Steven Brown
Fortress
CEO
Fortress Logistics Park Zabrze
Fortress Real Estate Investments Limited has delivered strong results for the interim period ended 31 December 2024, following a strategic shift into higher growth and better-quality assets.
The distributable earnings of 76,15cps for 1H2025 were 29,8% higher than the normalised distributable earnings per share for the previous corresponding six-month interim period ended 31 December 2023, which was 58,68cps.
Continued focus on the strategy pays dividends
The results follow a significant period for the company, since moving away from a particularly complex capital structure in February 2024. In addition, the long-term consistent focus and implementation of the strategy to specialise in the company’s core sectors, logistics and retail, continues to deliver substantial real like-for-like net operating income (“NOI”) growth.
According to Fortress CEO Steven Brown, implementing a clear and defined strategy to rotate out of tail, non-core assets and develop state-of-the-art warehousing and newer logistics assets in prime locations has been transformational for the business and is now paying dividends.
“The strategy shift into higher-growth and better-quality assets is bearing fruit, resulting in lower vacancy rates and improved like-for-like NOI growth across our core logistics and retail portfolios,” he explains.
This includes exiting the office property sector, with office disposals reaching R297,8 million in this reporting period, with proceeds recycled into the company’s core asset portfolio.
“We currently have only R 735 million of office properties remaining, representing only 1,6% of total assets,” elaborates Brown.
Focused on core assets
Brown believes the company’s diversified portfolio remains a key contributor to its success.
The retail portfolio emerged as the most significant contributor to the growth story, with 9,2% like-for-like NOI growth.
“This performance stems largely from recent and ongoing refurbishments and extensions, as well as the disposal of underperforming assets constraining growth,” explains Brown.
The Fortress logistics portfolio also delivered positive results, achieving like-for-like NOI growth of 4,7%.
“This portfolio continues to benefit from very low vacancies due to limited new developments in the market and increased demand for larger warehouses in secure logistics parks,” he continues.
Since FY2019, Fortress has completed and delivered approximately R10 billion of new warehousing facilities in South Africa, all of which are currently let. This has supported the strong performance of the logistics portfolio.
The CEE logistics assets continue to perform well with total assets of EUR240 million and a low vacancy of 1,6%.
“In February 2025, we acquired a partially completed logistics park in Gdańsk, Poland, and the development for MEDiVet in Bydgoszcz has been completed with extensions to Hall C adding a further 14 277m2, which would complete the Bydgoszcz Logistics Park,” said Brown.
Another important market shift is an improvement in the historical negative reversions in this portfolio caused by lease escalations that exceeded market rental growth for several years.
“We ascribe this partly to the rise in construction costs, which has necessitated an increase in asking rentals for new, prime logistics developments and has buoyed much of the overall rental market,” he continues.
NEPI Rockcastle investment
With a 16,3% interest valued at c.R16 billion in NEPI Rockcastle, the largest listed real estate company on the JSE with a EUR7,9 billion portfolio across eight CEE countries, Fortress continues to support the company’s superior-quality retail portfolio, presence in growth markets and a conservatively geared balance sheet.
“We supported NEPI Rockcastle with their growth ambitions and participated in the accelerated bookbuild in October 2024 for an amount of EUR100 million,” states Brown.
“NEPI Rockcastle utilised the additional capital to acquire top-quality, dominant retail assets which are accretive, both from an earnings and a portfolio quality perspective.”
Highlights of 1H2025:
– Like-for-like NOI growth of 5,9% in our total portfolio;
– Disposals of non-core assets of R809,5 million at an overall 3,3% premium to book value;
– Expansion in Poland with the acquisition of a 50 916m² logistics park in Gdańsk, together with additional land on which a further 55 073m² of GLA in logistics facilities can be developed;
– Lower overall portfolio vacancy of 3,1%, based on gross rental;
– EUR100 million invested in NEPI Rockcastle to support accretive acquisitions which enhances their dominant position in the CEE retail market; and
– Distributable earnings tracking ahead of forecast for FY2025.
– Retail portfolio vacancies based on GLA decreased to 1,1% at 31 December 2024 from 1,7% at 30 June 2024.
– Logistics portfolio vacancies based on GLA decreased from 1,8% at 30 June 2024 to 1,5% at 31 December 2024.
– Comparable turnover figures in the retail portfolio for the 12 months to 31 December 2024 increased 4,3% compared to the corresponding prior period.
Sustainability developments
Fortress continued to make meaningful progress during the period under review to make all buildings more efficient by implementing solutions that ensure the highest level of energy and water security for tenants at reasonable prices.
“Failing infrastructure at the municipal level continues to threaten energy and water security. Furthermore, double-digit growth in tariff inflation remains problematic regarding energy affordability and increases pressure on operating expenses,” explains Brown.
The Fortress energy plan involves installing generators, rooftop solar PV plants and smart meters.
At 31 December 2024, Fortress had 80 operational solar PV plants, including one in Poland and one in Romania, compared to 59 at 30 June 2024. Its installed solar PV capacity was 29.81MWac, up from 22.17MWac. The company aims to have 98 operational plants by June 2025.
“Where viable, we integrate solar systems with diesel generators to reduce diesel costs. At present, 90% of our retail portfolio is connected to backup generators and our centres can trade when there is no grid supply or electricity.”
Fortress has also installed smart water and electrical meters at 76% of its retail portfolio, and feasibility studies are being concluded on a further 12%, targeting a total coverage of 88% by 30 June 2025.
“These meters, coupled with IoT devices, form the backbone of a portfolio-wide utility management system, providing management oversight and near real-time data on energy and water consumption, as well as the complete energy supply mix consisting of grid-supplied, solar PV and diesel-generated electricity.”
Fortress also has backup water tanks at 30 retail centres, which can supply for 2-3 days during an outage. “We view this as a critical requirement to offer our tenants a functional space and our retail visitors a comfortable experience,” says Brown.
Future growth
Looking forward, Brown says Fortress will continue to roll out its development pipeline on its existing land and look for new opportunities to trade on.
Fortress previously communicated that distributable earnings for the year ending 30 June 2025 would be approximately R1,78 billion. However, following better-than-expected operational results and a reduction in interest rates not previously forecast,
Fortress has revised this previous guidance for FY2025 to approximately R1,93 billion.
“Our forecast distributable earnings for FY2025 represent 159,84 cents per share, which is 24,0% higher than the normalised distributable earnings for FY2024,” elaborates Brown.
“The secret to our success has been sticking to our strategy very closely, which is the approach we intend to continue with,” he concludes.