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Fortress Interim Results to 31 December 2023
Fortress Real Estate Investments Limited (Fortress) has announced its interim results for the period to 31 December 2023, showcasing a successful capital structure simplification and notable operational achievements for the first half of the 2024 financial year.
During the reporting period, Fortress witnessed continued operational excellence within its direct portfolio, coupled with exceptional performance from its associate, NEPI Rockcastle. Despite the local challenging consumer market and economic climate, the direct SA retail portfolio achieved a robust 6.9% like-for-like retail turnover growth. Expansion and refurbishments of core retail assets as well as the continued roll-out of state-of-the-art logistic developments, alongside strategic divestments, position Fortress for enhanced portfolio quality and growth.
Steven Brown, CEO of Fortress, expressed gratitude to shareholders for their overwhelming approval of the scheme of arrangement (SOA) proposal in January this year, stating, “The repurchase of all FFB shares streamlines our capital structure, leaving a single share in issue. This proactive approach by our shareholders provides increased flexibility to unlock shareholder value as we continue to enhance our core portfolios in South Africa and Central and Eastern Europe.”
Key highlights from the 1H2024 interim results include:
- Simplified capital structure: Implementation of a single class of share through the Scheme of Arrangement (SOA).
- Strong growth: Distributable earnings increased by 19.0% compared to the previous interim period.
- Financial performance: NAV and TNAV growth of R3.0 billion (9.1%) and R3.8 billion (11.9%), respectively, during 1H2024.
- Low vacancy rates: Overall portfolio vacancy stands at 3.7% based on rental, reflecting robust tenant demand.
- Operational growth: Like-for-like retail turnover surged by 6.9%.
- Portfolio optimisation: Direct property disposals totalling R1.02 billion were achieved at a 25.0% premium to valuations.
- Renewable energy expansion: Doubling of solar PV plants across the portfolio, with installed capacity up by 58.8%.
Brown added, “The introduction of a scrip dividend alternative, made possible by the new capital structure, offers shareholders the flexibility of choosing between cash distribution or additional shares, marking a significant milestone in our company’s history.”
Logistics Portfolio (R13.8 billion asset value): Despite marginal increases in vacancies (0.5%) to 1.2% at 31 December 2023, the logistics portfolio maintained strong performance with a 9.2% like-for-like NOI growth.
Logistics Developments (R2.0 billion asset value): The remaining development pipeline in SA is approximately 230 000m² of GLA and completion thereof is estimated to take between two and four years. Ongoing development projects including the successful Eastport Logistics Park and Clairwood Logistics Park. The option on the additional Eastport North land provides additional development opportunities in the medium term. Given the success of our Eastport development, we are optimistic that the demand for this site will be high and that the roll-out should not extend beyond five years.
CEE Direct Property Portfolio (R3.4 billion asset value): Our focus on sustainable buildings and tenant-driven demand sustains our growth momentum in Central and Eastern Europe. We achieved a BREEAM “Excellent” rating on the recently completed Hall E in Bydgoszcz and the process is underway to obtain ratings for the remainder of the portfolio, driven by the demand from tenants for more energy-efficient and sustainable buildings. Construction is underway on two sites in Poland, following pre-let deals signed. In Łódź, Phase 1 is nearing completion, comprising 50 200m².
Retail (R10.4 billion asset value): Robust performance amid a higher interest rate environment, was driven by increased demand from essential goods retailers, including groceries, supermarkets, pharmaceuticals, and liquor categories, despite challenging trading conditions and loadshedding.
Energy Solutions: Continued expansion of solar PV installations, batteries, smart metering and backup generator installations enhances our tenants’ ongoing energy security needs to create efficiency and stability across the portfolio both in SA and CEE. As at 31 December 2023, Fortress had 42 operational solar PV installations compared to 25 plants at 30 June 2023. More plants are planned for completion by 30 June 2024, targeting a total of 58 plants by FY2024. Fortress aims to increase the installed capacity to 22.4 MWac by 30 June 2024, and add a further 12.0 MWac through 37 planned projects by 30 June 2025. This will increase Fortress’ consumption of renewable energy to approximately 22% of total consumption. Fortress is reviewing the water storage facilities in the portfolio and adding back-up water tanks where possible.
Brown concluded, “Following shareholder approval of the SOA and our current operational performance, Fortress looks ahead to continue to power growth for our tenants and communities that we operate in marked by enhanced operational agility, logistics and retail demand and the ongoing need for more sustainable real estate solutions.
Fortress Real Estate Investments Limited is a leading real estate investment company with a focus on developing and letting premium-grade logistics real estate in SA and CEE, as well as growing our convenience and commuter-oriented retail portfolio.
Fortress also holds a 16,2% interest in NEPI Rockcastle, the largest listed property company on the JSE, with a EUR7 billion portfolio across nine CEE countries. This holding was reduced from 24,2% as at 31 December 2023 to 16,2% at the date of the Interim Results report being released, due to the repurchase of all the FFB shares in exchange for NEPI Rockcastle shares.
