Fortress REIT reports lowest vacancy rate in 4 years

Sterkspruit Plaza

Fortress REIT has continued to successfully pivot its South African portfolio to one-third convenience retail and two-thirds logistics real estate as reflected in the decrease of its overall vacancies from 7.4% as at 30 June 2021 to 6.5% as at 31 December 2021 (based on gross lettable area) – its lowest vacancy rate in 4 years.

The logistics operator has shown resilience as the demand for logistics, both locally and internationally, remains buoyant despite a challenging trading period.

The long-term focus for the business, despite the negative economic environment and Covid-19 impact, allowed us to continue to shore up our balance sheet and grow liquidity through the sales of non-core assets and recycle this capital to invest in both acquiring and developing best-in-class, well-located premium logistics parks in South Africa, and more recently, in Central and Eastern Europe (CEE)”, commented Steven Brown, CEO of Fortress REIT on the company’s interim results for the half-year ended December 2021. “Our core portfolios have performed well and proved their defensiveness yet again”.

The REIT’s state-of-the-art warehousing space, in secure logistics parks and well-located to developed road infrastructure, have continued to experience strong demand, evidenced by the completion, and letting of 3 developments totalling c.94 000m2 during the first half of 2022.

It has also seen growth in its portfolio with like-for-like retail sales increasing by 8.2% over the year to December 2021. Brown added: “Sales growth benefited from the continued relaxation of Covid-19 restrictions and consumers returning to the shopping centres with the pandemic abating, coupled with government’s social grant initiatives. Our retail portfolio remains concentrated on commuter-focused and convenient locations which has certainly experienced an increasing number of people returning to the shops and this has gone a long way in reducing the negative impact created by Covid-19. We continue to improve trading densities at our retail assets and despite economic headwinds, we are optimistic for future growth”.

Fortress took steps during the year to shore up its balance sheet and to create liquidity which included the disposal of 11 properties at c.4% premium to book value with net proceeds of R287 million. A further 11 assets are held for sale which should net an additional R367 million with part of the proceeds to be used to fund the rollout and enhancement of its development pipeline of logistics parks.

The market showed a strong appetite for the 3 sustainability-linked bonds amounting to R1.3 billion issued earlier this month with 3-, 5-, and 5.5-year tenors, following the 2 sustainability-linked bonds issued at the end of 2021, bringing a combined total of R900 million in the 3- and 5-year tenors. The company’s other financial initiatives included rolling forward the collar derivative structure on 11.47 million NEPI Rockcastle shares with a put strike of R76.76 and a call strike of R116.68. This was undertaken to ensure ample liquidity is maintained for funding its development pipeline while retaining the dividends on these shares.

The various proactive steps we have taken, principally aimed at protecting the balance sheet during the pandemic, enabled us to continue developing our logistics property pipeline while at the same time growing our offshore presence without compromising a sustainable level of gearing. While we navigate the macroeconomic headwinds in South Africa and monitor the ongoing crisis in Ukraine, we remain optimistic about the prospects for our business and the sectors within which we operate”, concluded Brown.