Fortress REIT Limited has published its results for the year ended June 2022 with a record low vacancies in its South African logistics portfolio of 1.2% and a reduction in overall vacancies to 5.4% (from 7.4% in FY2021).
“The 2022 financial year has seen historic events, both locally and abroad, from the riots and looting seen in South Africa to the war in Ukraine impacting many European nations and further impacting global rates of inflation not seen in multiple generations. Covid-19 and the concern around the Omicron variant seem to be a distant memory in a volatile global environment where a perpetual increase in the pace of change seems to be the only constant,” said Steven Brown, CEO of Fortress.
Its South African logistics portfolio had a R10.3 billion asset value with 77 560m2 of gross lettable area (GLA) during FY2022 and a further 37 965m2 of pre-let transactions closed shortly after year-end.
With logistics remaining its standout performer for the year, the company allocated an additional R1.8 billion to this portfolio to rollout new premium warehouse developments. Record low vacancies in the logistics portfolio, combined with higher construction costs, has led to an uptick in net asking rentals on the new speculative developments, and better rentals on prime logistics assets in the existing portfolio are likely to follow this positive trend.
Fortress’ Central and Eastern European (CEE) logistics portfolio increased in value (on a like-for-like basis) by 13,6% and with a current development pipeline of more than 230 000m2. The portfolio has grown to R2.1 billion since the initial acquisition in 2020 and it was the best performing part of the Fortress portfolio for the 2022 financial year.
The REIT’s South African retail portfolio has a R10.2 billion asset value with retail tenant turnover figures increasing by 6.8% in FY2022 compared to FY2021, and by 17.0% compared to FY2019. The growth in net operating income from this portfolio was very positive at 8.3% for the year. Grocery retailer turnovers increased by 7.0%, while pharmaceutical retailer turnovers increased by 9.0% year-on-year.
The board recently proposed a scheme of arrangement to shareholders, requiring 75% approval, to collapse its dual-share structure into a single share on the JSE. According to the company, the ‘hurdle’ causing its inability to pay dividends lies within its dual-share structure and the prohibition contained in the MOI where it cannot pay a dividend when distributable earnings are below the Fortress A benchmark – which is the case for the most recent financial year.
“It remains the view of Fortress that a single share structure with REIT tax status is the best outcome for both the company and its shareholders … As a result, Fortress currently does not have the ability to comply with the minimum distribution requirements as set out in the JSE Listings Requirements pertaining to REITs, which requires a dividend to be declared and paid four months after a REITs year-end. In the case of Fortress this date would be 31 October 2022. Fortress, as a prudently managed business, cannot risk non-compliance with the JSE Listings Requirements, and is engaging with the JSE to ensure that the process is well managed”.