South Africa’s third largest REIT, Fortress Real Estate Investments has announced that its long-term strategy of pivoting its direct portfolio to a one-third convenience retail and two-thirds logistics real estate business, is paying off.
The company is focused on developing and letting premium-grade logistics real estate in South Africa and Central and Eastern Europe and it has found growth while bucking the trend in an otherwise lacklustre real estate sector.
The REIT took the hard decision to pivot the asset weighting of its business. When Covid-19 hit, the company continued to shore up their balance sheet, ensure it had enough liquidity and invested in both acquiring and developing its well-located premium logistics boxes locally and in Europe says Steven Brown, CEO of Fortress REIT.
While shoring up the balance sheet was to some extent aided by a favourable interest rate environment, Brown says he was pleased by the “significant progress in key areas of our long-term strategy despite extensive market disruption”.
Fortress successfully sold R1.1 billion of largely non-core office and industrial assets at above book value over the last six months and it will continue to dispose of assets in line with its strategy to invest in, to develop and to manage South Africa’s largest holding of state-of-the-art logistics assets which are in leading urban logistics growth nodes as well as key convenience retail hubs in townships and rural areas.
Fortress let and received offers on 340 000m2 of its one million square meter gross lettable area (GLA) logistics development pipeline in South Africa and its strong and growing balance sheet enabled it to continue to realise its commitment to delivering one million square meters of GLA.
Its technically advanced, purpose-built logistics developments boast globally compliant fire safety features in well serviced and secure parks. With state-of-the-art logistics infrastructure supporting higher volumes and greater efficiencies, “our parks were in high demand during Covid-19 as retail and logistic clients looked to consolidate distribution and hold more stock in support of their own ecommerce and omnichannel evolutions,” says Brown.
Fortress Retail also managed its convenience and commuter-oriented retail portfolio well in a challenging climate, maintaining trading densities across its fifty-six shopping centres at 2019 levels despite the impact of Covid-19. “We continue to invest in and recycle our retail assets through refurbishments, especially the installation of solar photovoltaic capacity currently running at 3 585 Mega Watt peak across all our assets. This is up from 2 808 Mega Watt peak on 30 June 2020,” says Brown.
As the largest shareholder in retail shopping centre investor NEPI Rockcastle Plc, Fortress increased its presence in Central and Eastern Europe with its first logistics acquisition.
“We are excited to announce that in 2021 we entered the Polish logistics market, concluding the acquisition of Waimea Group’s two logistics parks in Bydgoszcz and Stargard,” reports Brown.
Both are ideally situated in regional industrial zones benefitting from strong infrastructure. Major roads nearby allow for fast transportation of goods to businesses in Poland. Both developments are close to Germany presenting a powerful supply proposition for clients targeting Europe’s largest economy.
Key to Fortress’s success over the last year has been “our ability to partner with clients, powering their growth by understanding their challenges and supporting their own evolutions in response to change,” says Brown.
“Flexible leases and part-ownership arrangements are examples of adapting and innovating with our clients. By offering various options to scale up, Fortress kept logistics vacancies in the region of 4% despite pandemic disruption. More generally, overall vacancies across Fortress’s portfolios were reduced from 8.9% to 6.8%. This was all achieved while shoring up the balance sheet with additional liquidity and reducing the loan-to-value ratio to 38.1%”.
Current results show that Fortress’s long-term strategic pivot to convenience retail and logistics real estate supported by deepening liquidity sustaining a strong balance sheet enabled South Africa’s largest provider of quality logistics assets to buck the trend in a challenging year for the real estate sector.
Going forward, signature client developments in key South African and European logistics developments “present a powerful long-term investment proposition as Fortress continues to roll out its pipeline of one million square metres of logistics GLA,” he concludes.