Fortress sold properties at much lower than the buying price
An analysis of Fortress’ property sales over the last year reveals that it made a significant loss on most of the properties it sold.
Fortress is a JSE-listed property management company based in South Africa which invests in direct properties and other listed real estate companies.
It used to be a real estate investment trust (REIT) but lost this status as it could not pay 75% of its distributable income in dividends.
Fortress drew sharp criticism from shareholders for its inability to pay the needed dividends to keep its REIT status.
M&G Investments portfolio manager Yusuf Mowlana said losing the REIT status could cost Fortress between R700 million and R800 million a year over three years.
One of the challenges for Fortress is losing money on buying and selling properties like shopping malls, office blocks, or warehouses.
In 2022, Fortress sold 24 of its properties. It explained that it disposed its underperforming properties with low market demand.
Fortress reported that these properties were sold at a 5% premium to their book values. It means they received more for the assets than their values were reported in the company’s books.
The company stated that the 4.9% premium on the book values was a pleasing result within a market of numerous challenges.
The total proceeds from the sale of the properties totalled R577.3 million, while the combined book values of the companies were equal to R550 million.
However, delving deeper into the numbers revealed that it sold most of the properties at less than what it bought them for.
Properties sold in 2022
From the 24 properties sold only 20 were analysed, as the remaining 4 properties were separated from larger properties and couldn’t accurately be linked to a purchase price.
The total proceeds Fortress obtained from selling these 20 properties were R551.7 million compared with the combined purchase price of R653 million.
Simply put, Fortress sold these properties for around R100 million less than they were purchased for.
Property is typically associated with capital growth, which raises questions about the price Fortress paid for them and their book values.
The way in which these properties’ book values were so much less than the purchase price is by fair value losses.
The fair value losses are typically a result of properties performing so poorly that their book value must be decreased.
These are complex calculations and are open to debate. It can, therefore, be better to only look at the buying and selling prices to assess performance.
Based on the total performance of the 20 properties under review, Fortress achieved a 15.47% loss in capital.
| Property | Purchase price 000′ | Selling proceeds 000′ | Return |
| 3 and 6 Cedarfield Close Springfield Park | R91,000 | R108,000 | +19.% |
| Harries Street Germiston South | R109,000 | R64,000 | -53% |
| 47 Jeffels Road Prospecton | R42,000 | R54,400 | +31% |
| Cambridge Motor Paulshof | R56,700 | R47,900 | -22% |
| James Crescent Midrand | R36,000 | R37,450 | +4% |
| Cambridge Manor Paulshof | R68,400 | R28,750 | -58% |
| 4 6th St Wynberg | R41,000 | R27,600 | -34% |
| 12 Stockwell Road Pinetown | R24,100 | R23,877 | -15% |
| 286 Sixteenth Road | R15,800 | R21,500 | +36% |
| 56 Kelly Road Jet Park | R19,400 | R19,600 | -15% |
| 488 Sixteenth Road | R8,000 | R16,400 | +83% |
| Latei Street Isando | R17,600 | R15,600 | -19% |
| Rudo Nel Jet Park | R27,700 | R14,000 | -53% |
| Highveld Technopark | R24,000 | R13,100 | -40% |
| 19 Spartan Road | R15,800 | R13,000 | -18% |
| Unit 5 Northlands Décor Park | R9,200 | R13,000 | +38% |
| Selby Mini Units | R17,400 | R10,525 | -30% |
| 64 Kelly Road Jet Park | R10,900 | R9,800 | -17% |
| Director Road Spartan | R11,400 | R8,150 | -28% |
| City Deep Production Park | R7,200 | R 5,000 | -31% |
| Total | R652,600 | R551,652 | -15.47% |
Properties sold in the 2023 interim period
In the 2023 interim period, Fortress sold 14 properties for total proceeds of R533.9 million. The combined purchase price of these properties was R711.21 million.
It shows that the selling proceeds from all these properties were R177.3 million less than the price paid by Fortress.
Considering the capital return, Fortress made a 24.9% loss on the 14 properties they sold in 2023.
| Property | Purchase price 000′ | Selling proceeds 000′ | Return |
| Market Square Grahamstown | R58,200 | R117,700 | +102% |
| Phillippi Shopping Center | R 60,500 | R91,071 | +51% |
| Sandton Land | R253,957 | R86,460 | -66% |
| 2 Joyner Road Prospection | R95,200 | R79,000 | -17% |
| Rigger Road Spartan | R53,000 | R41,213 | -22% |
| 38 Milkyway Ave | R48,000 | R33,500 | -30% |
| Leslie Office Park Fourways | R66,200 | R28,000 | -58% |
| Chelsea Office Park Rivonia | R16,300 | R17,890 | +10% |
| Megawatt Road Spartan | R18,400 | R15,050 | -18% |
| 7 And 9 Watkins Street Denver | R21,000 | R6,600 | -69% |
| Derrick Coetzee Road Jet Park | R3,600 | R6,000 | +67% |
| 6 Ivanseth Road Reuven | R4,550 | R4,000 | -12% |
| 39 Loper Street Spartan | R4,800 | R3,900 | -19% |
| 13 Wessels Road Rivonia | R7,500 | R3,500 | -53% |
| Total | R711,207 | R533,884 | -24.93% |
Comments