Fortress Income Fund declares 11.85% distribution growth

Fortress Income Fund MD Mark Stevens says distributions ere expected to maintain their momentum this year.

Fortress Income Fund on Tuesday declared total distribution for the six months to December increasing 11.85% to 77.7c per share, compared with 69.47c for the same period the year before.

Fortress‚ which focuses on retail centres serving South Africa’s commuter market‚ outperformed the listed property market in the period. Average growth for listed property in this period was about 8.4%.

The results were buoyed by its offshore investments in New Europe Property Investments (Nepi) and RockCastle.

Breaking down the distribution‚ 58.81c accrued to Fortress’s A-linked units and 18.89c to B-linked units‚ representing growth of 5% and 40.3%‚ respectively.

JSE-listed Fortress gets dollar-denominated income from Rockcastle and euro-denominated income from Nepi.

RockCastle focuses on investments in other property companies in selected developed jurisdictions‚ including Canada‚ New Zealand‚ Australia‚ Singapore‚ France‚ the Netherlands‚ Hong Kong‚ the US and the UK. Nepi owns shopping centres in Romania.

MD Mark Stevens said distributions were expected to maintain their momentum this year.

“We were helped by the weak rand‚” he said. “I don’t see the rand improving much this year. However‚ it is not always easy to add value to our offshore investments. We must rely on Nepi and RockCastle to perform well too. They have done so in the past few months.”

He said Fortress could achieve growth in distributions of about 12% for the 2014 financial year‚ thereby maintaining momentum.

The growth forecast also assumes that a stable macroeconomic environment will prevail‚ with no major corporate failures‚ and that tenants will absorb rising utility costs and municipal rates.

There are also concerns about how people in rural areas where Fortress has some assets may act in the run-up to this year’s general election.

“There are political risks in the taxi ranks and other transport nodes where we operate‚” Mr Stevens said.

In terms of competition‚ Mr Stevens said the retail market was trading well but there were concerns that it was “getting cluttered”‚ even in rural areas.

Meago Asset Managers director Thabo Ramushu said the results were in line with Fortress’s recent trading statement.

“Among its core strengths is its significant foreign listed shareholding in Nepi and RockCastle‚ making up 30% of the total assets‚ thereby introducing a substantial rand hedge‚” he said.

“Another coup for Fortress is the acquisition of 25% of the Galleria and Arbour Crossing‚ which presents some significant upside potential via re-tenanting and redevelopment opportunities‚ especially as this is the largest retail offering to the south of Durban‚” he said.

Fortress was also largely protected from South Africa’s increasing interest rate cycle‚ having hedged 90% of its debt.

“These combination of factors make it a relatively attractive stock given its prospects of well above sector distribution growth at 12%‚ implying a 39% distribution growth in Fortress B units‚” Mr Ramushu said.