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 final results announcement
for year ended 30 June 2024 ("FY2024"), released on SENS on 29 August 2024.
We hereby provide an update on Fortress' operations for the period
subsequent to 30 June 2024.
"Fortress is a real estate investment company with a portfolio of high-quality
logistics and retail assets in South Africa and Central and Eastern Europe.
Fortress directly holds logistics assets of c. R20 billion and a South
African retail portfolio of c. R10 billion. In addition, Fortress has a
holding of c. R16 billion in NEPI Rockcastle shares which provides exposure
to the best retail portfolio in Central and Eastern Europe. Combined,
these holdings provide shareholders with exposure to a c.R50 billion real
estate portfolio with a significant development pipeline, providing growth
opportunities for the future.
High-quality, secure logistics space continues to perform well and has
experienced buoyant demand with continued low vacancies across our portfolio.
This demand for logistics space in prime locations is demonstrated by the
93 954m2 of new logistics properties currently under development,
comprising 64 514m2 in South Africa and a further 29 440m2 in Poland,
of which 75% is pre-let. The demand for our logistics properties is
testament to the quality of our builds, with best-in-class flooring,
large yards and 15-metre eaves height to enable additional racking and
increased warehouse volume. This is coupled with efficient access to
key transport routes, which is underpinned by established infrastructure.
Despite a consumer-constrained environment, our retail portfolio achieved
like-for-like tenant turnover growth of 4,5% and maintained a low vacancy
rate, based on rental, of 1,1%. The satisfactory performance of the core
retail portfolio has been led by recently refurbished and extended centres.
We continue to ensure that our entire portfolio remains relevant and
attractive to consumers and tenants.
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. In line with this strategy, we
have disposed of non-core properties with a combined book value of
R718 million, for proceeds of R746 million post FY2024. This capital
has been recycled into new logistics developments and strategic
retail redevelopments and extensions. Properties with a combined
book value of R257 million are held for sale at the date of this
report.
The more positive trading environment has resulted in an upgrade
to our previous distributable earnings forecast from R1,75 billion
to R1,78 billion for the financial year ending 30 June 2025
("FY2025")." Steven Brown, CEO.
SA logistics and logistics developments
Vacancies, based on rental, in our South African ("SA") logistics
portfolio decreased from 1,5% at 30 June 2024 to 1,4% at
31 October 2024. The vacancy remains low by historical standards,
driven by strong demand for newly completed developments,
effective asset management initiatives across the standing
portfolio and the improved quality of the overall logistics
offering, due to the successful recycling of non-core assets.
Construction of the 4 619m2 warehouse for John Deere at Eastport
Logistics Park ("Eastport") was completed in September 2024, with the
10-year lease commencing on 1 November 2024. Construction of the
19 970m2 warehouse at Eastport, for Crusader Logistics, is progressing
well and is on schedule for completion in September 2025. Crusader
Logistics, an existing tenant at Eastport, has signed a five-year lease,
with an option in favour of Fortress to extend for a further five years.
Construction of the 31 481m2 warehouse for Liquor Runners, who has
signed a five-year lease, is on track, with beneficial occupation
planned for October 2025. Demand for space at Eastport is encouraging
and the construction of the 13 063m2 speculative warehouse is on schedule
for completion in February 2026.
We have received numerous enquiries for space at our Longlake Logistics
Park and we expect to commence a pre-let development early in the
2025 calendar year.
Construction of the 14 071m2 warehouse at Clairwood Logistics Park
("Clairwood") on Pocket 5B, for CHC on a 10-year lease commencing on
1 November 2024, was completed on schedule in October 2024. Discussions
are ongoing with a potential tenant for Pocket 6 for 30 000m2 of
gross lettable area ("GLA") and we expect to finalise this lease early
in the 2025 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, based on rental, reduced
from 3,5% at 30 June 2024 to 3,4% at 31 October 2024. This
represents vacancies of 3 849m2 in Hall A at Stargard (Poland)
and 4 320m2 in Hall E in Bydgoszcz (Poland). Since 31 October 2024,
we have let the remainder of the space in Hall E to an existing
tenant in the park who requires additional space, but who will
however vacate their existing unit of 1 313m2.
Construction of phase 1 of Hall C in Bydgoszcz is progressing well.
MediVet has leased this 6 425m2 space for 12 years, with the lease
commencement expected to be in December 2024.
Construction of a 53 251m2 warehouse at our site in Lódz (Poland)
was completed in June 2024, of which 28 064m2 has been let to
Notino on a 10-year lease. The speculative warehouse of 25 187m2
has been let to Oriflame on a six-and-a-half-year lease, commencing
in January 2025. The project provides further development potential
of approximately 29 000m2 of GLA in the second building. Development
will commence once adequate pre-lease commitments are secured.
Construction of the 23 015m2 warehouse at our site in Zabrze
(Poland) was completed during the FY2024 financial year and has
been let to Lit Logistyka Polska (11 675m2) and INNPRO (11 340m2),
both on five-year leases. Furthermore, construction of an additional
11 340m2 warehouse for INNPRO commenced in July 2024, also on a
five-year lease, which is expected to be completed during April 2025.
The demand for space at Zabrze has exceeded our expectations and
discussions with potential tenants for the 11 675m2 speculative
development, with completion scheduled for April 2025, are progressing
well.
The table below provides a summary of our logistics park
developments in SA and CEE:
Fortress' Let
Logistics Description/ ownership GLA m2 GLA
park tenant % (100%) (100%)
Developments completed post 30 June 2024
Clairwood Pocket 5B – CHC 100 14 071 14 071
Eastport John Deere 65 4 619 4 619
Total 18 690 18 690
Developments currently under development
Bydgoszcz Hall C
(Poland) (phase 1) – MediVet 100 6 425 6 425
Zabrze
(Poland) Phase 2 – INNPRO 100 11 340 11 340
Zabrze
(Poland) Phase 2 – Speculative 100 11 675 -
Eastport Crusader Logistics 2 65 19 970 19 970
Eastport Liquor Runners 65 31 481 31 481
Eastport Speculative 65 13 063 -
Total 93 954 69 216
Total: 100% of developments 112 644 87 906
Lease Estimated Estimated
Logistics Description/ term yield completion
park tenant (years) (%)$ date
Developments completed post 30 June 2024
Clairwood Pocket 5B – CHC 10 8,3 Oct 2024
Eastport John Deere 10 8,5 Sep 2024
Developments currently under development
Bydgoszcz Hall C
(Poland) (phase 1) – MediVet 12 7,3* Dec 2024
Zabrze
(Poland) Phase 2 – INNPRO 5 7,0* Apr 2025
Zabrze
(Poland) Phase 2 – Speculative - 7,0* Apr 2025
Eastport Crusader Logistics 2 10^ 8,5 Sep 2025
Eastport Liquor Runners 5 8,1 Sep 2025
Eastport Speculative - 8,5 Feb 2026
* Yield shown in Euro.
$ Development cost in this calculation includes cost of finance,
internal project management fees and all other costs.
^ Initial lease period is five years, with an option in favour of the
landlord to extend for five years, which we intend to exercise.
Retail
Our retail portfolio, which is commuter-oriented and focused on convenience
retail, is well-positioned given current macroeconomic conditions and a
challenging consumer environment. Like-for-like turnover increased by 4,5% for
the 12 months ended 31 October 2024, compared to the corresponding period of
the previous year. Like-for-like turnover in October 2024 was 6,5% higher than
in October 2023, despite a tougher trading environment since June 2024.
The positive impact of lower interest rates, consumer liquidity brought about
by the two-pot retirement system and improving consumer confidence, should
support growth in retail sales during the 2024 holiday season and in the
medium term.
The retail portfolio collection rate for the period 30 June 2024 to
31 October 2024 was 99%. Retail vacancies, based on rental, decreased from
1,4% at 30 June 2024 to 1,1% at 31 October 2024.
In line with our strategy of selling non-core assets, we sold and transferred
Kimberley Junction for R97 million in July 2024. Paradise and Corner House
in Thohoyandou is held for sale at expected net proceeds of R48 million.
The redevelopment of 204 Oxford is nearing completion, with Woolworths
having commenced trading during October 2024. The 4 500m2 extension of
Sterkspruit Plaza, which will be anchored by a new Boxer supermarket,
is underway and on track for completion in 2H2025.
Industrial and Inofort
Vacancies, based on rental, in the industrial portfolio increased from
8,9% at 30 June 2024 to 11,1% at 31 October 2024. Of the 27 558m2 of
industrial vacancies, 16 944m2 comprises the office component of these
properties, with the majority of this in Spartan and Isando. Well-located,
smaller industrial units remain in demand and interest from potential
purchasers for the multi-user industrial parks is encouraging. The joint
portfolio, co-owned and managed by Inospace, continues to experience
high demand for its unique offering. This has resulted in strong net
operating income growth, in line with our initial forecast of 15%
year-on-year growth, in addition to the 17,5% year-on-year net operating
income growth achieved in FY2024.
Office
Office vacancies, based on rental, increased from 24,3% at 30 June 2024
to 27,9% at 31 October 2024. The increase is mainly attributable to a
single building of 3 949m2, RTMC Waterfall, which became vacant during
October 2024. We are in the process of refurbishing this building. The
office portfolio remains non-core, and we estimate that the office
portfolio will reduce, by value, to less than 2% of total assets, should
the current held for sale transactions be concluded.
Vacancies
Total vacancies, based on rental, remained flat at 3,4% from
30 June 2024 to 31 October 2024.
Based on rental Based on GLA
Oct 2024# Jun 2024# Oct 2024 Jun 2024
Sectoral vacancy % % % %
Total 3,4 3,4 3,9 4,0
Logistics - SA 1,4 1,5 1,4 1,8
Logistics - CEE 3,4 3,5 3,7 3,7
Retail 1,1 1,4 1,3 1,7
Industrial 11,1 8,9 10,2 8,9
Office 27,9 24,3 29,2 25,2
Other^ - - - -
Information based on Fortress' economic interest in wholly-owned and
co-owned properties
# Vacancy based on the gross rental (100% of GLA and value) of the building.
^ Includes residential units, and serviced apartment properties
Direct property disposals
We continue to sell non-core properties, with total disposals for the
financial year-to-date amounting to R746 million with a corresponding book
value of R718 million.
The following properties have transferred since 30 June 2024:
Book
Net value
proceeds Jun 2024 Transfer
Property name Sector (R'000) (R'000) date
Eastport Logistics Park
- Teraco Land* Land 133 250 133 250 Jul 2024
Fourways Office Park* Office 103 700 103 700 Jul 2024
Kimberley Junction* Retail 97 000 97 000 Jul 2024
1 Setchel Road Roodekop* Industrial 96 250 96 250 Jul 2024
49 Ayrshire Road Longmeadow Logistics 62 500 52 233 Oct 2024
Chemserve Spartan Industrial 54 000 44 733 Oct 2024
1105 Anvil Road Robertville Industrial 28 050 28 123 Sep 2024
35 Reedbuck Crescent* Logistics 25 450 25 450 Jul 2024
Milkyway Road Crown Mines* Logistics 25 000 25 000 Aug 2024
11 Reedbuck Crescent
Corporate Park Logistics 23 000 19 611 Nov 2024
146 Serenade Road Rustivia* Logistics 21 000 21 000 Aug 2024
8 Field Street Wilbart Industrial 17 500 14 645 Oct 2024
1338 Staal Road Stormill Industrial 16 000 15 397 Sep 2024
9 Reedbuck Crescent* Logistics 13 800 13 800 Aug 2024
71 Tsessebe Crescent* Logistics 13 000 13 000 Aug 2024
45 Director Road
(previously 741 Megawatt Road) Logistics 13 000 11 820 Oct 2024
Lakeview Business Park 1 Industrial 3 850 2 917 Sep 2024
746 350 717 929
* Held for sale at 30 June 2024. Held for sale assets had a book value
equal to the selling price at 30 June 2024.
The following properties are currently held for sale, none of which have
yet transferred:
Book
Net value
proceeds June 2024
Property name Sector (R'000) (R'000)
Rutherford Estate Scott Street Office 72 500 70 000
Paradise and Corner House Retail 48 000 50 000
Hobart Square* Office 43 000 43 000
Centurion Office Park* Office 40 000 40 000
68 Galaxy Avenue Linbro Park Logistics 27 000 23 930
Turnberry Fourways Golf Park Office 11 580 10 000
32 Mandy Road Industrial 9 335 9 600
66 Booysen Street Industrial 6 070 6 311
Lakeview Business Park 7 Industrial 5 600 4 232
263 085 257 073
* Held for sale at 30 June 2024.
Energy and water solutions
We remain committed to establishing a significant solar photovoltaic
("solar PV") footprint across our property portfolio. We now have 79 operational
solar PV plants totalling 29,69MWac, compared to 59 plants totalling 22,17MWac
at 30 June 2024. By 30 June 2025, we aim to add a further 18 plants, taking
the total number of installations to 97, with installed capacity increasing
to 35,24MWac. Furthermore, we have completed the solar installation of
400kWac at ELI Park (Romania). The rollout of additional solar PV plants,
has resulted in us generating approximately 11 000MWh of renewable energy
during the first four months of the current financial year
(FY2024: 22 180MWh).
NEPI Rockcastle
Shareholders and noteholders are referred to the announcements published on
SENS by Fortress on 5 November 2024 relating to the results of the dividend
in specie offered to shareholders in lieu of the cash dividend declared for
the six months ended 30 June 2024. As a result, Fortress' shareholding in
NEPI Rockcastle reduced from 17,11% on 18 October 2024 to 16,26% at the
date of this announcement.
NEPI Rockcastle released its interim results for the six months to
30 June 2024 on 20 August 2024 and subsequently released a comprehensive
business update on 20 November 2024, both available on its website at
www.nepirockcastle.com. The current value of our investment in
NEPI Rockcastle is approximately R16,2 billion.
Funding, liquidity and treasury
We raised an additional R1,09 billion under our domestic medium-term note
("DMTN") programme in October 2024. The issuance consisted of two notes
of R429 million in a three-year note and R658 million in a five-year note.
We further refinanced R1,0 billion of expiring facilities with RMB in
November 2024. The facilities have been refinanced for three years
(R350 million), four years (R350 million) and five years (R300 million).
At our election, we repaid all existing Libfin facilities, totalling
R700 million, in November 2024.
Our interest rate hedging comprises 69% caps and 31% 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 interest rates increase.
Consistent with all prior reporting periods where sustainability-linked
notes were in issue, we remain compliant with the set KPIs and are
on track to achieve the targets for June 2025.
We currently have a total of R4,2 billion in cash and available
facilities at group level and remain comfortably within 39,8% at the
date of this announcement.
Outlook and guidance
Our distributable earnings guidance for FY2025, published on 29 August 2024,
was approximately R1,75 billion or 146,99 cents per share.
We revise our estimated distributable earnings for FY2025 to be approximately
R1,78 billion, representing 147,80 cents per share, which is 16,9% higher
than the normalised distributable earnings for FY2024. Further detail is
presented in the table below:
FY2025
1H2024 2H2024 FY2024 (revised Change
(actual) (actual) (actual) forecase) (%)
Total
distributable
earnings (R'000) 952 868 835 637 1 788 505 1 780 000 (0,5)
Shares in
issue 1 169 980 307 1 190 536 893 1 190 536 893 1 204 291 830
Distributable
earnings per
share (cents) 81,44 70,19 151,63# 147,80 (2,5)
FY2024
Normalisation 1H2024 2H2024 (normalised FY2025
adjustments: (normalised) (actual) actual) (forecast)
Exclusion of
dividend on
53 134 372 NEPI
Rockcastle
shares received
in September
2023* (R'000) (266 365) - (266 365) - -
Adjusted total
distributable
earnings (R'000)
(normalised for
the effects of
the Scheme of
Arrangement) 686 503 835 637 1 522 140 1 780 000 16,9
Adjusted
distributable
earnings per
share
(cents) 58,68 70,19 128,87 147,80 14,7
* 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 in February 2024. The adjustment includes related foreign
currency hedges on this income.
# Sum of the 1H2024 and 2H2024 actual 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 financial year ending
31 December 2024;
- No material sales, or 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.
3 December 2024
Lead equity sponsor
Java Capital
Debt sponsor and joint equity sponsor
Nedbank
Date: 03-12-2024 04:40:00
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