South African real estate investment trust Fairvest Property on Tuesday announced solid results for the year ended June 30, with annual distributions increasing by just over 9.9% to 20.15c a share.
Fairvest continues to deliver sector-beating growth in distributions, while advancing the portfolio and improving the quality of the underlying properties at the same time, said CEO Darren Wilder.
He attributed the solid results to focussing on key aspects of the income stream, while also continuing “hard work, letting of vacant space and keeping [Fairvest’s] occupancy levels, while also focussing on tenant retention and focussing on recoveries”.
Annualised like-for-like net property income growth of 11.7% was achieved.
Despite tough economic times, Wilder on Tuesday told Engineering News Online that the company has managed to achieve an annual return to shareholders, for the 12 months, of 17.9%.
Commenting on the company’s strategic focus, which targets retail assets weighted toward nonmetropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower-income market, Wilder explained that this strategic focus has remained consistent for several years.
The Fairvest property portfolio, which is valued at R2.99-billion, currently comprises 44 properties, with 237 965 m2 of lettable area. This, he explained to Engineering News Online, allows Fairvest to differentiate itself by performance rather than size.
Coupled with that, he added, the company is running a very conservative balance sheet with its loan-to-value ratio at 25%.
“We have some good headroom to do some nice acquisitions, which we have lined up, and we’ll let the market know as and when these go through our due diligence processes,” he enthused, noting that Fairvest has existing available headroom for acquisitions of about R400-million.
Discussions on the renewal of various expiring facilities are in progress with funders and the company expects the maturity profile of debt to improve and available facilities to increase during the next financial year.
Meanwhile, the value of Fairvest’s property portfolio grew by 35.5% from R2.20-billion as at June 30, 2017, to R2.99-billion in the year under review.
Fairvest raised R422.4-million of new equity during the year, which, together with existing debt facilities, was used to fund acquisitions of R579.7-million.
Fairvest acquired, among others, a 50% stake in Bara Precinct, in Gauteng, and entered into a strategic relationship with Abland to develop South View Shopping Centre, in Soshanguve, Gauteng.
Further capital enhancement projects at existing properties during the year included a Shoprite extension and redevelopment at Macassar Shopping Centre, as well as completion of phase one of the redevelopment at Middestad Mall.
The historic portfolio increased by 7.4% from the prior year.
Meanwhile, Wilder pointed out that Fairvest’s asset quality continues to improve, with the average value per property increasing by 26.3% to R67.8-million and the average value per square metre by 13.9% to R12 552/m².
In terms of distribution growth, however, Fairvest’s revenue increased by 22.1% to R404.3-million, owing to income growth in the portfolio, as well as acquisitions during the period.
Net profit from property operations increased by 26.4% to R264.7-million, while corporate administration expenses increased by 29.1% to R25-million. Distributable earnings increased by 29.9% to R186.9-million.
Gross rentals across the portfolio trended upwards, with a 7.9% increase in the weighted average rental to R112.50/m² at June 30 this year, compared with R103.99/m² in the 2017 financial year. The weighted average contractual escalation for the portfolio remained unchanged at 7.4%.
The company declared a final dividend of 10.344c a share for the six months ended June 30, representing an increase of 10.28%. This, the company explained, brings the total combined dividend for the year to 20.15c a share, a 9.91% increase from the previous year and within the issued guidance of 9% to 10%.
PROPERTY FUNDAMENTALS
The Fairvest portfolio remains well diversified across South Africa, with the four largest provinces, KwaZulu-Natal, Western Cape, Free State and Gauteng contributing 76.6% of revenue.
According to the company, the high national tenant component of 74.4% of the portfolio provides shareholders with a low-risk investment profile, with national food retailers occupying more than a third of the portfolio.
Vacancies decreased from 4.7% to 3.5% during the year, owing to letting at Middestad Mall, Clubview and Masingita, partly offset by new vacancies at The Palms and Bara Precinct.
Shortly after the 2018 financial year ended, Fairvest further reduced its vacancies to 2.6%.
During the 2018 financial year, 108 new leases were concluded with a total gross leasable area of 11 513 m².
Fairvest successfully renewed 26 497 m² of leases, on which a positive reversion of 6.9% was achieved. Tenant retention improved from 72.8% to 86.9%, while the weighted average lease term decreased from 38 to 32 months.
Commenting on future prospects, Fairvest expects lacklustre economic conditions to continue and to potentially have a negative impact on the trading performance of its tenants. However, despite these headwinds, the company is confident that it should achieve distribution growth of between 8% and 10% for the 2019 financial year.
However, in terms of land expropriation, Wilder told Engineering News Online that “this is something outside of our control, and therefore we don’t focus on that as a business. We only focus on aspects of our business that we can control”.
He added that Fairvest is “a hands-on team and will continue to focus on excellence in property basics, [which include] maintaining strong property fundamentals and maximising value creation. With our low-risk tenant base our portfolio remains well positioned to continue to achieve strong sustainable property growth.”