Fortress Real Estate Investments Limited (Fortress) has announced its financial results for the year ending 30 June, 2024. Despite facing a year characterised by global and local economic challenges, Fortress has exceeded forecasts, highlighting its robust business model and well-executed strategic initiatives.
WORDS & PHOTOS: SUPPLIED
Steven Brown, CEO of Fortress, comments, “Globally, a shift towards more dovish central bank forecasts and expectations of lower future interest rates have contributed to a cautious yet optimistic outlook for global real estate investments. Some sub-sectors have benefited more than others. Locally, the smooth transition to a government of national unity and the resulting influx of significant funds into the local market has been encouraging. Although the value of our local assets saw a modest increase of less than 2% on a like-for-like basis, we are observing early signs of a more favourable local real estate market. Investor interest is returning, and tenant enquiries for additional space are noticeably improving.”
FY2024 highlights
- Simplification of the capital structure into a single class of share through the implementation of the Scheme of Arrangement (SOA) with shareholders.
- For the 2H2024 reporting period, the board has declared a dividend of 70,19 cents per FFB share with an alternative to receive the dividend in the form of NEPI Rockcastle shares in a ratio of 0,00662 NEPI Rockcastle shares for every FFB share
- The election to receive NEPI Rockcastle shares enables the company to retain cash and reduce gearing against the direct portfolio.
- Direct property disposals of R1.69 billion for FY2024 at a premium of 19,2% to the most recent formal valuations.
- Developments completed for the year valued at R2.7 billion.
- Low overall portfolio vacancy of 3,4% based on rental.
- Like-for-like retail turnover growth of 6,4%.
- Increased the number of solar PV plants across the portfolio from 25 at 30 June 2023 to 59 plants at 30 June 2024, with installed capacity increasing by 130.2% from 9.63MWac at 30 June 2023 to 22.17MWac at 30 June 2024.
- Outstanding results from NEPI Rockcastle, growing its dividend per share by 5.6% and solidifying its position as the leading retail real estate business in Central and Eastern Europe (CEE).
- Growth in TNAV per share of 65,2% from R15,25 per share at 30 June 2023 to R25,19 per share at 30 June 2024. The SA REIT NAV per share rose by 60,6% to R23.85 at 30 June 2024, compared to R14.85 at 30 June 2023.
Fortress Real Estate Investments Clairwood Logistics Park
SA Logistics Portfolio – R15.3 billion asset value
The logistics portfolio exceeded expectations, reflecting strong demand for high-quality warehouses in prime locations.
Vacancy in the logistics portfolio, based on GLA, increased slightly from 1,2% at 31 December 2023 to 1,8% at 30 June 2024. This remains low by historical standards, allowing Fortress a more selective tenanting approach and greater flexibility in negotiating terms with new or existing tenants. Like-for-like NOI growth in this portfolio of 7.7% is particularly pleasing given the economic challenges of 2023.
“Although construction cost inflation experienced in 2022 and 2023 has moderated, construction costs remain significantly higher than pre-2022 levels. This has led to a general hardening of the rental market, particularly for new developments. While this positively impacts our portfolio, it is offset by rising costs such as municipal rates and insurance, which diminishes some of our NOI growth,” said Brown.
SA logistics Developments – R1.1 billion asset value
The remaining development pipeline in South Africa comprises approximately 165,000m² of GLA. Completion is estimated within four years if market conditions continue as currently.
At Eastport, following 30 June 2024, Fortress sold additional land to Teraco to expand their data centre and enhance Eastport and the R21 node. Due to strong demand for prime warehousing, Fortress began developing a smaller warehouse at Eastport on a speculative basis to benefit from economies of scale, alongside the construction of two larger warehouses for Crusader Logistics and Liquor Runners, measuring 19,970m² and 31,481m², respectively. Once these developments are complete, Eastport will have one remaining site with about 39,000m² of available space. The option available on the Eastport North site represents Fortress’s last opportunity to develop large logistics assets in the future.
Phase 2 of Longlake has approximately 41,000m² of GLA and remains to be developed. Although no binding agreements are yet in place, interest in this site has improved. The short-term lease on the first building has been extended to accommodate the existing tenant, who will relocate to a new development at Eastport.
One site remains at Clairwood for developing between 30,000m² and 35,000m² of GLA, following the completion of the new building for Sammar and the site currently under development for CHC. Fortress is negotiating with a large third-party logistics provider for a new pre-let development on this site, which will complete Clairwood Logistics Park by December 2025, subject to a development agreement.
Located near Umhlanga, Cornubia is in a prime location. During FY2024, Fortress completed a new development for Dromex on the lower platform, measuring 24,537m². Approximately 54,000m² of GLA remains available for future development on this co-owned site, in which Fortress holds a 50.1% interest.
Fortress Real Estate Investments Nelspruit Plaza
CEE Direct Property Portfolio – R3.6 billion asset value
Fortress completed the 28,100m² development in Łódź for Notino and the adjacent 25,200m² speculative portion, totalling 53,300m² of GLA. Shortly after completion, the speculative portion was let to Oriflame, and the development is now fully let. Fortress will proceed cautiously with further developments at Łódź, which has a remaining 30,000m² of GLA to be developed, due to a softer logistics market in central Poland.
In contrast, developments in Zabrze and Bydgoszcz have progressed well with strong interest from prospective tenants. The existing tenant in Zabrze, Innpro, exercised their option to expand shortly after taking occupation, prompting Fortress to continue to phase 2 of this development. This phase will comprise a new facility of 23,015m², with 11,340m² pre-let to Innpro and 11,675m² developed speculatively. In Bydgoszcz, the development for MEDiVet is nearing completion, with strong interest in leasing the remainder of Hall C.
Retail – R10.7 billion asset value
Tenant turnover in the Fortress retail portfolio increased by 6,4% from FY2023 to FY2024. This performance is commendable in an environment of sustained low economic growth and high interest rates, which have pressured consumer disposable income.
Retail portfolio vacancy, based on GLA, decreased to 1,7% at 30 June 2024 from 2,0% at 31 December 2023. The portfolio achieved strong like-for-like NOI growth of 8,5%.
Consumer preferences continue to focus on essential goods and services, benefiting grocery, health and beauty, and fast food and restaurant tenants. Our retail portfolio, which is largely commuter-oriented and convenience-based, is well positioned for this environment.
Energy and water solutions
Fortress is making significant strides with its energy security strategy, which includes installing generators, rooftop solar plants, and smart meters. Once financially viable, Fortress plans to add batteries to the solution. Where feasible, Fortress integrates solar systems with diesel generators to reduce diesel costs. Currently, 82% of the Fortress retail portfolio by GLA is connected to backup generators, with this figure expected to reach 97% by December 2024.
Water and electrical smart meters have been installed at 54% of the Fortress Retail portfolio, increasing to 82% by December 2024. These meters, along with IoT devices, form the backbone of a portfolio-wide utility management system, providing near real-time data on energy consumption and the complete energy supply mix, including grid-supplied, solar PV, and diesel-generated electricity.
“We are proud to announce that Fortress has entered into a 10-year wheeling agreement with Discovery Green to provide renewable energy to 14 of the Eskom-supplied properties. Under this agreement, Fortress will have at least 70% of the electricity consumption, which we cannot provide from our on-site solar PV plants. It is anticipated that this programme will be operational in 2026. This wheeling agreement is a critical step in reaching our 2030 decarbonisation target,” said Brown.
Fortress plans to have backup water available at the retail centres for two to three days, coupled with boreholes and purification plants. Fortress currently has backup water tanks at 30 retail centres, with a further installation to be completed by October 2024. Fortress views this as a critical requirement to offer their tenants a functional space and the customers a comfortable experience.
Fortress is finalising EDGE ratings at two logistics buildings in Gauteng and recently instructed the ratings of six further buildings at Clairwood. Fortress has obtained BREEAM ratings for all income-producing assets in our Polish portfolio at a level of “Excellent,” and three further certifications are in progress.
“Fortress remains committed to delivering value to our shareholders, clients, environment, and communities. We are encouraged by the positive trends emerging in both global and local real estate markets and will continue to leverage our strategic positioning to power sustainable growth and returns with our continued focus of two-thirds logistics and one-third retail portfolios,” concludes Brown.
