Fortress warns on dividend outlook in a weak economy
The glory years could be over for Fortress, the JSE’s largest industry-focused property fund.
The group, which owns R30bn in property directly, has forecast that its B share dividend will grow about 2% at best in the year to June 2019.
CEO Mark Stevens also warned this week that the dividend might even shrink for the first time in the fund’s history as Fortress grapples with a weak economy.
Fortress is a hybrid of direct property and stakes in other listed companies. It owns logistics properties, commuter retail centres and offices directly.
It listed in 2009 and was the best-performing stock on the JSE in 2014 and 2015 in terms of total return, the second best in 2016 and in the top five in 2017. But 2018 has been a difficult year for the real estate investment trust with it being one of the worst performers.
Financial results for the year to June released on Tuesday show that the company’s once-stellar dividend growth is easing. Fortress has a dual share structure comprising A and B shares.
These shares are designed to appeal to investors of different risk appetites. The A share holders are paid dividends first that are the lower of 5% or CPI. This dividend grew 4.53% to 141.8c in the year to June. Dividends of B share holders, who receive the residual income, have grown at double-digit rates in recent years. However, after the dividend of the B share grew 25% in the financial year to June 2017, its 4.07% growth to 179c looked pedestrian on Monday.
Fortress forecast the B share dividend would grow 175c-183c a share in the year to June 2019. Evan Robins, portfolio manager at Old Mutual Investment Group, said Fortress’s listed holdings had lost value in the first half of 2018. Fortress owns stakes in East European shopping centre owner Nepi Rockcastle and investment group Greenbay Properties, the share prices of which weakened steadily in the reporting period.
Robins said investors were unimpressed with Fortress’s forecast growth for the 2019 financial year, resulting in a sell-off of shares.
Its B share price fell 4% on Tuesday to close at R16.55.
"I am unsure why the market sold Fortress off like it has on the results. Guidance was going to have to be lowered given the lower distributions from their listed holdings, and a tougher local environment does not help," he said.