Smart investors will love Fortress Fund’s deep discount, tight focus, high net yield

Local money managers are spoilt for choice in JSE-listed stocks with the ‘SA doom and gloom’ narrative and uncertainty about the pending National Election pushing prices to bargain basement levels. Among the most appealing is Fortress Fund, delivering a near 8% after-tax yield following its conversion from a REIT after its capital restructure in January. Warren Buffett tells us to look out for this kind of investment – one where a dollar in assets can be acquired for a quarter. Fortress CEO Steve Brown spoke to BizNews editor Alec Hogg.

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Edited transcript of the interview

Alec Hogg: Steve Brown is the CEO of Fortress Fund. The stock recently doubled in price due to a recap reorganization. Fortress focuses on logistics, a hot property area. Many know Fortress through its stake in Nepi Rock Castle, a successful company in Central and Eastern Europe. Could you give us some background on this?

Steve Brown: Nepi and Rock Castle merged in 2017 to form NEPI Rock Castle, in which Fortress held a significant stake. NEPI has seen remarkable success, especially in Central and Eastern European retail property markets, with record earnings and low gearing.

Alec Hogg: Most of your portfolio is in Poland and Romania. Given the Ukraine situation, has this benefited NEPI Rock Castle?

Steve Brown: The war in Ukraine had less direct impact than other market factors like the collapse of Credit Suisse and rising interest rates. Wealthy Ukrainians moving to Poland increased consumer spending, benefiting NEPI’s assets.

Alec Hogg: What about Fortress’s focus on logistics, like warehouses?

Steve Brown: Fortress’s industrial focus began with acquiring Capital Property Fund in 2015. We then shifted towards logistics and warehousing due to global trends and the lack of available quality stock. This led us to develop warehouses and manage a substantial portfolio, learning from global leaders like Prologis.

Alec Hogg: What major developments can people be familiar with?

Steve Brown: We transformed the Clearwood race course into a premium logistics park near Durban Airport and Durban Port. Eastport Logistics Park also stands out, hosting Africa’s largest data center and notable tenants like Pick n Pay. Our Clipper and Crusader logistics centers on the R21 expressway are key assets in the growing logistics sector. In Cape Town, we’ve had success with a distribution center for supplement.

Alec Hogg: Despite negative narratives, your recent results show impressive growth. What’s driving this amid economic challenges?

Steve Brown: Tighter markets led to lower warehouse vacancies, boosting our logistics growth. Rental increases and strategic developments during COVID contributed to positive trends. In retail, while turnover grew, costs also rose, especially insurance after the 2021 riots. However, our focus on prime logistics and defensive retail sectors remains strong amid market shifts and e-commerce trends.

Alec Hogg: Investing during downturns is wise but often not executed. What made Fortress continue during COVID?

Steve Brown: Despite challenges like rent deferrals and reduced foot traffic, we stayed committed to ongoing projects, avoiding value destruction. Having capital and shareholder support was crucial. We also seized opportunities in Poland and Romania, leveraging positive market trends and EU funding.

Alec Hogg: How much of your portfolio is in Central and Eastern Europe?

Steve Brown: About 40% of our assets are in Central and Eastern Europe, providing a significant hedge. We’ve also adjusted our currency exposure for better risk management and maintained a disciplined approach to investments and partnerships.

Alec Hogg: How long has the group, including Nepi Rock Castle, operated in Eastern Europe?

Steve Brown: About 18 years, starting around 2005-2006.

Alec Hogg: You have local knowledge and a board position there, making it a familiar market.

Steve Brown: Yes, having exposure through NEPI and a team in Warsaw has been valuable. We’ve avoided risky investments and focused on gradual growth.

Alec Hogg: Can you break down your portfolio and its relation to market cap?

Steve Brown: We have 34 billion in direct property assets, including retail, logistics, and non-core assets. Deducting debt, our net asset value (NAV) is around 15 billion. With NEPI shares, our NAV is 29 billion. Buying a Fortress share gives access to this NAV at a discount, offering a compelling investment opportunity.

Alec Hogg: Warren Buffett’s advice on value investing resonates here. Your focus on logistics aligns with global trends favouring stable investments.

Steve Brown: We’re focused on unlocking value and specialization for long-term investor benefits.

Alec Hogg: Steve Brown is the chief executive of Fortress Fund. I’m Alec Hogg from

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