Fortress Reit CEO Steve Brown. Picture: SUPPLIED
Fortress Reit CEO Steve Brown. Picture: SUPPLIED

Fortress, the owner of industrial and logistics warehouses, says it will change how it calculates shareholder dividends, as it tries to be more conservative in a difficult and depressed operating environment.

The company released its first set of financial results for the six months to December, achieved under its new management team, which took over after the separation from Resilient group.  

Fortress, Resilient, Nepi Rockcastle and Lighthouse Capital — all property companies listed on the JSE — had cross shareholdings and common founders. The structure was unbundled in 2019 after allegations of share price and profit manipulation. The companies were cleared by the Financial Sector Conduct Authority (FSCA), the financial market regulator, which investigated the allegations.

The group said it had to adopt a conservative dividend policy given a weak operating environment. In future the dividends would exclude capitalised interest on its strategic land holdings, which has historically been included in determining the total dividend payments, given that the growth in value of many of these land holdings is likely to remain below the rate at which the company capitalises interest.

“The macroeconomic conditions in SA continued to deteriorate on the back of the latest round of load-shedding, the lack of confidence in the SA economy as well as fiscal risks to government finances evidenced by National Treasury’s prediction that debt to GDP will reach 70% within three to four years,” it said.

Fortress said that business confidence, as measured by the RMB/BER business confidence index, was at 20-year lows.

“The nature of our business has also changed to focus more on development activities, which differentiates us but also necessitates a strong and liquid balance sheet with which to fund the development pipeline ... The board deems it appropriate, at this time, to adopt a more conservative approach to the dividend policy,” it said.

Nesi Chetty, a senior portfolio manager at Stanlib, said Fortress had done the right thing to exclude capitalised interest from strategic land holdings in future distributions. “The market wants a more sustainable level of distributable income,” he said.

Fortress pays A and B shareholders different dividends according to its capital structure.

“Effectively this unbundling of Resilient shares will give Fortress more balance-sheet flexibility in the medium term as they determine their optimal structure between units,” he said.

Fortress said it  will continue with its strategy of exiting noncore assets and reinvesting the proceeds into its high-quality logistics parks.

Fortress said its notable achievements for the interim period included the disposal of R420m worth of properties, securing refinancing of bank facilities of R4.5bn and starting five new solar installation projects.

andersona@businesslive.co.za