JOHANNESBURG – Property group Fortress Reit for the year to June 30 met its distributable income guidance targets, despite the tough economic environment that has been battering South African property companies, and as it clears its name of share price manipulation.
Fortress Reit owns a retail portfolio of 61 commuter-oriented shopping centres and about 84 percent of its investment properties are concentrated in Gauteng.
It said that it had total shareholder returns of +48.7 percent per Fortress A share (FFA), and -8.7 percent per Fortress B share (FFB).
“We met our guidance for total distributable income for the 2019 financial year of 155.50 cents per FFB share, as communicated to stakeholders during May 2019. The total dividend per FFAshare was 148.35c for the year.”
Commenting on the company’s performance yesterday, Fortress Reit chief executive Steve Brown, who was appointed to the position earlier this year, alluded to a missed dividend distribution guidance of 1 percent.
“It was slightly below what we had previously guided for next year, and was largely driven by an impairment we took on in Durban in a development in Clairwood.
"We had to take an impairment of R560 million there, but it was part of resetting the base. The challenge with that particular opportunity was the time it took to get plan approval and environmental authorisation, that led to too many costs being capitalised against the base,” Brown said.
To trim its sails, Fortress Reit exited non-core investments totalling R3.4 billion and invested in itself with a R543m share buyback of FFB.
In the reporting period, revenue from direct property operations grew by less than a percent to R3.4bn.
In the period, Fortress had agreed to reduce the rental charged on all Edgars, Jet and JetMart stores by 41 percent in exchange for shares in the troubled Edcon business.
“We ascribe no value to these shares and will continue to distribute only the cash component of rental received. During the last six months, we have reduced our exposure to the Edcon group by approximately 8000m²,” the group said.
The group in addition to its property portfolio also has a 23.9 percent stake in Nepi Rockcastle valued at R18.1bn and an effective 11.1 percent interest in Resilient Reit, valued at R2.5bn.
Fortress’s net asset value increased marginally by 1.4 percent to R35.7bn, due to a combination of positive revaluations on its investments in Nepi Rockcastle and Resilient.
The guidance for total distributable income for the next financial year is set to to increase by 1 percent, the group said.
Looking ahead, it said it would continue to focus on development and selective acquisition of premium logistics facilities with long leases, as well as to invest in commuter-orientated retail shopping centres.
It said the strategy remained relevant and “has proven to be defensive in the current difficult economic climate. Sustainable rental growth, through the economic cycle, is anticipated to flow from both these sectors in the future.”
It predicted that no major corporate failures would occur with tenants will be able to absorb the recovery of rising utility costs and municipal rates.
The group on Tuesday that it was cleared of any wrongdoing by a Financial Sector Conduct Authority investigation into share price manipulation.
The investigation covered the 2017-18 period and followed a statement, which had informed the market of the unwinding of the cross shareholding between Resilient Reit and Fortress.
Fortress Reit has overhauled its management team to boost investor sentiment after allegations of dodgy share deals led to its shares slumping 65 percent on the probe.