Fortress CEO-designate Steve Brown says the property fund, which owns more industrial property than any real estate company listed on the JSE, is ready to sell its stake in shopping centre landlord, Resilient.
Brown told Business Day that Fortress’s 10% stake in Resilient was no longer a key investment and that it could be sold soon. He said the funds received would then be invested in either developing new logistics properties or in buying high-end ones.
Fortress’s Resilient stake is worth about R2.7bn. It also owns a quarter of east European shopping centre owner Nepi Rockcastle with its stake worth about R17.9bn, and a R750m stake in Lighthouse Capital and more than R30bn worth of property directly.
Fortress, which was formed by former directors of Resilient and listed in 2009, has been trying to separate itself from companies that were considered to be its stable partners.
Fortress, Resilient, Nepi Rockcastle and Lighthouse Capital had been considered to be in the Resilient stable of companies but the members have taken steps over the past year to sever relations after they were embroiled in listed property’s worst scandal in years.
There was a sudden large sell-off in all four stocks in early 2018. A number of asset managers released reports in which they suggested that inter-related party deals were used to inflate dividends and share prices. In the fall-out from the sell-off, groups of investors also sold their holdings in other property stocks and investors in listed property ended up losing more than R120bn.
A review by former auditor-general Shauket Fakie of Resilient's operations cleared the group of wrongdoing, but did not do much to restore investor confidence. Fortress has appointed PwC to do a thorough investigation into its affairs, with a preliminary report expected at the end of February.
Last year was the worst for the FTSE-JSE SA Listed Property index in more than 20 years with it suffering a negative total return including capital growth and dividends of minus 25.26%.
The sell-off and allegations against directors and management at the stable prompted the Financial Sector Conduct Authority to investigate.
The authority has been investigating the trading of Fortress’s and Resilient’s shares and its directors deals since March 2018. Nepi Rockcastle and European mall owner Lighthouse Capital, formerly known as Greenbay Properties, were added to the investigation in July.
Fortress has appointed six new directors in the past year and now wants to focus on building back the trust of investors which it lost, COO Donnovan Pydigadu said.
A number of steps had been taken for Fortress to place itself as a company separate from the former stable, he said. It had removed its cross-holding with Resilient so that Resilient no longer held a stake in Fortress.
It had also moved to a new office and its executive management team had changed. Brown had become CEO-designate and would replace Mark Stevens as CEO later in 2019. Ian Vorster had been appointed CFO.
Brown said Fortress’s focus for the next few years was to invest in big-box logistics assets while holding on to its commuter retail properties.
“We have developed expertise through which we can build high-end logistics parks and are focusing our efforts here as we have a pipeline of 1-million square metres for this. We also have retail assets which help to diversify our income streams,” Brown said.
Fortress’s newest logistics asset is the R1.7bn Clairwood Logistics Park located in KwaZulu-Natal. He said Fortress’s logistics focus was now on Durban and Johannesburg.
Fund manager Garreth Elston of Reitway Global said the market was awaiting final conclusion to the allegations around Fortress, Resilient, Lighthouse Capital and Nepi Rockcastle from the Financial Sector Conduct Authority.
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