Fortress REIT is a JSE listed Real Estate Investment Trust that owns, manages and creates commercial spaces. It was founded in 2009 in South Africa and is present in the logistics sector of the Romanian and Polish real estate markets.
To start off, could you please introduce Fortress REIT's footprint and interest in the CEE region, especially Romania and Poland?
We are keen on establishing a strong footprint in Europe with a focus on the CEE area where the market is continually growing and we can evolve together with it. We are the third largest real estate REIT in South Africa but we managed to secure first place in the logistics sector. Through NEPI Rockcastle we provide convenience retail services in CEE so we are directly pursuing only logistics investments here, in order to avoid unnecessary self-competition.
Referring specifically to Romania and Poland, we are extremely selective when it comes to our investment decisions and we always make a thorough assessment of risks and opportunities when starting a new venture.
Because these two countries have the biggest and fastest developing markets in CEE, it was a natural decision to run business here. Furthermore, we have an eye for early stages projects and it was quite easy to find such opportunities in these emerging markets.
Given the attractiveness of their yields, Poland and especially Romania are often considered higher risk markets - do you agree?
If you factor in the "country risk", both Romania and Poland are not yet at the safety level of Western European countries, however, property investments have a special profile here. All CEE countries are ahead of other European states from a growth potential point of view because the workforce is not as expensive. In addition, since they are slightly underdeveloped technology wise, we can turn this challenge into an opportunity and build from zero state-of-the-art projects that meet the highest ecological standards (e.g., photovoltaics, use of rainwater, etc.)
In broad strokes, what are the main investments that you made in Romania and Poland and what made them an attractive opportunity for you?
We signed a conditional agreement to acquire a 50,000 sqm project in Romania but we are waiting for the vendor to fulfill the conditions, which we're sure is going to happen very soon. In Poland we entered the logistics sector through the acquisition of existing operating parks, which allowed us to secure a long-term income stream from good quality tenants and also provided future development opportunities. The acquisition was finalized in December 2020 and we are already expanding one of the parks with a new building.
How welcoming would you say the financing climate is in these countries, especially since you function under a REIT model?
The reason we entered both countries is because we perceived the climate as being welcoming enough and we actually didn't bump into any noticeable challenges. REIT legislation would, however, provide us with additional investment opportunities - either real estate projects or other REITS (e.g., NEPI Rockcastle). Local REITs are exposed to more diversified segments of the market and this could represent an investment option for us as well. I am a strong believer of the fact that REIT legislation brings higher liquidity to the market (real estate lacking it) and this aspect is important for us even though we are long term holders.
Sustainability has become an important topic across all segments, even more so in the industrial & logistics one. Where do you stand from this perspective and do you notice a real appetite for sustainable solutions from your tenants?
In the long term, carbon emissions will increase the cost of energy so tenants are aware that new and sustainable solutions need to be implemented. Warehouses are ideal for photovoltaic projects thanks to their large surface and the market is really starting to accept this type of solutions as the new standard in real estate. Due to pollution reasons, transportation is going to change according to EU regulations, with more and more electric vehicles being employed across all industries. Inner city projects will definitely be some of the first adopters of this trend, but even in the present tenants are using battery modules for their trolleys. As long as we provide them with a way to cut costs, logistics companies are more than happy to cooperate and adopt sustainable measures.
What are the plans you wish to achieve with priority in the next two-three years?
We definitely wish to invest in more projects, to establish a strong footprint in more markets and secure a valuable portfolio while allowing our global clients to be serviced in various locations. Hopefully the highly selective criteria we use when deciding to invest in a project will be matched by market evolution, so as to be able to start new ventures in more countries of the CEE.
