Demand for latest-generation, high-quality logistics and warehousing facilities remains strong with a record low vacancy in the South African logistics portfolio of 1.2% and a reduction in overall vacancies to 5.4% from 7.4% at the end of June
The operational metrics for the year ended June 30 2022 reflect the remarkable improvement in trading conditions that Fortress Reit has enjoyed due to its strategic focus on logistics, logistics developments and retail real estate.
“The 2022 financial year has seen historic events, both locally and abroad, from the riots and looting seen in SA to the war in Ukraine impacting many European nations and further impacting global rates of inflation not seen in multiple generations. Covid-19 and the concern around the Omicron variant seem to be a distant memory in a volatile global environment where a perpetual increase in the pace of change seems to be the only constant,” says Fortress CEO Steven Brown.
“The team has worked tirelessly to execute our strategy, while dealing with a variety of unforeseen events. We are constantly striving to optimise our assets to ensure both current tenant appeal and longevity, through investment in technology, as well as more sustainable building designs. In this global environment of uncertainty, we continue to strive for a simple and robust business that seeks to add real economic value for our stakeholders, and positively impact the broader environment and communities in which we operate. Our culture of collaboration ensures collective growth for our people, tenants, partners, the environment, and the communities we support, no matter what it takes,” says Brown.
FY2022 highlights include:
- Completed 108,966m2 of new logistics facilities, including a development of 15,727m2 in Poland
- Signed pre-let deals more than 86,442m2 of logistics space
- Expanded our European logistics portfolio by acquiring ELI Park 1 in Bucharest, Romania measuring 50,130m2 at a forward yield of 8.0%
- Acquired additional prime logistics development land in Zabrze and Łódz, both in Poland, which can accommodate up to 160,000m2 of warehousing space
- Continued the development of the distribution centre for Pick n Pay, the largest single-phase distribution centre development in SA, on track to deliver in June 2023
- Commenced the R212m redevelopment of Vryheid Plaza
- Completed the reconstruction of Evaton Mall and Biyela Shopping Centre, which suffered damage during the civil unrest experienced in July 2021
- Commenced construction of a new Pick n Pay store at Palm Springs Mall and a Shoprite store at Mahikeng Station Boulevard Centre
- Disposed of 24 properties with total net proceeds of about R577m, with a further 13 properties held for sale at net proceeds of R1.4bn
- Reduced the overall portfolio vacancy to 5.4% at June 30 2022 from 6.5% at December 31 2021 – June 30 2021: 7.4% – based on GLA, including a record low vacancy in the SA logistics portfolio of 1.2%
- Issued five sustainability-linked bonds totalling R2.2bn in tenders ranging from three to five-and-a-half years
- The standing direct property portfolio achieved a 2.2% valuation uplift
- Maintained a broad-based black economic empowerment (B-BBEE) rating of Level 4.
SOUTH AFRICAN LOGISTICS PORTFOLIO
This portfolio has a R10.3bn asset value with 77,560m2 of GLA let during FY2022 and a further 37,965m2 of pre-let transactions closed shortly after year end. Record low vacancies in the Logistics portfolio combined with higher construction costs has led to an uptick in net asking rentals on the new speculative developments and better rentals on prime logistics assets in the existing portfolio are likely to follow this positive trend. Logistics real estate remained a standout performer for the year and Fortress allocated an additional R1.8bn to this portfolio during the year to roll out new premium warehouse developments.
CENTRAL AND EASTERN EUROPE (CEE) LOGISTICS PORTFOLIO
Fortress’ CEE Logistics portfolio increased in value (on a like-for-like basis) by 13.6% and currently has a development pipeline in excess of 230,000m2. The portfolio has grown to R2.1bn since the initial acquisition in 2020 and was the best performing part of the Fortress portfolio for the 2022 financial year.
SOUTH AFRICAN RETAIL PORTFOLIO
This portfolio has a R10.2bn asset value with retail tenant turnover figures increasing by 6.8% in FY2022 compared to FY2021, and by 17.0% compared to FY2019. The growth in net operating income from this portfolio was positive at 8.3% for the year. This continued positive trading momentum was achieved in a challenging trading environment which negatively affected consumer confidence and spending. Grocery retailer turnovers increased by 7.0%, while pharmaceutical retailer turnovers increased by 9.0% year on year.
ENVIRONMENTAL UPDATE
At June 30 2022, Fortress had 18 operational solar PV installations, with another seven under construction. Moreover, seven additional feasibility studies are being conducted and Eskom approvals are at various stages of approval on a further seven projects. The installed capacity was 7,248MWac on June 30 2022 compared to 4,735MWac on June 30 2021. Fortress generated 10,773MWh from solar PV plants during FY2022, compared to 5,659 MWh in FY2021. The first EDGE Green Building Certification has been registered at Longlake Logistics Park, and this rating tool will be implemented on the logistics buildings going forward.
SHARE STRUCTURE
The hurdle causing Fortress’ inability to pay dividends is the dual-share structure and the prohibition contained in the MOI where Fortress cannot pay a dividend when the distributable earnings are below the Fortress A Benchmark. This is the case for the most recent financial year. If Fortress had a single-share structure, it would enable the payment of dividends to shareholders. It remains the view of Fortress that a single share structure with Reit tax status is the best outcome for both the company and its shareholders.
As a result, Fortress currently does not have the ability to comply with the minimum distribution requirements as set out in the JSE Listings Requirements pertaining to Reits, which requires a dividend to be declared and paid four months after a Reits year end. In the case of Fortress this date would be October 31 2022. Fortress, as a prudently managed business, cannot risk noncompliance with the JSE Listings Requirements, and is engaging with the JSE to ensure that the process is well managed.
