Offshore Investments gives Fortress Income Fund a fillip

Fortress Income Fund CEO Mark Stevens said these investments had benefited from the weaker rand, and added that "Nepi and Rockcastle have proven to be very good investments".

JSE-listed Fortress Income Fund reported on Wednesday that its total distributions for the year ended June had increased by 11.72% to 140.7c, buoyed by its offshore investments and local retail portfolio.

CEO Mark Stevens said "we are very pleased with the result", which was ahead of Fortress’s own initial 10% forecast largely due to the performance of its offshore investments in New Europe Property Investments (Nepi) and Rockcastle Global Real Estate Company.

Mr Stevens said these investments had benefited from the weaker rand, and added that "Nepi and Rockcastle have proven to be very good investments".

The fund’s distribution attributable to A-linked units grew 5% to 112.02c, while B-linked unit distributions improved 48.9% to 28.68c. The distributions of A-units escalate at 5% per annum, while remaining distributable income accrues to the fund’s B-units.

Following the disposal of most of its office portfolio to the newly listed Tower Property fund, Fortress’ office exposure has been reduced to about 1%.

The disposals, together with the acquisition of a portfolio of retail properties from Resilient Property Income Fund post period-end, has pushed Fortress’s retail exposure to about 84%.

Mr Stevens said the retail market "is still trading very well", although there were concerns that this market was "starting to get cluttered" given the large number of new developments, particularly in rural areas.

Fortress was targeting further retail acquisitions, but much of its focus would be on a number of redevelopment and expansion projects to the existing portfolio, he said.

"We are spending a lot of money on our existing portfolio" to improve the quality of existing assets, Mr Stevens said.

The fund’s vacancy level had dropped to below 5%, at 4.9% by period end. This was "a number we are happy with" given that a fairly large portion of the vacancies were in buildings that were being kept vacant to allow for redevelopment.

Fortress’s gearing level was 24%, "and we are 100.7% interest rate hedged at the moment — which is important. You have got to be hedged in this market. We think there is interest rate movement coming up down the line, sooner than people might think," Mr Stevens said.

Fortress was confident it would achieve 10% growth in distributions for the 2014 financial year, he said.

Earlier in August, Resilient Property Income Fund reported a strong set of results for the six months ended June, boosted partly by its investment in Fortress’s B-linked units which had produced high returns for Resilient.