In the money
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.