Hybrid property stock Fortress Income Fund’s takeover of stablemate Capital Property Fund in December has paid off handsomely for shareholders.
In what is likely to be one of the best dividend growth performances by a real estate investment trust this year, dividend payouts to Fortress B shareholders for the 12 months to June 30 will increase by 95.28% to 137.50c per share. It is the highest growth declared by the company since listing in October 2009. Fortress has separately traded A and B shares, with the A share dividend up the usual 5% to 129.17c per share.
Fortress MD Mark Stevens said on Thursday the substantial growth in the B share dividend was largely attributable to the Capital acquisition, funded with equity issued at a lower yield than the yield of the Capital portfolio.
“The merger was also more successful than we expected in terms of creating economy of scales and bedding down the new portfolio.”
The company’s assets have more than doubled to R55bn after the merger. The directly held R24.28bn property portfolio has a 48.4% weighting towards logistics and industrial buildings.
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It also owns 58 shopping centres that cater predominantly to lower-income shoppers near transport nodes.
Stevens said the focus would shift to developing well-located, cutting-edge logistics and warehouse properties, of which there are a shortage.
“While our previous focus on the transport-orientated retail sector worked well for us, there’re not many opportunities left to build new shopping centres in SA.”
Fortress also has a R22.67bn (41% of total assets) exposure to offshore real estate markets via stakes in Rockcastle, New Europe Property Investments, newly listed Greenbay and UK-listed mall owner Hammerson.
Fortress B’s share price has been under some pressure year to date.
While Fortress has forward-hedged its dividend income from its offshore investments for the next 12 months, the potential longer-term effect of a stronger rand on offshore earnings has no doubt played a role.