High-quality nature of Spear assets delivers ‘exceptional’ results

CAPE TOWN – Spear Reit’s management said they were confident of achieving 6 to 8percent per share distribution growth in the 2020 financial year given the asset diversification, tenant profile and hands-on approach adopted by them over the company.

They made this forecast after reporting a 10.09percent increase in distribution for the year to February 28, at 86.42 cents per share by yesterday.

The results were in line with a forecast made last year in May.

Chief executive Quintin Rossi said in an interview yesterday that the results were “exceptional” in an environment where tenants were affected by visa issues, the water crisis in the Cape and companies wanting to reduce their overheads.

He said the results reinforced the company strategy of being regional focused and close to its assets. Net asset value per share increased by 4.71percent to R12.12.

The increase was due to acquisitions and a small fair value adjustment.

Like-for-like income growth for the reporting period was 26percent, with the increase from R1billion of assets being owned for 12 months during the year versus an average of 7 months in the 2018 year.

The property portfolio comprises 30 assets with an average value per asset of R127m, a value that had increased 35.2percent.

Management said the strong results were due to the high-quality nature of Spear’s assets, strong contractual income and recoveries, together with cost containment and savings on finance costs.

Positive rental reversion on lease renewals and re-lets has been a key contributor to the financial results.

Gearing increased to 39.58percent from 38.48 as a result of cash reserves being used for refurbishment and increased gearing on the Northgate Park transaction.

“There is no immediate debt refinancing concerns,” Rossi said.

Vacancies across the portfolio were significantly below the national average – there was an overall vacancy of 1.98percent, compared with 1.95percent in 2018.

The macroeconomic environment in South Africa remained a concern.

“The Western Cape property sector has proven more resilient than most other provinces,” the management said.

The company had a “healthy pipeline” of greenfield and brownfield development opportunities in the portfolio.

Trading conditions in the hospitality sector had started to improve, albeit slowly, but “early green shoots” had become evident in hotel occupancies and bookings.

In the past year Spear acquired R713m of new assets at an average yield of 9.93percent.

Seven buildings were sold for R335m at an average yield of 7.71percent.

Disposal proceeds have been redeployed to acquire four new assets for R578m, and to reduce bank debt by R74m.

Gearing levels would be held within 38percent to 42percent loan to value.

Spear began the financial period with a vacancy of 6334m2 and with 91 359m2 expiring during the year. Management had renewed and re-let 96560m2 at a positive reversion of 8.03percent.

The performance of the industrial properties remained healthy and occupancy was at 99percent.

The commercial portfolio occupancy was at 98percent. National retailers occupied 48percent of the retail space, and the portfolio was 96percent occupied.

The residential properties, a small component of the portfolio, were 100percent occupied.

In the hospitality portfolio the biggest challenge remained to recover lost rate strength experienced during the downturn.

This portfolio was 95percent occupied by year end.

Spear shares closed 6.15percent higher at R10.35 on the JSE yesterday.

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