How has South Africa’s real estate investment landscape evolved in recent years?
South Africa’s real estate investment landscape has undergone various forms of transformations in recent years, influenced by economic shifts, evolving consumer preferences, and strategic corporate initiatives. Sustainability has become a central focus, with a significant increase in certified green buildings and renewable energy solutions among new developments. This growth reflects a shift in consumer priorities.
Tell us about your company and the key investment opportunities.
Fortress is a real estate investment company (REIC) focused on developing and letting premium-grade logistics real estate in South Africa and Central and Eastern Europe (CEE). Our logistics portfolio primarily consists of state-of-the-art logistics parks that we have developed. These parks play a crucial role in supporting the growing demand for efficient and sustainable supply chain solutions.
We are also expanding our convenience and commuter-oriented retail portfolio, comprising 43 shopping centres. Fortress holds a 16.3% interest in NEPI Rockcastle, the largest listed property company on the JSE, with a €8bn portfolio of 60 assets across eight countries. Our strategic focus and key opportunities revolve around increasing our specialisation in two core areas: logistics and commuter retail.
What factors are driving growth in logistics parks and commuter-oriented retail centres?
High-quality, secure logistics space continues to perform well and has experienced buoyant demand over the past 24 months with very low vacancies across prime locations. Fortress has developed c.150 000m² of high-quality logistics space in the past 12 months, of which almost 100% was let prior to completion. Fortress’s current logistics development pipeline consists of approximately 65 000m² in South Africa and a further 30 000m² in Poland, of which 75% is already pre-let. We believe opportunities exist to extend, enhance and refurbish existing retail space in our portfolio, and grow our portfolio through value-enhancing inorganic acquisitions.
How have macroeconomic factors (inflation, interest rates, foreign direct investment) impacted real estate investment?
The recent interest rate cuts continue to support increased appetite for the sector, both from a listed and direct perspective. As interest rates decrease, cost of funding reduces, sentiment improves and bond yields adjust accordingly, making real estate exposure an attractive opportunity, on a relative basis, all else equal. The persistent low growth environment, however, continues to hamper real economic sustained growth, which directly affects the demand for new logistics warehouses and the performance of our retail tenants.
Why should financial advisers tell their clients to invest in real estate (and retail or logistics)?
Fortress is a listed real estate investment company (REIC) and not a REIT. The tax consequences for an investor are material (profile dependent). Fortress intends to pay semi-annual dividends at a 100% payout ratio. Investors receive an attractive investment opportunity (focused real estate fund with exposure to high-growth well-performing sectors of retail and logistics). From a valuation perspective, the investment is attractive as Fortress is currently trading on a 12-month forward, post-tax dividend yield of 8,5% and a discount to Net Asset Value of 25%. Other positive aspects include an internal development team with high expertise, strong management, focused strategy and ability to unlock shareholder value through corporate action.
