Fortress REIT Limited A shares have recorded the best performance among real estate stocks on the JSE this year, with a 19.5% total return. This compares with a more pedestrian 5.3% for the South African Listed Property Index as companies generally battle to navigate tough economic conditions.
Fortress A’s distribution per share grows at the lower of 5% or CPI, which according to newly appointed Fortress CEO, Steve Brown, is attractive in a challenging South African market.
“A strong pipeline of logistics developments within the Fortress portfolio and a renewed focus on value creation continues to provide a buffer against the economic headwinds,” he adds.
In the most recent results, Fortress management guided that the distribution growth at the lower of 5%, or CPI, remains on track for 2020 and beyond.
The A-share dividend yield is approximately 7.3%, which together with 5% growth can provide a total investor return of 12.3% at current levels.
“It provides a low risk secured preferred dividend to that of the Fortress B, which presents higher investor risk. The other significant advantage for our A-share investors is the liquidity which allows investors to easily and quickly trade in and out of the lower risk Fortress A shares ,” says Brown.
Positive compound growth in the medium term by Fortress could therefore present an outperforming total return to investors.
The fact that Coronation and Allan Gray both hold over 10% of the Fortress A shares in issue at the moment is another positive, as it means the shares are highly liquid, in contrast to the few other A unit shares available on the JSE.
Both the A and B shares are underpinned by Fortress’s high-quality portfolio.
“We plan to grow our logistics-focused properties to two thirds of our total portfolio by 2020 as we forge ahead with a raft of new developments,” says Brown.
Fortress has one of the largest logistics property development pipelines in South Africa, accounting for over R4 billion over the next five years.
In its annual results for the year to 30 June 2019 , Fortress reported the dividend for the A amounts to 148.35 cents from 141.77 cents per share in the previous comparable period, a 4.64% increase, and the dividend for the B share declined from 179 cents to 155.50 cents, but not on a like-for-like basis given the prior treatment of interest on the loan to the previous BEE trusts.
Direct retail and logistics properties stood out as the leading performers in the portfolio.
“Fortress is on track and geared for an exciting future, with interest from prospective tenants remaining extremely positive,” concludes Brown.