New property fund debuts on JSE

Johannesburg - The market cap of the JSE property sector has surpassed the R100bn mark for the first time since December 2007, following the listing of new kid on the block Fortress Income Fund on Thursday.

Fortress is the latest property venture from industry heavyweight Resilient group, and the JSE's first real estate listing since that of hotel fund Hospitality in February 2006.

Fortress is also the biggest new player to enter the listed property fray to date, with a portfolio of retail, industrial and office buildings valued at R2.3bn.

The Fortress portfolio has been assembled mostly from existing listed funds in the Resilient stable including Resilient, Pangbourne and Capital. The fund offers income chasers the opportunity to invest in a split A and B unit structure, similar to what was previously available from ApexHi before it was taken over by Redefine earlier this year.

Fortress A units offer an initial income yield of 10.75%, while distribution growth will be capped at 5% per year. That makes A units well suited to risk-averse investors looking for a predictable income stream. B units are aimed at investors with a higher risk appetite, offering an initial yield of 9% plus the remainder of the income left once A unit holders have been paid.

'Filling a gap'

Fortress MD Mark Stevens told Fin24.com the Fortress listing could not have come at a more opportune time, as the demise of ApexHi's A, B and C units has left a gap for a high-yielding property counter that caters to varying risk appetites.

The Fortress portfolio offers a spread of 103 smaller, B-grade buildings with shopping centres comprising 43.5% of the total value, industrial buildings 39.2% and offices 13%. The shopping centres are typically valued at between R50m and R150, with many located in platteland towns like Newcastle, Dundee and Polokwane.

Fortress is somewhat of a hybrid fund, as it also has an R100m stake in sister fund Capital and plans to increase its exposure to other listed counters (local and offshore). Stevens said the plan is to double the size of the portfolio within the next 12 months.

Property analysts welcomed the new listing, saying the split unit structure will bring more choice to a sector that has seen the number of counters dwindle to less than 20, down from more than 30 three years ago.

Coronation Fund Managers property analyst Anton de Goede said the Resilient group's proven management track record negates some of the risk associated with listing a new fund in the current challenging environment.

Keillen Ndlovu, co-head of Stanlib's property franchise, said it is initially adopting a more conservative approach and therefore prefers the A to the B units. "A units' annualised forward yield of 10.75% is attractive relative to the listed property sector's 9.4%, and even more attractive compared to bonds (8.9%) and cash (8.1%)."

Fortress A units, which listed at 1 000 cents per share on Thursday morning, were up 10% to 1 100c/share by lunchtime while B units had risen 20% over the same time, from 100c to 120c.

- Fin24.com