is an internally managed real estate investment trust (Reit) that listed on the JSE in October 2009. Fortress is a hybrid fund that offers investors a niche exposure to the SA commuter-orientated retail market, prime logistics warehousing and strategic offshore investments through holdings in recently merged Nepi Rockcastle as well as Greenbay Properties.
Fortress remains one of the largest listed companies on the JSE, being only one of three listed property companies in the Alsi40. Fortress offers investors equal exposure to both the best onshore and offshore opportunities. The capital structure of the fund was created to cater for investors with different risk profiles through the A and B share structure.
The A and B shares trade independently on the JSE under the codes FFA and FFB. Investors in the A share have a preferential claim to the income distribution of the fund with distribution growth capped at the lower of 5% or CPI. The A share also has preference to capital participation in the event of the fund winding up, while the residual income distribution and capital participation would then accrue to the B share.
The direct property portfolio constitutes half of Fortress’s total assets and consists of 336 investment properties with a gross lettable area of 3,292,643m² and is valued at approximately R28.7bn.
The portfolio is well diversified across sectors that are defensive and robust through difficult economic cycles, with 36% exposed to high-quality logistics space, 34% to high-traffic commuter centres and 16% to a trading portfolio of offices.
After the interim period, Fortress has been successful in disposing of about R700m worth of office properties, which further strengthens the quality and long-term income potential of the fund.
Fortress has positioned itself as the number one developer of world-class grade A logistic spaces in SA and boasts one of the largest property development pipelines in the country, the most exciting of which is the redevelopment of the former Clairwood racecourse in Durban.
The park is 3.5km from the proposed dig-out port and is set to transform the sector in Durban. On completion, Clairwood will be one of the country’s largest and most innovative distribution hubs.
In keeping with the hybrid nature of Fortress, half of total assets are in investments in other listed property companies. The core underlying international investments are in Nepi Rockcastle and Greenbay. These investments provide investors with exposure to different segments of the offshore market in euros and US dollars. The intention of management is to maintain and increase Fortress’s exposure to hard currency listed property investments in high-growth markets.
Fortress introduced a progressive hedging policy for dividends received from offshore counters in 2016, where 100% of income for the next 12 months, 67% for the following 12 months, and 33% for the 12 months thereafter is hedged.
This reduces risk to earnings from currency volatility and should be supportive of growth.
The balance of the listed equity portfolio comprises an investment in Resilient Reit Ltd.
Lease expiries are well spread over the next five years with no more than 21% of leases expiring in each year (based on contractual rental revenue).
Vacancies in the portfolio have remained acceptable around the 6% level. Interest rate risk remains low in the fund, which has a loan-to-value of 25% and is hedged at 108%.
A weighted average hedge term of 4.1 years and an all-in local currency cost of funding of 8.92% was reported at close of business in December 2016.
Fortress is one of the most interesting listed property counters in SA. Its performance since listing in 2009 has been astounding, with its market cap growing from R1.8bn at listing to over R57.3bn today.
The fund is headed by Mark Stevens and his team who are smart, entrepreneurial and highly capable, and this is what separates Fortress from being a mere collection of properties to that of a superior business whose stock-in-trade just so happens to be property.
Head of listed property, Absa Asset Management
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