Fortress Real Estate Investments Limited has published its financial results for the year ended June 2024, exceeding its forecast despite facing a year characterised by local and global economic challenges.
“Globally, a shift towards more dovish central bank forecasts and expectations of lower future interest rates have contributed to a cautious yet optimistic outlook for global real estate investments. Some sub-sectors have benefited more than others. Locally, the smooth transition to a government of national unity and the resulting influx of significant funds into the local market has been encouraging. Although the value of our local assets saw a modest increase of less than 2% on a like-for-like basis, we are observing early signs of a more favourable local real estate market. Investor interest is returning, and tenant enquiries for additional space are noticeably improving,” commented Steven Brown, CEO of Fortress.
Its SA logistics portfolio (R15.3 billion asset value) exceeded expectations which reflects the demand for high-quality warehouses in prime locations. Vacancies, based on gross-lettable area (GLA), increased slightly from 1.2% as at 31st December 2024 to 1.8% as at 30 June 2024 which remains low by historical standards with a like-for-like net operating income (NOI) growth of 7.7%.
“Although construction cost inflation experienced in 2022 and 2023 has moderated, construction costs remain significantly higher than pre-2022 levels. This has led to a general hardening of the rental market, particularly for new developments. While this positively impacts our portfolio, it is offset by rising costs such as municipal rates and insurance, which diminishes some of our NOI growth,” said Brown.
The remaining local development pipeline comprises approximately 165 000m2 of GLA with completion estimated within four years if market conditions continue as currently.
At Eastport, following 30th June 2024, the Group sold additional land to Teraco to expand their data centre and enhance Eastport and the R21 node. Due to strong demand for prime warehousing, Fortress has begun developing smaller warehouses at Eastport on a speculative basis alongside the construction of two larger warehouses for Crusader Logistics and Liquor Runners, measuring 19 970m2 and 31 481m2 respectively. Once these developments are complete, Eastport will have one remaining site with approximately 39 000m2 of available space. The option available on the Eastport North site represents Fortress’s last opportunity to develop large logistics assets in the future.
Phase 2 of Longlake has approximately 41 000m² of GLA and remains to be developed. Although no binding agreements are yet in place, interest in this site has improved. The short-term lease on the first building has been extended to accommodate the existing tenant, who will relocate to a new development at Eastport.
One site remains at Clairwood for developing between 30 000m² and 35 000m² of GLA following the completion of the new building for Sammar and the site currently under development for CHC. Fortress is negotiating with a large third-party logistics provider for a new pre-let development on this site, which will complete Clairwood Logistics Park by December 2025, subject to a development agreement.
Located near Umhlanga, Cornubia is in a prime location. During FY2024, Fortress completed a new development for Dromex on the lower platform, measuring 24 537m². Approximately 54 000m² of GLA remains available for future development on this co-owned site, in which Fortress holds a 50% interest.
The Group’s local logistics developments have a R1.1 billion asset value.
In its Central Eastern European (CEE) direct logistics portfolio (with a R3.6 billion asset value), Fortress completed the 28 100m² development in Łódź for Notino and the adjacent 25 200m² speculative portion, totalling 53 300m² of GLA. Shortly after completion, the speculative portion was let to Oriflame, and the development is now fully let. Fortress says it will proceed cautiously with further developments at Łódź, which has a remaining 30 000m² of GLA to be developed, due to a softer logistics market in central Poland.
In contrast, developments in Zabrze and Bydgoszcz have progressed well with strong interest from prospective tenants. The existing tenant in Zabrze, Innpro, exercised their option to expand shortly after taking occupation, prompting Fortress to continue to Phase 2 of this development which will comprise a new facility of 23 015m² with 11 340m² pre-let to Innpro and 11 675m² developed speculatively. In Bydgoszcz, the development for MEDiVet is nearing completion, with strong interest in leasing the remainder of Hall C.
Tenant turnover in Fortress’ retail portfolio (R10.7 billion asset value) increased by 6.4% from FY2023 to FY2024. The portfolio’s vacances, based on GLA, decreased to 1.7% as at 30th June 2024 from 2% as at 31st December 2023, achieving strong like-for-like NOI growth of 8.5%.
Fortress is making strides with its energy security strategy. When financially viable, the Group plans to integrate solar systems with diesel generators to reduce diesel costs. Currently, 82% of Fortress’s retail portfolio by GLA is connected to backup generations with this figure expected to reach 97% by December 2024. Water and electrical smart meters have been installed at 54% of its retail portfolio, increasing to 82% by December 2024.
“We are proud to announce that Fortress has entered into a 10-year wheeling agreement with Discovery Green to provide renewable energy to 14 of the Eskom-supplied properties. Under this agreement, Fortress will have at least 70% of the electricity consumption, which we cannot provide from our on-site solar PV plants. It is anticipated that this programme will be operational in 2026. This wheeling agreement is a critical step in reaching our 2030 decarbonisation target,” said Brown.
Fortress is finalising EDGE ratings at two logistics buildings in Gauteng and recently instructed the ratings of six further buildings at Clairwood. Fortress has obtained BREEAM ratings for all income-producing assets in our Polish portfolio at a level of “Excellent,” and three further certifications are in progress.
Post the simplification of its capital structure into a single class of share through the implementation of a Scheme of Arrangement (SOA), its Board declared a dividend of 70.19 cents per FFB share for H2 2024 with the alternative to receive the dividend in the form of NEPI Rockcastle shares in a ratio of 0.00662 NEPI Rockcastle shares for every FFB share. The election to receive NEPI Rockcastle shares enable the company to retain cash and to reduce its gearing against the direct portfolio.
