Wrap Text
Trading and pre-close operational update
FORTRESS REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2009/016487/06)
JSE share codes: FFA ISIN: ZAE000248498
FFB ISIN: ZAE000248506
Bond company code: FORI
LEI: 378900FE98E30F24D975
(Approved as a REIT by the JSE)
(“Fortress”)
TRADING AND PRE-CLOSE OPERATIONAL UPDATE
Shareholders and noteholders are referred to the final results announcement for the year ended 30 June 2021, released
on SENS on 2 September 2021. We hereby provide an update on Fortress’ operations.
Logistics and logistics developments
There continues to be strong demand from prospective tenants for our logistics parks with a number of enquiries being
received from large users. The drivers of this demand continue to be tenants’ consolidation of existing space, supply-
chain efficiencies and e-commerce. We continue to see demand for our newly-developed logistics facilities and have
recently commenced with additional developments at Longlake Logistics Park, Clairwood Logistics Park and Stargard
Logistics Park in Poland. The table below presents an update on our current development projects post our most recent
30 June 2021 reporting period:
Lease
% GLA m² Let term Estimated Completion
Property name owned (100%) GLA (years) yield date Note
Completed post 30 June 2021
Clairwood Logistics Park - Pocket 7 100% 13 283 13 283 # 7,2% Sep 2021 1
Clairwood Logistics Park - Pocket 4C 100% 8 907 8 907 5 7,2% Nov 2021 2
Clairwood Logistics Park - Pocket 4B 100% 14 257 14 257 5 7,1% Nov 2021 3
Clairwood Logistics Park - Pocket 2B 100% 56 792 56 792 10 9,2% Sep 2021 4
93 239 93 239
Currently under construction
Eastport Logistics Park - Building 7 (Pick n
Pay) 40% 164 470 164 470 >12 7,0% May 2023
Eastport Logistics Park - Building 8 65% 18 573 - - * Sep 2022
Longlake Logistics Park - Ext 2 (Spec 1) 100% 19 232 - - * Aug 2022
Clairwood Logistics Park - Pocket 3A 100% 19 064 - - * Sep 2022
Clairwood Logistics Park - Pocket 3B 100% 10 018 - - * Sep 2022
Clairwood Logistics Park - Pocket 5A 100% 15 664 15 664 15 7,3% Apr 2023 5
Stargard Logistics Park (Poland) - Hall D 100% 15 581 9 080 5 7,5% Feb 2022 6
262 602 189 214
Total - 100% of development 355 841 282 453
1 - # 6 341m² is let to Bordic on a five-year triple net lease. 6 942 m² is let to Goldfields on a six-month triple net
lease.
2 - 8 907m² is let to African Sugar Logistics.
3 - 14 257m² is let to Super Group.
4 - 56 792m² is let to Kings Rest Container Park.
5 - 15 664m² is pre-let to ZacPak.
6 - 9 080m² is pre-let to EcoReady Bath. The yield shown is in Euro.
* Estimated net initial yields on unlet development are forecast at between 7% and 8%
The estimated yields shown in the table above is the forecast net operating income, assuming unlet portions of
developments are let at market related rentals and adjusted for any rent-free periods, divided by the total cost, which
includes land, all pro-rata development costs as well as capitalised interest.
Retail
On a like-for-like basis for the 12-month period ended 31 October 2021, as compared to the corresponding 12-month
period ended 31 October 2020, tenant turnover figures in our retail portfolio have increased by 7,6% and by 3,7% if
compared to the same period ended 31 October 2019 (a pre-COVID-19 period). These figures include the loss of
turnover from the civil unrest in July 2021 as well as reduced turnover due to COVID-19 restrictions and have only
been adjusted for disposals and major extensions.
Six shopping centres were affected by the civil unrest in Gauteng and KwaZulu-Natal during July 2021. Four of these
centres are operating and trade is steadily recovering. The remaining two smaller retail assets, being West Street Durban
and Biyela Shopping Centre, suffered fire damage and will be operational by mid-2022.
Our retail portfolio continues to show its defensiveness in this challenging trading environment with collections not
materially different from amounts being billed to tenants and operations reflecting a more normalised environment.
Vacancies
We present a summary of the vacancy per sector at 31 October 2021:
Based on Based on
GLA GLA
Jun 2021* Oct 2021
Total - including CEE 7,4% 6,6%
Logistics - SA 3,8% 2,8%
Retail 3,7% 3,4%
Industrial 13,0% 9,4%
Office 28,1% 36,5%
Other^ 2,7% 3,1%
Logistics - CEE 1,5% 0,2%
* Vacancy statistics at 30 June 2021 exclude Oak Avenue Highveld, an office building of 11 700m2, which was shown
as held for sale at that date. This transaction has subsequently become less than probable to conclude and the asset
is now classified as investment property and the GLA included in the office vacancy shown above.
^ Includes a hotel, residential units, a motor dealership and serviced apartment properties.
Overall vacancies have reduced from 7,4% at 30 June 2021 to 6,6% at 31 October 2021, with vacancies remaining low
in our core logistics and retail portfolios. The Central and Eastern Europe (“CEE”) logistics portfolio is fully let since
November 2021, with strong demand evident from a range of tenants. The industrial portfolio vacancy has decreased as
a result of shorter-term leases being concluded, with demand evident for smaller units in the industrial parks.
The office portfolio represents approximately 4% of our total assets and the bulk of the vacancy is concentrated in two
assets, one of which is under a due diligence for a residential conversion and the other of which is subject to a lease
negotiation. If these are concluded the vacancy will reduce to 24,2% for this portfolio.
Direct property disposals
We continue to sell our non-core properties and during the financial year to date the following transfers have occurred.
Net Book value
proceeds June 2021
Property name Sector (R'000) (R'000) Transfer date
3 and 6 Cedarfield Close Springfield Park^ Logistics 108 000 108 000 Sep 2021
286 Sixteenth Road^ Logistics 21 500 21 500 Aug 2021
56 Kelly Road Jet Park Industrial 19 600 16 500 Nov 2021
Lakeview Business Park (No 15) Industrial 13 200 10 850 Nov 2021
19 Spartan Road Industrial 13 000 12 980 Nov 2021
64 Kelly Road Jet Park Industrial 9 800 9 090 Nov 2021
Bevan Road Roodekop (vacant land only)^ Land 8 070 8 100 Sep 2021
City Deep Production Park Industrial 5 000 5 000 Oct 2021
London Lane (Erf 129 Park Central only) Industrial 3 230 2 958 Nov 2021
201 400 194 978
^ Held for sale at 30 June 2021
The following properties are classified as held for sale:
Net Book value
proceeds June 2021
Property name Sector (R'000) (R'000)
Midrand Protea Hotel Other – Hotel 117 500 120 000
47 Jeffels Road Prospecton Logistics 54 400 55 000
Eastport Logistics Park – Clippa* Logistics 54 438 57 525
Other - Motor
Cambridge Motor Paulshof dealership 48 000 44 000
James Crescent Midrand Industrial 37 450 37 330
Cambridge Manor Paulshof^ Offices 28 750 28 750
4 6th St Wynberg Industrial 27 600 27 230
12 Stockwell Road Pinetown Logistics 23 877 20 400
Latei Street Isando Industrial 15 600 14 250
407 615 404 485
* Clippa exercised its option to purchase a 50% undivided share in this property, in which Fortress group owns a 65%
undivided share.
^ Held for sale at 30 June 2021.
Oak Avenue has been re-classified from held-for-sale to investment property given it is no longer highly probable that
the sale of this property will be concluded within the next 12 months.
Midrand Protea Hotel is subject to an instalment sale agreement and to date R19 million has been paid by the purchaser
with transfer expected in September 2022.
South African Special Risks Insurance Association (“SASRIA”)
Sasria has acknowledged and accepted liability in respect of Fortress’ claim for material damage and loss of rentals as
a result of the civil unrest and looting that occurred in July 2021. Two interim payments have been received against the
estimated quantum of R502 million claimed under our policy which includes a claim for 100% of the damage to the
Cornubia Ridge Logistics Park development of which Fortress owns 50.1%.
NEPI Rockcastle
NEPI Rockcastle recently released a comprehensive trading update which can be found on its website
(www.nepirockcastle.com).
Funding, liquidity and treasury
At 3 December 2021, Fortress had a total of R2,5 billion cash and available facilities and remains comfortably within
all debt covenants.
Our loan-to-value (“LTV”) ratio at 3 December 2021 was approximately 39.1%. When adjusted for the covenant free
debt raised on the NEPI Rockcastle collar, as well as the sale of the 60% share in the Pick n Pay distribution centre to
the tenant, the LTV reduces to approximately 37.2%.
Distribution methodology change
For purposes of determining distributable earnings, we will no longer include the NEPI Rockcastle dividend on an
accrual basis for a coterminous distribution period, but rather the actual dividend amount received in the period which
will be the dividend in relation to a prior reporting period for NEPI Rockcastle. This will align this element of the
distribution methodology with the accounting principles of International Financial Reporting Standards (“IFRS”),
taxation and therefore the JSE Listings Requirements.
Given the withdrawal of guidance by NEPI Rockcastle, this change enables a clearer forecast of distributable earnings
for reporting periods. We will continue to publish Funds From Operations as defined by the SA REIT Best Practice
Recommendations (“SA REIT BPR”) as a comparable figure, which will include the NEPI Rockcastle dividend on an
accrual basis for a coterminous period. Appropriate adjustments will be made for purchases or disposals of NEPI
Rockcastle shares effected during a period.
Outlook
We remain optimistic about the future of our core portfolio in the medium- to long-term and continue to see recovery
in many of the markets, sectors and countries to which we have economic exposure. However, given the withdrawal of
guidance by NEPI Rockcastle, the evident fourth wave of the COVID-19 pandemic, with the resultant possibility of
further restrictions being imposed, and our dual capital structure of FFA and FFB shares, we are unable to accurately
forecast distributable earnings on a per share basis for each class.
Based on the assumptions below and on the amended distribution methodology as described above (which is now aligned
with IFRS and tax in relation to the NEPI Rockcastle dividends), we revise our estimate of total distributable earnings
for the financial year ending 30 June 2022 to R1,78 billion, from R1,79 billion as previously disclosed in our results
announcement for the year ended 30 June 2021. In line with our previously published expectation, the full year forecast
distributable earnings of R1,78 billion, when split between the two income periods for the 2022 financial year, will be
below the FFA dividend benchmark for the six-month period ending 31 December 2022, but are still expected to be
above the FFA dividend benchmark for the six-month period ending 30 June 2022.
This forecast is based on the following assumptions:
Fortress-specific assumptions
- In light of the withdrawal of guidance by NEPI Rockcastle, we assumed in our forecast above that NEPI
Rockcastle’s distributable earnings for the six-month periods ending 31 December 2021 will be the same as for
the comparable period ended 31 December 2020, and that NEPI Rockcastle will pay 100% of distributable
earnings as a dividend;
- No material sales or acquisitions occur which will necessitate a revision to this forecast;
- There is no unforeseen failure of material tenants in our portfolio;
- Contractual escalations and market-related renewals will be achieved with no major change in vacancy rates; and
- Tenants will be able to absorb rising utility costs and municipal rates.
Macroeconomic and regulatory assumptions
- There is no change in the existing lockdown restrictions placed on any of our tenants in our direct portfolio;
- There is no unforeseen material macroeconomic deterioration in the markets in which Fortress has exposure;
- The South African Reserve Bank maintains the repurchase rate at 3,75%; and
- There is no resurgence in civil unrest in South Africa, and timely payments of insurance claims related to previous
civil unrest are made.
This forecast has not been audited, reviewed or reported on by Fortress’ auditor.
6 December 2021
Lead sponsor Joint sponsor Debt Sponsor
Java Capital Nedbank Corporate and Investment Banking Rand Merchant Bank
(a division of Nedbank Limited) (a division of First Rand Bank Limited)
Date: 06-12-2021 05:05:00
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