Fortress REIT Limited - A (JSE:FFA) News - Short-form announcement for the six months ended 31 December 2021

Fortress REIT Limited
Incorporated in the Republic of South Africa
(Approved as a REIT by the JSE) 
Registration number: 2009/016487/06
JSE share code: FFA |ISIN: ZAE000248498
JSE share code: FFB | ISIN: ZAE000248506
LEI: 378900FE98E30F24D975
Bond company code: FORI
("Fortress" or "the group" or "the company")

Short-form announcement for the six months ended 31 December 2021

"The start of this interim reporting period was marred by civil unrest and 
widespread riots and looting concentrated in KwaZulu-Natal and Gauteng. 
Many businesses were severely affected and the social tragedy will remain 
for some time. Encouragingly, SASRIA, with the support of government, 
managed to settle insurance claims which aided the commencement of 
rebuilding all our affected assets. Despite the emergence of a new 
COVID-19 variant towards the end of the reporting period, panic subsided 
fairly quickly, and the world is now seemingly opening up, learning to 
live with the COVID-19 virus and returning to a more normalised environment. 
Overall, we saw evidence of this normalisation across our portfolio with 
growth in retail turnover and leasing enquiries for our logistics 
development pipeline increasing. We currently have an overall portfolio 
vacancy rate that is the lowest in four years and there are early signs of 
improving rental reversions across our core portfolio.

The positive steps taken over recent years to simplify our business have 
created a more robust model which will allow us to better withstand the 
volatility brought about by numerous forces globally. The various proactive 
steps taken, principally aimed at protecting the balance sheet during the 
pandemic, enabled us to continue developing our logistics property pipeline 
and grow our offshore presence, while retaining a comfortable level of gearing.

While we navigate the macroeconomic headwinds in South Africa, we remain 
optimistic about the prospects for our business and the sectors within which 
we operate and focus. We are monitoring the ongoing crisis in Ukraine, but 
obtain comfort that more than 99% of our exposure in Central and Eastern 
Europe, both direct and indirect, is limited to countries which are both 
members of the European Union and NATO."
Steven Brown, CEO 

Nature of the business
Fortress REIT Limited ("Fortress") is a Real Estate Investment Trust ("REIT") 
specialising in the logistics and retail property sectors with an established 
in-house development track record.

Our focus is on developing and in letting premium-grade logistics real estate 
in South Africa and Central and Eastern Europe, as well as growing our 
convenience and commuter-oriented retail portfolio which currently comprises 
53 shopping centres, and includes properties co-owned with partners.

In addition to our property portfolio, we have a 23,6% interest in NEPI 
Rockcastle plc ("NEPI Rockcastle"), valued at R15,3 billion at 
31 December 2021.

Summary of financial performance

                                         Dec 2021    Dec 2020   % change
Dividend declared per share
- FFA (cents)                                   -           -          -
- FFB (cents)                                   -           -          - 
Dividend proposed per share
- FFA (cents)                              30,85#                    n/a
- FFB (cents)                              30,85#                    n/a

# Subject to the approval of the proposed amendment to the Memorandum of 
Incorporation ("MOI") on 18 March 2022.


International Financial Reporting Standards ("IFRS") information

                                         Dec 2021    Dec 2020   % change
Total revenue (revenue from direct 
property operations) (R'000)            1 688 947   1 614 033        4,6
Net asset value ("NAV") (R'000)        27 476 126  25 023 071        9,8
NAV per equity share
(going concern)^ (Rand)                     13,05       11,59       12,6
Basic earnings per share
- FFA (cents)                               71,09       52,69       34,9
Basic earnings per share
- FFB (cents)                               71,09       52,69       34,9
Headline earnings per share
- FFA (cents)                               47,31       35,73       32,4
Headline earnings per share 
- FFB (cents)                               47,31       35,73       32,4

^ The NAV per equity share is calculated as the total NAV divided by the 
aggregate number of FFA and FFB shares in issue, less shares held in
treasury. The NAV per FFA share and FFB share is no longer disclosed from 
this interim reporting period.

SA REIT Best Practice information
                                         Dec 2021   Dec 2020    % change
NAV per share                               12,93      11,29        14,5
Loan-to-value ("LTV") ratio (%)              38,9       40,5           #
Funds from operations                     814 582    837 443        (2,7)

# % change not meaningful to disclose.

Management accounts information
                                         Dec 2021   Dec 2020    % change
LTV ratio* (%)                               38,8       38,1           #
NAV per equity share
(going concern)^ (Rand)                     12,76      11,35        12,4
Direct property portfolio (completed 
buildings, including held for sale)
(R'million)                                26 348     25 349         3,9
Investment property under
development (R'million)                     3 546      3 472         2,1
Direct property disposals (R'million)         287      1 095       (73,8)
Listed equity portfolio (R'million)        15 265     13 465        13,4
Vacancy based on GLA (%)                      6,5        6,8           #

# % change not meaningful to disclose.
* The LTV ratio is calculated by dividing the total interest-bearing borrowings 
adjusted for cash on hand by the total of investments in property, listed 
securities and loans advanced, and is based on management accounts information.
^ The NAV per equity share is calculated as the total NAV divided by the 
aggregate number of FFA and FFB shares in issue, less shares held in treasury.
The NAV per FFA share and FFB share is no longer disclosed from this interim 
reporting period.

Distributable income
Distributable income, based on our communicated Fortress distribution 
methodology, was less than the FFA benchmark and accordingly no dividends may 
be declared by the board. Distributable income of R830,5 million was earned for 
the interim six-month period to 31 December 2021 ("1H2022" or "first income 
period"), which represents growth of 1,22% over the comparable period ended 
31 December 2020.

Consistent with the distribution policy of recent reporting periods and as
previously communicated, we do not distribute capitalised interest and now 
include the dividends received from listed investments in distributable income 
in the period in which they are received.

The board is proposing to shareholders an amendment to the MOI, allowing a 
dividend to be declared to both classes of shareholders on a pari passu basis, 
as a result of the distributable earnings being below the FFA dividend 
benchmark for 1H2022. The payment of this dividend will assist meaningfully 
in meeting the minimum distribution required by the JSE Limited ("JSE") under
the Listings Requirements for REITs, being to distribute 75% of distributable 
profit as defined. Furthermore, with a more stable operating environment 
compared to that of the past two years, it is the board's intention to 
uphold the policy of declaring semi-annual distributions to shareholders.

Should the recently published circular regarding the amendment to the MOI be 
approved by the requisite majority of shareholders, the board will be in a 
position to declare a dividend of 30,85 cents per share to FFA shareholders and 
30,85 cents per share to FFB shareholders. This would result in R630 million or 
75,9% of distributable profit earned in 1H2022 being declared as a dividend. 
Should the proposed amendment not be approved, then no dividends will be paid 
to either FFA or FFB shareholders for this interim period of 1H2022.

The dividend benchmark for the FFA share is increased by the lower of the 
Consumer Price Index ("CPI") or 5,0% over the prior comparable income period, 
using the CPI figures supplied by Statistics SA. CPI growth for the first income 
period was 5,13% and therefore the FFA benchmark has been escalated by 5%. 
On this basis the FFA benchmark base is 84,11 cents for future comparable 
income periods.

Prospects
We have revised our distributable earnings guidance for the year ending 
30 June 2022 to R1,7 billion from the R1,78 billion previously provided.

The revised downward adjustment is primarily as a result of a lower-than- 
expected dividend declared by NEPI Rockcastle in respect of the six months 
ended 31 December 2021 and increased borrowing costs post the South African 
Reserve Bank's decision to increase the repurchase rate in January 2022. 
The guided distributable earnings of R1,7 billion for the year ending 
30 June 2022, when split into the two respective income periods, are below 
the FFA dividend benchmark for the six months ended 31 December 2021 
(interim period) and are expected to be below the FFA dividend benchmark 
for the six months ending 30 June 2022 (final period).

This forecast is based on the following assumptions: 

Fortress-specific assumptions
- No material sales nor acquisitions occur which necessitate a revision to 
this forecast;
- There is no unforeseen failure of material tenants in our portfolio;
- Contractual escalations and market-related renewals will be achieved with 
no major change in vacancy rates; and
- Tenants will be able to absorb the recovery of rising utility costs and 
municipal rates.

Macroeconomic and regulatory assumptions
- There is no change in the existing lockdown restrictions placed on any
of our tenants in our direct portfolio;
- There is no unforeseen material macroeconomic deterioration in the markets 
in which Fortress has exposure; and
- The South African Reserve Bank maintains the repurchase rate at 4,0%.

This forecast has not been audited, reviewed or reported on by Fortress' auditor.

Short-form announcement
This short-form announcement of the condensed unaudited consolidated interim 
financial statements for the six months ended 31 December 2021 is a summary of 
the information in the full announcement and does not contain full or complete 
details of the financial results that were published on SENS on 10 March 2022 
and is the responsibility of Fortress' board of directors. The information in 
this short-form announcement has been extracted from the full announcement for 
the six months ended 31 December 2021. Any investment decisions should be 
based on consideration of the full announcement published on Fortress' website:
https://cmsignition.co.za/download/files_1184/Fortressinterimresults
31December2021.pdf 
and available on the JSE's website at:
https://senspdf.jse.co.za/documents/2022/jse/isse/FFAE/HY2021.pdf

Copies of the full announcement and the condensed unaudited consolidated 
interim financial statements are available for inspection during business 
hours at the registered offices of Fortress or its sponsors, Java Capital 
and Nedbank Limited, acting through its Corporate and Investment Banking 
Division. Such inspection will be at no charge and investors may request 
a copy of Fortress' condensed unaudited consolidated interim financial 
statements for the six months ended 31 December 2021 from
tamlyn@fortressfund.co.za.

The short-form announcement has not been audited or reviewed by Fortress' 
auditor.

By order of the board
Steven Brown                 Ian Vorster                 Johannesburg
Chief executive officer      Chief financial officer     10 March 2022

Block C, Cullinan Place, Cullinan Close, Morningside, 2196
PO Box 138, Rivonia, 2128

Lead sponsor
Java Capital

Joint sponsor
Nedbank CIB

Debt sponsor
RMB

Date: 10-03-2022 03:00:00
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