Fortress trading update highlights niche portfolio investment opportunities

Steve Brown, CEO of Fortress REIT Limited
Steve Brown, CEO of Fortress REIT Limited.

Fortress REIT’s final trading update for 2020 reports a 3.6% vacancy rate in the company’s logistics portfolio.

CEO of Fortress, Steven Brown, says this does not mean that logistics is the only area offering opportunity in South Africa’s real estate sector.

Despite the expected decrease in tenant turnovers in Fortress’ retail portfolio, turnovers for October 2020 increased by 5.1% compared to October 2019. Apart from October being the first month since Level 5 lockdown that turnovers surpassed the comparable monthly levels of 2019, “it also marks how sharply retail has improved in recent months” adds Brown.

The best performing tenant categories are grocers, pharmacies, hardware, cosmetics and beauty and menswear. Tenants most negatively impacted have been unisex wear, fast food, liquor stores, restaurants, and bars.

The group’s rural, township and suburban centres continue to show resilience as turnovers at rural CBD centres recover well from their lockdown lows. Brown believes that this has been driven by “the reliability of social grants as well as the convenience offering of these well-located centres”.

Among Fortress’ non-core industrial portfolio, vacancies have reduced from 17.6% as at the 30th of June 2020 to 8.8% in December 2020, albeit on short-term leases.

The market has not been slow to identify value in recent months. Certainly, the performance of Fortress’ re-purposed industrial properties is proving positive. At the same time, investor appetite for smaller industrial properties and parks is also growing”.

Despite clear indications of recovery in Fortress’ logistics, retail and industrial portfolios, vacancies within Fortress’ office portfolio have continued to increase – from 23.6% in June to 26.6% at present.

One development expected to positively impact the performance of Fortress’ office portfolio over the coming year, however, is the “conversion of appropriately located properties and development sites to residential use supporting new activity in the residential market off the back of record-low interest rates, as we have seen with the Balwin led development of the Wedgewood site in Sandton,” says Brown.  

Despite these more recent positive indicators, 2020 has been an extremely challenging year for the listed real state sector. 2021 is likely to see continued uncertainty over secondary lockdown restrictions while the financial positions of many tenants in South Africa are unlikely to improve quickly.

Within this environment Brown believes the best approach remains, “maintaining a strong balance sheet, retaining REIT status and ensuring sufficient available liquidity so we can continue to invest in the clear pockets of opportunity emerging in this rapidly evolving sector.”