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.

PropertyPurchase 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.

PropertyPurchase 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%


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