Fairvest CEO Darren Wilder
Property investment holding company Fairvest Property Holdings' total distribution for the financial year ended June 30 was 21.038c apiece – a 3.4% year-on-year decrease.
This was the first time in eight years that the company's distributions had contracted.
“We are pleased with the resilience that our portfolio has shown, in what can only be described as an exceptionally tough environment. Fairvest’s continued satisfactory financial performance is attributable to its focus on a differentiated sector of the market,” said CEO Darren Wilder on September 23.
He highlighted the company’s moderate vacancies and arrears, high tenant retention and solid growth in net property income.
The company said that Fairvest was well-positioned with strong cash flows and a prudent balance sheet with a loan-to-value of below 36.6% and a well-diversified funding profile.
The defensive nature of Fairvest’s assets, together with the strategic focus on investing in grocery anchored shopping centres and the conservative historic assumptions used for the valuation of the property portfolio, resulted in asset values remaining stable compared to the prior period.
On a like-for-like basis, the property portfolio increased by 1%, despite the company’s conservative stance on exit capitalisation rates and discount rates, both of which were increased in the period.
Fairvest maintains a distinctive focus on retail assets in underserviced, high-growth subsectors. The portfolio is 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.
Wilder said that, during the nationwide lockdown, Fairvest’s strategy was to focus on supporting its tenants, as well as on cash flow planning and liquidity management.
Fairvest actively engaged with all tenants on the impact of Covid-19 on their businesses to find sustainable solutions. Concessions in the form of gross rental deferrals and rental credits were provided to tenants, depending on their specific circumstances, the company said.
Gross rental deferrals for April, May and June were provided to certain small, medium-sized and microenterprise (SMME) tenants, with repayment terms ranging from 3 to 36 months, starting from July 1.
Of the gross billings in April to June, credits of 10.5% of total gross billings were conceded for 364 tenants and deferrals were provided on 10.8% of total gross billings for 216 tenants.
After taking into account the concessions provided, about 95.8% of collectable billings were collected for these periods.
Fairvest remained cash flow positive throughout the lockdown period and continues to generate positive cash flows.
Arrears increased to 4.4% at year-end. Arrears decreased in June, compared with May, and continued to decrease further in July and August.
Total credits provided resulted in a 6% reduction in distributable earnings, while the increase in the provision for expected credit losses resulted in a further 3.4% reduction in distributable earnings.
Total property revenue increased by 8.7% to R532.1-million, as a result of income growth in the historic portfolio, as well as acquisitions during the period. Net profit from property operations increased by 4.6% to R330.1-million, while efforts to contain corporate administration expenses culminated in expenses decreasing by 0.7% to R30-million.
Distributable earnings decreased by 5.6% to R208-million. The gross cost to income ratio increased from 36.7% to 38.9%, mainly owing to rental concessions provided to tenants, as well as a significant increase in the provision for expected credit losses on rental billed during the Covid-19 lockdown period.
The weighted average contractual escalation for the portfolio remained within target of 7.1%.
Gross rentals across the portfolio trended upwards, with a 5.7% increase in the weighted average rental to R128.61/m2 at period-end. This was owing to contractual escalations, increases in rental achieved on new leases and a 3% weighted average rental increase achieved on renewals.
The net asset value decreased by 7.2% to R2.17-billion, mainly owing to the treasury shares acquired during the period. On a per share basis, this equates to a net asset value per share of 221.18c a share, down 3.6% on the prior year.
The historic portfolio increased by 1% on a like-for-like basis.
During the year, Fairvest acquired Nonkqubela Mall and Qumbu Plaza to the value of R162.8-million and R54-million, respectively.
Capital expenditure of R17.7-million and R45.3-million was spent on solar installations and this resulted in a 10.5% increase in the value of the property portfolio to R3.49-billion.
Asset quality continues to improve, with the average value per property having increased by 5.4% to R79.3-million.
The portfolio remains well diversified across South Africa, with the four largest provinces, KwaZulu-Natal, the Western Cape, the Free State and Gauteng contributing 76.6% of revenue.
Vacancies increased modestly from 4% to 4.5% during the period, with positive letting of vacancies after year-end resulting in vacancies decreasing to 3.2%.
Fairvest expects an increase in vacancies in the short-term, with some tenant groupings under pressure owing to their inability to trade at full capacity under lockdown restrictions, and has provided for a 4% vacancy factor, up from 1% in the previous year.
Fairvest said it will continue to monitor the long-term impact of the pandemic on the economy and the operations of the group. Economic recovery is, however, expected to be protracted.
Fairvest is well positioned, with its niche assets proving more resilient during the Covid-19 pandemic, the company said.
The focus for the next 12 months will be on maintaining viable tenancies and letting of vacancies, as well as a strong focus on the collection of arrears. The balance sheet remains conservative, with R132.8-million of undrawn debt facilities available to consider opportunistic yield accretive acquisitions.
Given the uncertainties created by the pandemic, the board expects the distribution a share for the 2021 financial year to be at least in line with the current year’s distribution a share.
While it is broadly anticipated that industry payout ratios may be revised downwards over time, the Fairvest board has resolved to maintain the current dividend payout ratio of 100% of distributable earnings as a dividend.