In the money

Finweek English Edition - - COMPANIES&MARKETS - JOAN MULLER

FORTRESS B, the Re­silient prop­erty group’s spec­u­la­tive hy­brid play, con­tin­ues to defy grav­ity. The stock tests fresh highs ev­ery week and is up a stag­ger­ing 52% over the past year alone. This com­pares to the listed prop­erty sec­tor’s over­all share price rise of 15% over the same pe­riod, which means in­vestors who bought Fortress B units when the counter listed in Oc­to­ber 2009 have al­most tripled their money. It ap­pears the mar­ket is buy­ing pre­dom­i­nantly into the track record of Re­silient man­age­ment’s team, renowned for sweat­ing its as­sets.

The R2,96bn port­fo­lio has been tweaked con­sid­er­ably over the past 18 months through dis­pos­als, ac­qui­si­tions and re­fur­bish­ments. In first quar­ter 2011 alone the fund bought 20 prop­er­ties on av­er­age yields of 11%. Fortress B units are by no means cheap, trad­ing at a for­ward yield of just more than 5%, against the sec­tor’s 8,6%. But the stock of­fers bet­ter in­come growth prospects than its peers.

Sas­fin Se­cu­ri­ties prop­erty an­a­lyst Heather Smith fore­casts dis­tri­bu­tion growth of 27% for its fi­nan­cial year to June this year, in­creas­ing to 33,1% for the 12 months to June 2012. The sec­tor as a whole is ex­pected to de­liver growth in in­come pay­outs of no more than 7%/year over the next two years. Smith says the dou­ble-digit growth fore­cast re­flects the geared na­ture of its B units. The Fortress split A and B unit struc­ture of­fers in­vestors dif­fer­ent risk and re­ward op­por­tu­ni­ties. Fortress A is gen­er­ally a safer bet for risk-averse in­vestors, as its units have a pref­er­en­tial claim to dis­tributable in­come, with growth capped at 5%/year. Its B units re­ceive the bal­ance of the in­come and there­fore a po­ten­tially higher risk/higher re­turn op­tion.

Man­age­ment is cur­rently clearly favour­ing the B units, judg­ing by the mag­ni­tude of those units bought by its direc­tors over re­cent weeks. In March alone, Re­silient MD Des de Beer in­vested more than R4m in Fortress B units.

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