Fortress Real Estate reaping benefits from simplifying its share structure

Fortress REIT is a hybrid fund, investing in direct properties and other listed real estate companies. Picture: Supplied

Fortress REIT is a hybrid fund, investing in direct properties and other listed real estate companies. Picture: Supplied

Published Mar 11, 2024


FORTRESS Real Estate Investments saw a robust performance in its directly owned portfolio in South Africa and an “outstanding” performance of associate NEPI Rockcastle, in the six months to December 31.

A first-half dividend of 81.44 cents per share was declared. Distributable earnings increased 19% to R952.87 million. In South Africa, the group owns some 235 buildings that focus on the logistics and convenience and commuter-based retail sectors, in a portfolio valued at R32.6 billion.

During the first half, shareholders approved the simplification of the capital structure through the repurchase of all the Fortress B (FFB) shares, which left a single class of share in issue.

The share price traded 0.6% lower at R16.39 on Friday, a price well up on the R4.51 it traded at on the same day a year ago, and which indicates that the simplification process was well received by shareholders.

“This single share structure provides more flexibility to unlock value for shareholders, while we enhance our core logistics and retail portfolios in South Africa and CEE (central and Eastern Europe),” CEO Steve Brown said in a statement.

The forecast total distributable earnings for the full year to June 30 was expected to be between R1.66bn and R1.72bn, from the previous guidance of R1.93bn, with the reduction mainly due to the lower shareholding in NEPI Rockcastle. A final dividend of 60.44 – 65.57 cents was forecast.

A consequence of the repurchase of the FFB shares, in exchange for roughly a third of the stake in NEPI Rockcastle, was the reduction in the NEPI shareholding to 16.2% from 24.2%.

Brown said the 6.9% retail trading density growth in the direct retail portfolio was solid in the context of the weak consumer market and economy.

Expansions and refurbishments, with sales of smaller and lower growth assets, would add to the overall portfolio quality in future, he said.

The roll-out of the logistics developments continued as planned.

“The market remains healthy for new and well-located warehouses, evidenced by a recently signed pre-let transaction for a new warehouse of 20 000 square metres, for an existing tenant expanding within Eastport Logistics Park,” he said.

The local market for existing logistics real estate remained buoyant, with low vacancies in prime locations, he said.

Meanwhile, NEPI Rockcastle had reported strong NOI (net operating income) growth and well-managed debt refinancings in a challenging market, said Brown.

The single share class meant a scrip dividend alternative could be offered for the first time.

Revenue from direct property operations was 14.3% higher at R2.14bn.

The board has a policy of paying out 100% of the Fortress-defined distributable earnings on a semi-annual basis. The Fortress distribution methodology is generally more conservative than its industry peers.