlet developments are forecast at approximately 7%.
^ Initial lease period is five years, with an option in favour of the landlord to extend for five years, which we intend to exercise.
# Yield is on the core building, excluding above-standard tenant installations. If above-standard tenant installations are included the yield
increases to approximately 9%, with final accounts still to be submitted.
Retail
Despite subdued economic growth and a tough consumer trading environment, the retail portfolio continued to perform
well after 1H2024. The portfolio is focussed on convenience retail nodes, mostly underpinned by transport networks and
has a bias towards essential goods and services. Like-for-like tenant turnover for the 12 months ended
30 April 2024 increased by 7,1% compared to the corresponding period of the previous year. The retail portfolio collection
rate for the period 1 January 2024 to 31 May 2024 was 99%. Retail vacancies, by rental, decreased from 1,6% at
31 December 2023 to 1,3% at 31 May 2024.
In line with our strategy of selling non-core assets, we have disposed of and transferred 225 Pine (Durban) for net proceeds
of R110,1 million, which represents a 13,5% premium to book value. Furthermore, Kimberley Junction is currently held
for sale at expected net proceeds of R97 million.
The central business district ("CBD") portfolio turnover growth was driven by improved lettings at Park Central
(Johannesburg CBD) and Central Park (Bloemfontein). High street CBD centres are faced with challenges of crime and
degradation in the surrounding areas and we intend to reduce our exposure to these formats of retail assets. Improved
leasing at Evaton Mall was the main driver of turnover growth within the township category.
The rural portfolio has benefited from reduced vacancies and improved trading at Mussina Shopping Centre,
Lebowakgomo Centre, Sterkspruit Plaza and Venda Plaza. The recently redeveloped AbaQulusi Plaza is performing well
and ahead of expectations. The newly opened Shoprite at Morone Shopping Centre is trading well and has resulted in
increased foot traffic and reduced vacancies at the centre.
The suburban category continues to report steady growth. This is led by Shoprite Mayville, which has a newly revamped
Checkers Hyper and Weskus Mall which has seen an increase in foot traffic and consumer spending. In addition, the
redevelopment at 204 Oxford is progressing well. The parking reconfiguration has been completed and the remaining
construction, including the introduction of a 1 061m2 Woolworths Food, is expected to be finalised in the second half of
this calendar year.
Renewable energy
We remain committed to establishing a significant solar photovoltaic footprint across our property portfolio.
Since 31 December 2023, we have completed 17 solar plants and we are currently on site with another 16. It is our aim
to have 60 operational plants, with an installed capacity of 22,4MWac by 30 June 2024. We will generate approximately
22 000 MWh during the current financial year. Our renewable energy penetration rate will increase from 5% to
approximately 10% of total portfolio consumption.
For the period 1 July 2024 to 31 December 2024 ("1H2025"), we are targeting the addition of 19 plants, taking the total
number of installations to 79, with installed capacity increasing to 30 MWac. For the six months from 1 January 2025
to 30 June 2025 ("2H2025"), we are planning a further 15 new plants, taking the total number of plants to 94, with
installed capacity increasing to 35 MWac at 30 June 2025.
The installation of backup generators at our core retail sites is well underway and should be completed during 1H2025.
This energy security initiative is proving successful and popular with tenants, at a relatively low cost. The systems are
working efficiently when combined with the solar installations. The design caters for the installation of batteries, but,
in our view, these are currently economically sub-optimal.
Office and Industrial
Vacancies, by rental, in the industrial portfolio decreased from 8,4% at 31 December 2023 to 6,4% at 31 May 2024. Of
the 37 488m2 of industrial vacancies, approximately 23 850m2 comprises the office component of these properties, with
the majority of this in Spartan and Isando. Strong tenant demand remains for well-located smaller industrial units and
interest from potential purchasers for the multi-user industrial parks remains robust. The joint portfolio, co-owned with
and managed by Inospace, continues to attract tenants, resulting in good net operating income growth in excess of our
initial forecast of 15% year-on-year.
Office vacancies, by rental, decreased from 24,4% at 31 December 2023 to 22,4% at 31 May 2024. We estimate that the office
portfolio will reduce, by value, from 2,6% to less than 2% of total assets, once the current held for sale transactions
have been concluded.
Vacancies
Total vacancies, based on rental, reduced to 3,4% at 31 May 2024 from 3,7% at 31 December 2023.
Based on rental Based on GLA
May 2024 Dec 2023 May 2024 Dec 2023
Sectoral vacancy % % % %
Total 3,4 3,7 4,2 4,2
Logistics – SA 2,0 1,1 2,6 1,2
Logistics – CEE 5,2 6,5 5,6 6,5
Retail 1,3 1,6 1,6 2,0
Industrial 6,4 8,4 6,8 8,1
Office 22,4 24,4 22,7 25,3
Other ^ 0,2 0,0 0,2 0,0
Information based on Fortress' economic interest in wholly-owned and co-owned properties.
^ Includes residential units and serviced apartment properties.
It is expected that vacancies in the CEE logistics portfolio will rise in June 2024, due to the completion of the Lodz
development, which currently has 24 742m2 of the 53 251m2 total GLA unlet.
Direct property disposals
We continue to sell non-core properties, with total disposals for the financial year-to-date amounting to R1,51 billion with
a book value of R1,27 billion. For the full financial year ending 30 June 2024 ("FY2024"), we expect to generate
approximately R1,8 billion in cash proceeds from asset sales with the remainder of the held for sale assets expected to be
transferred shortly after the FY2024 year-end, depending on the speed of the deeds office processes.
Net proceeds Book value Transfer
Property name Sector (R'000) (R'000) date
Longmeadow Inland 1 ~^ Logistics 493 290 312 613 Nov 2023
Louwlardia Logistics Park – Building 2 (WAG) @ Logistics 207 697 201 000 Nov 2023
Palisades Business Park Jet Park Industrial 120 000 109 432 Jun 2024
Oxford Manor Illovo Office 110 674 105 000 Feb 2024
225 Pine Retail 110 100 97 000 May 2024
45 Diesel Road Isando Industrial 90 000 76 706 Dec 2023
22 On Sloane Office 50 000 50 000 Sep 2023
Monyetla Office Park ^* Office 41 932 41 932 Dec 2023
Springbok Park Industria West Industrial 39 000 40 093 Jun 2024
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
20 Loper Avenue Spartan Logistics 24 900 22 578 May 2024
48 Koornhof Road Industrial 23 760 21 135 Apr 2024
357 Rivonia Boulevard Office 17 500 18 500 Jun 2024
50 Tsessebe Crescent Logistics 13 900 11 996 Feb 2024
78 Loper Avenue Aeroport Logistics 12 500 12 500 Aug 2023
75 Kyalami Boulevard Industrial 11 300 10 783 May 2024
1257 South Road Centurion Office 10 500 11 000 Mar 2024
Lakeview Business Park 10 Industrial 10 000 9 058 Mar 2024
Greenbushes ^ Land 5 698 3 689 Aug 2023
Lakeview Business Park 6 Industrial 4 850 4 850 Aug 2023
10 – 14 Watkins Street Denver Industrial 3 925 5 516 Jun 2024
15 Kouga Street Stikland @ Industrial 3 800 3 800 Jul 2023
3 Watkins Street Industrial 2 300 2 301 Sep 2023
510 626 1 274 482
~ Longmeadow Inland 1 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 has been formally valued at R382 million.
Repair costs incurred on the entire site are estimated at R65 million.
^ Portion of the property.
@ 50% undivided share.
* Effective date of sale transaction that registered in March 2024.
The following properties are currently held for sale:
Net
proceeds Book value Transfer
Property name Sector (R'000) (R'000) date
Oak Avenue Highveld Office 150 000 115 000 *
Eastport Logistics Park ^# Land 133 250 113 103 *
Fourways Office Park Office 103 700 105 000 *
Kimberley Junction Retail 97 000 100 000 *
1 Setchel Road Roodekop Industrial 96 250 92 093 *
Parc Nicol Office 37 500 36 000 *
146 Serenade Road Rustivia Logistics 21 000 22 012 *
112 Roan Crescent Logistics 16 000 15 387 *
368 Sifon Street Robertville Industrial 13 800 13 045 *
9 Reedbuck Crescent Logistics 13 800 12 464 *
71 Tsessebe Crescent Logistics 13 000 12 268 *
695 300 636 372
* Not yet transferred.
^ Portion of the property.
# Conditional sale agreement with Teraco for the sale of 108 000m2 of land adjacent to their current site.
NEPI Rockcastle
Post the Scheme of Arrangement, implemented in February 2024, Fortress' shareholding in NEPI Rockcastle N.V.
("NEPI Rockcastle" or "NRP") was 16,2%. NEPI Rockcastle released its final results for the year to 31 December 2023
on 20 February 2024 and subsequently released a comprehensive business update on 15 May 2024. These results and
announcements are available on its website at www.nepirockcastle.com. The current value of our investment in NEPI
Rockcastle is approximately R14,4 billion.
During the final period for the six months ending 30 June 2024 ("2H2024"), Fortress entered into a scrip lending
transaction with Standard Bank, whereby 23,4 million NEPI Rockcastle shares were transferred to Standard Bank in order
to facilitate additional liquidity at low cost. Fortress retains the risk and reward of ownership of these shares and may
recall the shares at any time subject to certain conditions.
Funding, liquidity and treasury
Fortress raised R900 million through a public bond auction in April 2024. The issuance consisted of two DMTN notes
of R409 million in a 3-year note (three-month JIBAR + 140bps) and R491 million in a 5-year note (three-month JIBAR
+ 158bps).
Our interest rate hedges comprise 65% caps and 35% 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 R3,9 billion in cash and available facilities at group level and remain comfortably within
all debt covenants. Our unencumbered asset ratio is 30,6% and our loan-to-value ratio is approximately 39,4% at the
date of this announcement.
Outlook and guidance
We previously estimated our distributable earnings for FY2024 to be between R1,66 billion and R1,72 billion, as published
on 8 March 2024 in our 1H2024 results announcement.
We now update our estimated distributable earnings for the year ending 30 June 2024 to be at least R1,7 billion.
Furthermore, we forecast distributable earnings for the year ending 30 June 2025 to be approximately R1,73 billion,
which is 20,7% higher than the normalised distributable earnings figure for FY2024. Further detail is presented in the
table below:
1H2024 2H2024 FY2024 FY2025 Change
(actual) (forecast) (forecast) (forecast) YoY (%)
Total distributable earnings (R'000) 952 868 747 132 1 700 000 1 730 000 1,8%
Shares in issue 1 169 980 307 1 192 801 293 1 192 801 293 1 192 801 293
Distributable earnings per share 81.44 62.64 144.08# 145.04 0,7%
(cents)
FY2024
1H2024 2H2024 (normalised FY2025
Normalisation adjustments: (normalised) (forecast) forecast) (forecast)
Exclusion of dividend on
53 134 372 NRP shares (R'000)
received in September 2023* (266 365) - (266 365) - -
Adjusted total distributable earnings 686 503 747 132 1 433 635 1 730 000 20,7%
(R'000)
(normalised for the effects of the
Scheme of Arrangement)
Adjusted distributable earnings 58.68 62.64 121.31 145.04 19,6%
per share (cents)
(normalised for the effects of the
Scheme of Arrangement)
* The 53 134 372 NRP shares were used to fund the buy back of all the Fortress B ordinary shares in issue at the time of
implementation of the Scheme of Arrangement. Adjustment includes related foreign currency hedges on this income.
# Sum of the 1H2024 actual (81.44cps) and 2H2024 forecast (62.64cps) dividends per share.
This forecast is based on the following assumptions:
Fortress-specific assumptions
- Our distributable earnings methodology will remain consistent with that of prior periods, as previously
communicated;
- NEPI Rockcastle maintains a 90% payout ratio and meets their published distributable earnings per share
guidance for their 2024 financial year ending 31 December 2024;
- No material sales, nor acquisitions, outside of our planned pipeline occur which necessitate a revision to this
forecast;
- There is no unforeseen failure of material tenants in our portfolio;
- Contractual escalations and market-related renewals will be achieved with no major change in vacancy rates; and
- Tenants will be able to absorb the recovery of rising utility costs and municipal rates.
Macroeconomic and regulatory assumptions
- There is no unforeseen material macroeconomic deterioration in the markets in which Fortress has exposure;
- There are no unforeseen adverse socio-political events in the jurisdictions in which Fortress has exposure;
- There are no changes to current tax legislation in the jurisdictions in which the Company operates; and
- There are no changes to current interest rates by the European Central Bank or the South African Reserve Bank.
The forecast and normalisation adjustments, including the assumptions on which they are based and the financial
information from which they have been prepared, are the responsibility of the directors of the Company. The forecast
and normalisation adjustments have not been reviewed or reported on by the Company's external auditors.
19 June 2024
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: 19-06-2024 12:50:00
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