Fortress Real Estate Investments has released a pre-close operational update for the period post June 2023, sustaining a record low logistics vacancy rate, by rental, of 0.5%.
CEO, Steven Brown, says that post FY2023, the company continued with its strategy of disposing of non-core assets (for proceeds of R883 million) and recycling the capital into high-quality logistics developments and relevant retail redevelopments.
“The approach has proven to be successful, as is evident in our record-low vacancy rates and positive rental growth in tough operating environments. Given the challenges created in the real estate market globally by the higher interest rate environment, we view the disposals since 30 June 2023 as a strong result.”
Fortress currently has 173 610m² of logistics space under development. Vacancies, based on rental, in the SA logistics portfolio remained flat at 0.5% as at October 2023.
Eastport continues to experience high interest from the market due to the demand for logistics space in this node, as it offers superior visibility and access to tenants.
Teraco intends to expand the large data centre they developed within Eastport and as such, Fortress has entered into a conditional sale agreement with Teraco for the sale of 108 000m² of land adjacent to their current site. This additional land will be sub-divided but will remain inside the boundary of Fortress’ Eastport Logistics Park. The subdivision process is expected to take at least 12 months and the expected sales price is approximately R1 890 per m².
Construction of the new Retailability warehouse of 13 026m² at Cornubia Ridge Logistics Park was completed on schedule in July 2023. Fortress secured a 10-year lease with Dromex for a 24 590m² facility at Cornubia, with completion expected during December 2023.
Construction of a new 38 169m² warehouse at Clairwood for Sammar Logistics is progressing well. The 15-year lease, underpinned by Sasol South Africa, is on track to be completed during December 2023. Fortress has commenced bulk earthworks on Clairwood Pocket 5B and have signed a 15-year lease with CHC Supply Chain Management for a 14 071m² warehouse. In addition, Fortress expects the construction of the warehouse on Pocket 3C totalling 20 514m² to be completed in April 2024 with strong interest from prospective tenants. Given the proximity to the port, access to the M4 highway, security at the park and the high-quality offering, Clairwood Logistics Park remains the preferred location for prospective tenants.
Fortress’ Central and Eastern European (CEE) logistics vacancies, by rental, increased from 3.9% at June 2023 to 6.4% at October 2023. This vacancy represents two buildings, 3 849m² in Hall A at Stargard (Poland) and 5,450m² in Hall E at Bydgoszcz (Poland).
Construction of a 50 200m² warehouse building at our site in Łódź (Poland) commenced in July 2023, of which 28 509m² has been pre-let to Notino on a 10-year lease, with occupation scheduled during Q3 2024. The balance of the space being constructed has been offered to various potential tenants and Fortress expects part of this space to be leased prior to construction completion. The project provides further development potential of approximately 30 000m² of gross lettable area (GLA) in the second building, which is to be developed, based on adequate pre-lease commitments once the available space in the first building has been fully let.
Fortress has commenced construction of Phase 1, a 22 950m² warehouse at the site in Zabrze, Poland. Approximately half of Phase 1 has been pre-let to Lit Logistyka Polska (11 675m²) on a five-year lease. This development is expected to be completed during Q2 2024. Discussions with interested tenants for the balance of Phase 1 are ongoing and progressing well. Given the advance nature of many of these discussions, Fortress hopes to conclude further leases in respect of this project in Q1 2024.
Retail
The retail portfolio, which is commuter-centric and convenience retail nodes, is well-positioned given current macroeconomic conditions and a tough consumer environment. Turnover for the 12 months ended October 2023 increased by 7.2% compared to the corresponding period of the previous year. The retail portfolio collection rate for the period June 2023 to October was 99.5%. Retail vacancies, by rental, decreased from 1.5% at June 2023 to 1.3% at October 2023.
The continued investment into the retail portfolio to keep the assets relevant for tenants is evidenced in the low vacancy rates. “We will continue to focus on the performing retail assets with potential and dispose of assets in deteriorating markets or that are not dominant in their respective catchments,” comments Brown.
The recent introduction of Capitec and Clicks at Park Central, as well as the new FNB and Fashion Fusion stores at Central Park Bloemfontein will reinforce the tenant mixes and dominance of these CBD centres. Sterkspruit Plaza is fully let and continues to show consistent strong performance. Management is at advanced planning and leasing stages for an extension of this centre by approximately 5 000m².
Weskus Mall continues to achieve improved foot traffic and trading, it is anticipated to benefit from the recent opening of Volpes, Uniq, Lovisa and KFC.
The AbaQulusi Plaza (formerly Vryheid Plaza) extension (8 370m²) was completed during November 2023 and officially opened on the 22nd of November 2023. New tenants to the centre include Shoprite, Clicks, Jet, Woolworths Edit, Totalsports, Sportscene and Markham.
During October 2023, the new 2 500m² Shoprite store at Morone Shopping Centre opened, and trading is in line with expectations and the centre now benefits from a strong anchor.
The redevelopment at 204 Oxford (formerly Thrupps Shopping Centre) is progressing well. The parking reconfiguration works has been completed and the remaining construction will be finalised by the end June 2024.
Balance sheet
Fortress currently has a total of R3.6 billion in cash and available facilities at group level and remain comfortably within all debt covenants. The unencumbered asset ratio is 38% and loan-to-value (LTV) ratio is approximately 35.5% currently.