The company strategy is focused on all asset types; commercial, industrial, retail, residential and hospitality, with the latter category marking a major win with the acquisition of the five-star 15 on Orange Hotel in Cape Town. This has doubled the company’s hospitality assets, which also include the four-star Double Tree by Hilton at Upper Eastside in Woodstock. The investment into hotel assets is part of the Spear investment strategy to obtain diversity across asset types as a regionally focused business.
“We are particularly satisfied with the R298-million acquisition price of 15 on Orange, given that it cost the original developer over R750-million to build. This demonstrates to our investors Spear’s credentials as a value-investor, seeking out acquisitions in the market that we believe hold excellent future value or value added potential through skilled asset management,” said Mike Flax, Spear REIT Limited CEO.
“For the most part it will be business as usual as there is a long term lease in place with Marriott Hotels International.” The hotel operator is fully responsible for the management and operations of the hotel component of the property. Portions of the ground floor retail space are tenanted by third party tenants. Transfer of the ownership takes place in July 2017 and income on this asset will flow to Spear from this date.
Flax said that in time, Spear may acquire further hospitality assets. “The strong South African tourism market in particular in the Western Cape along with management's excellent understanding of hospitality assets and growing occupancy percentages are key motivating factors.”
The Group took transfer of two Tygervalley properties after year end, being Selective House and Werksmans Building, for R13,2-million and R41,2-million respectively. “With the Cape Town CBD becoming increasingly congested and with space for development running out, business nodes are moving further afield and we believe with the explosion of Durbanville as a high-end residential area, that there is certainly value to be had in Tygervalley.”
As demand in the Cape Town CBD grows, Spear has stamped their presence commandingly with the R389-million acquisition of an iconic property, 2 Long Street. Mega Park in Bellville, acquired in March for R379-million, increases Spear’s industrial assets in Cape Town and added 85 000² of lettable space to the portfolio.
The George Virgin Active building acquisition, for R22-million, is envisioned to have simple daily management as the high quality building has just one tenant in Virgin Active. “The property is situated in close proximity to strong residential nodes and within close proximity to the picturesque Fancourt Golf Estate. Currently this gym is the only Virgin Active gym offering in George,” Flax said.
Management being in close proximity to owned assets is a core value of Spear, who are currently invested in the top four nodes in Cape Town - Cape Town CBD, Southern suburbs, greater Century City area and Northern suburbs. “We look to continuously add to these nodes as and when acquisition opportunities which meet all our investment requirements, present themselves.”
The company’s greatest focus for the next year is to achieve the updated distribution guidance announced during their results presentation of between 76-78c dividend per share. Spear Managing Director Quintin Rossi added: “This will talk directly to one of our founding strategies being to continuously focus on growing our income and ensuring distribution growth is achieved on an annual basis. To effect this we would need to remain proactive in the areas of asset, property and financial management to ensure occupancies remain at high levels across the portfolio.”
Rossi said that other than growth in distributable income, Spear would also look to add to the underlying portfolio through acquisitive and organic growth. “The focus going forward would be on acquisitions in excess of R 100-million per transaction as well as looking to current owned assets that have unrealised but developable bulk and unlocking this value at the right time and with an acceptable return.”
At year end 28 February 2017, assets under ownership were R1,46-billion and after taking transfer of the assets mentioned above, this will increase to more than R2,6-billion. “This is an 83% increase in asset value and a 77% increase in Gross Lettable Area in a period of just seven months. These are growth figures we are incredibly proud of and our team is working hard at sustaining the growth already achieved as we continue on our mission to be the leading Western Cape-focused REIT,” Rossi concluded.