South African real estate investment trust (Reit) Fairvest Property on Wednesday announced solid results for the six months ended December 31, 2018, with interim distributions having increased by 8.3% year-on-year to 10.6c a share.
CEO Darren Wilder attributed this to the company’s focus on a differentiated sector of the market and its “unrelenting drive to excel at property fundamentals”.
Low vacancies and arrears, high tenant retention and solid growth in net property income continue to deliver distribution growth at the top end of the market, Wilder said in a statement.
Speaking to Engineering News Online, he added that the company had “not drifted from its strategy”, which he believes remains the “heart of [Fairvest’s] success”, during tough trading times.
During these tough times, Fairvest managed to have a consistently strong performance, with Fairvest’s most recent shareholder returns amounting to 25.7% over one year, relative to compound annual returns. and 21.3%, 20.1% and 18.2% over three, five and ten years, respectively.
These returns have secured Fairvest a spot in the top two performing Reits for all measurement periods over one, three, five and ten years, the company added.
Further, Wilder explained to Engineering News Online that the company maintains “a unique focus on retail assets weighted toward non-metropolitan and rural shopping centres”, as well as convenience and community shopping centres servicing the lower-income market in high-growth nodes close to commuter networks.
The Fairvest property portfolio comprises 45 properties, with 241 214 m² of lettable area valued at R3.1-billion.
The company favours performance over size, Wilder added, noting that this was why the company has persisted with its focussed strategic positioning of investing in quality peri-urban and rural community centres, despite multiple opportunities to increase the portfolio size through diversification.
With regard to portfolio growth, Fairvest announced a 5.1% increase in value to R3.14-billion in the past six months and said asset quality had continued to improve, with the average property value having increased by 2.8% to R69.8-million, and the average value per square meter having increased by 3.7% to R13 017/m².
In terms of distribution growth, revenue increased by 28.1% to R239.4-million as a result of income growth in the historic portfolio, as well as acquisitions during the period. A strong focus on arrears management has reduced arrears to 1.8%, the lowest level in the past six years.
The net property expense ratio improved to 12.8% from 13% in the first half of the previous financial year. The gross cost to income ratio also reduced from 36.4% to 36.3%.
Vacancies for the period were contained at 3.5%, or 8 520 m², during the period, with 99 new leases concluded covering 11 064 m². Fairvest successfully renewed 19 929 m² of leases, with a negative reversion of 0.5% being achieved on these renewals, in return for tenant retention of 79.8% and a lengthening of the lease expiry profile.
The weighted average lease term increased from 32 to 38 months.
The company said it continued to offer competitive base rentals, which represent healthy rent-to-sales ratios for anchor tenants at 2.5%.
Its shopping centres also achieved trading density growth of 3.4% over the period.
Fairvest’s loan-to-value ratio increased to 27.1% owing to acquisitions and capital expenditure invested during the period, partially offset by R31.9-million of capital retained through the dividend reinvestment alternative.
Of the debt, 46.6% was fixed through swaps as at December 31, 2018, with a weighted average expiry for the fixed debt of 25 months.
Looking ahead, the company expects the retail trading environment in South Africa to remain under pressure.
Wilder told Engineering News Online that the company, however, continues to remain operationally stable, with careful consideration at the turnovers of its anchor properties.
Fairvest’s high national tenant component and conservative gearing levels position the company well for sustainable growth in distributions and with the ability to take advantage of opportunities, should they arise.
While Wilder remains confident that Fairvest will achieve its communicated guidance of between 8% and 10% distribution growth for the full year, he said that it would be “all hands on deck” to continue keeping the business “operationally strong” amid the tough retail environment.