JSE-listed real estate investment trust (Reit) Fairvest has ended the 12 months ended September 30 on a high note, declaring a distributable income of 126.22c per A share and 43.29c per B share, in keeping with its 100% dividend payout ratio.

The B-shares in issue, which account for the majority of shares at almost 1.5-billion, exceeded distributable income guidance for the financial year by 4.4%.

The dividend per A share amounted to 120.21c apiece in the 12 months ended September 30, 2021, while the B share came to 45.95c apiece.

Fairvest, together with newly merged Reit Arrowhead Properties, directly holds a portfolio of 141 retail, office and industrial properties valued at R12.1-billion.

Fairvest also holds a 61% interest in Indluplace Properties, which owns a 119  residential properties valued at R3.4-billion, and a 5.1% stake in Reit Dipula.

The distributable income per B share for the 2021 comparative period was calculated on the combined comparable period distributable income for “old Fairvest” before the merger with Arrowhead, and that of Arrowhead, using the number of shares in issue as at September 30 this year.

The company reports its direct core portfolio has remained stable year-on-year, with vacancies reducing to 5.9% and tenant retention sitting at 87.4%. 

In the year under review, the company disposed of six assets and one erf – with the remainder of the assets still residing within the portfolio – for a sales value of R96-million. Another seven properties valued at R501-million are currently held for sale.

The company explains that to provide meaningful disclosure, the information in its results is based on the 12 months from October 1, 2021, being the effective commercial data of the merger with Arrowhead, to September 30.

The total amount available for distribution for the reporting year comes to R711-million, compared with R746-million in the comparable 12 months of the 2021 financial year.

Fairvest spent just under R150-million in capital expenditure on its portfolio, including more investments in solar initiatives. The company now has 35 fully operational solar plants, totalling just under 15 MW of installed capacity.

Solar now produces 8.1% of the combined portfolio’s electricity.

Another four solar plants are being constructed, adding 1.9 MW of capacity for the group.

During the civil unrest period in July 2021, Fairvest incurred a cost of R43-million to repair damages to 21 properties and lost R20.4-million in rental income. The group has filed insurance claims for these losses and has recovered about R60-million to date, with R3.6-million worth of claims still pending finalisation from insurers.

Meanwhile, group loans of R6.1-billion represents a loan-to-value (LTV) ratio of 38.1% for the company. The group has loan facilities of R2.6-billion that expire within the next 12 months, with the company progressing refinancing of many of the loans. 

At its current LTV ratio of 38.1%, Fairvest is well within the group and portfolio LTV covenants in respect of its facilities. The group interest cover ratio (ICR) is 2.5 times, which is more than two times cover required by its funders and also well above the portfolio ICR covenants of all funders.

At September 30, the group (excluding Indluplace) had cash on hand and undrawn debt facilities of about R304-million.

Net asset value per share is at R13.19 per A share and R5.19 per B share.

LETTING ACTIVITY

Fairvest says it experienced a challenging economic environment in the reporting year, but nonetheless achieved positive letting activity and a strong performance from its direct portfolio.

The vacancy rate reducing from 7.4% at September 30, 2021, to 5.9% at September 30 this year, reflects the average between the retail vacancy rate of 4.3%, the office vacancy rate of 13.6% and the industrial vacancy rate of 1%.

CEO Darren Wilder says six of its assets carries the bulk of office vacancies, which the company is working to resolve. COO for the office portfolio Alon Kirkel says the office portfolio comprises 38 assets comprising 303 179 m² of GLA, valued at R2.7-billion.

The office portfolio has a tenant retention rate of 85%. Fairvest has managed to bring down its office vacancy rate from 21% in June 2021 to 12.5% currently.

Kirkel affirms the remaining office portfolio is of high quality and in favourable areas such as Sandton, with a healthy average rental rate of R112 m² across the portfolio.

Fairvest secured 101 new office deals and 81 renewals in the reporting year.

Moreover, for the year ended 30 September 2022, a gross lettable area of 246 797m² came up for renewal, of which 215 632 m² was renewed or re-let. Rental reversions were at -6.4% overall, comprising -2.6% for retail, -16.6% for office and 4% for industrial.

Fairvest says the negative reversions were in line with its expectations and exceeded the budgeted rental by 10.5%.

The company concluded 76 472m² of new deals in the year under review.

The weighted average lease escalation across the portfolio was 6.4%, while the weighted average lease length was 4.2 years.

OUTLOOK

The group foresees high inflation, loadshedding and rising interest rates to continue impacting on the economy and its operating environment.

During the year, Fairvest developed a new combined strategy with clearly defined strategic objectives, which are aimed at creating a retail-focused Reit by recycling noncore assets.

The company expects strong growth from the retail and industrial sectors, partially offset by further pressure on the office sector.

Wilder says the company aims to maintain collectable arrears at below 2% of gross income and to maintain a vacancy rate at below 7% for total GLA, and to continue simplifying the business.

The group expects net property income from the core portfolio, on a like-for-like basis, to increase by between 2% and 4% for the 2023 financial year and operational performance to remain robust.

The significant increases in interest rates in the year; however, will impact on earnings for the 2023 financial year. Fairvest expects to report a distributable earnings per B share of between 40.50c and 42c apiece.

The board has resolved to maintain the current dividend payout ratio of 100% of distributable earnings as a dividend.