Fairvest delivers above-market distribution growth in tough market
Fairvest Property Holdings’ distributions increased by 8.1% to 21.77c a share for the financial year ended June 30.
“We are pleased to be able to deliver above-market distribution growth in what can only be described as an extremely tough economic climate,” Fairvest CEO Darren Wilder commented on Thursday.
He attributed the good performance to the company’s focus on a differentiated sector of the market and its experienced management team that has managed the property portfolios through many different economic cycles.
“Our persistent drive to excel at property fundamentals continues to be reflected in low vacancies and record-low arrears, high tenant retention and solid growth in net property income.”
Total property revenue increased by 21.1% to R489.7-million, benefitting from income growth in the historic portfolio, as well as acquisitions during the period.
Net profit from property operations increased by 19.3% to R315.7-million, while corporate administration expenses increased by 20.5% to R30.2-million.
Distributable earnings increased by 17.9% to R220.4-million.
Cost containment and efficient recoveries of municipal charges remained a strong focus area. The gross cost to income ratio remained stable, increasing from 36.4% to 36.7%.
The weighted average contractual escalation for the portfolio was unchanged at 7.4%. Gross rentals across the portfolio trended upwards, with an 8.1% increase in the weighted average rental to R121.64/m2 at period end.
This was owing to contractual escalations and increases in rental achieved on new leases, offset by a 0.5% increase achieved on renewals.
The net asset value increased by 3.5% to R2.34-billion and by 0.7% to 229.38 a share.
PROPERTY PORTFOLIO
The Fairvest property portfolio comprises 42 properties, with 243 030 m2 of lettable area valued at R3.16-billion.
The property portfolio’s value increased by 5.8% to R3.16-billion, benefitting from the R49.5-million Bokleni Plaza acquisition, R86.5-million of capital expenditure and a 3.8% increase in the historic portfolio.
Two new properties were acquired during the period. The R49.5-million Bokleni Plaza, situated in Libode, Eastern Cape, anchored by Boxer Superstores, was transferred in October 2018 and the Nonkqubela Mall, situated in Khayelitsha, Western Cape, anchored by Shoprite and Pick n Pay, was transferred in August.
During the period, vacancies increased from 3.5% to 4%.
Tenant retention for the period remained high at 79.8% and the weighted average lease term increased from 32 to 38 months.
PROSPECTS
Despite difficult economic conditions, the company remains confident that the nature of its portfolio, its low-risk tenant base and the company’s letting expertise will prove to be defensive in the face of economic headwinds, with growth in distributions near or exceeding current inflation.
Fairvest has four large long-term leases, with above-market rentals, that expire during the 2020 financial year. The expectation is that the rentals on these four leases will be reduced on renewal or re-letting to ensure sustainable rentals over the new lease periods.
“Our forward guidance for 2020 is lower than what we have historically achieved; however we are operating in a different market now and a 4% to 6% is effectively the new 8% to 10% in the South African only context,” said Wilder.
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