Spear REIT Limited – Continue to outperform

Posted On Thursday, 17 May 2018 15:52 Published by
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“Spear’s assets under ownership of its core portfolio have increased 117% since the start of the 2018 financial year. The strong performance of the core portfolio stands testament to the value investing nature of management and ability to actively manage assets that generate yield-enhancing returns for shareholders” – CEO Mike Flax.

Mike Flax

Cape Town – Spear REIT Limited (SEA:SJ) listed on the Johannesburg Stock Exchange (JSE) in November 2016, remains the only regionally specialised REIT on the JSE focusing on owning high quality Western Cape real estate. Spear has advised shareholders that they will continue to target dividend growth within a range of 9-11% per annum. CEO Mike Flax said, “one of the primary focus areas of management will be to consistently grow Spear’s distribution per share by acquiring assets that are accretive to the bottom line and embarking on core portfolio enhancements that improves the overall quality of the portfolio”.  

Spear added in excess of R1.35 billion of new acquisitions to the Western Cape-focused company’s portfolio and over all asset value increase for the year of R 1.69 billion. Spear has exceeded their revised full-year dividend guidance by 1.95% declaring a final dividend of 78.50 cents per share to shareholders. “The over performance was generated by enhancement of core portfolio income & recoveries, yield-enchanting acquisitions, prudent expense management and well managed funding costs,” said MD Quintin Rossi

Spear’s current property portfolio consists of 31 high-quality Western Cape assets with an average value per asset of R 94 million (FY2017: R 57.8 million). The portfolio’s income stream is underpinned by average contractual escalations of 8.38% which is 0.38% higher than FY2017.

Spear’s tangible net asset value (TNAV) per share has increased from R 10.03 (FY2017) to R 11.57 translating to a 15.40% increase at the end of the 2018 financial year.

Spear remains well placed to successfully navigate the challenging economic climate due to its hands-on management style. Spear’s focus is to be the landlord of choice in the Western Cape.

Sectoral Performance:

Industrial

The industrial portfolio offers a diversified industrial offering situated in well-established industrial nodes consisting of mini, mid-size and large industrial units with an added value proposition being the competitive asking rate per square meter. A combination of the above mentioned has ensured high occupancy rates and strong performance in line with management’s expectations during the reporting period with no major tenant movements or lease expiries. The industrial portfolio (152 514m2) occupancy was at 100% at year end.

Commercial:

The commercial sector performed to management’s expectations and vacancies have remained at low levels of 6,53% during the reporting period translating to 6 334m2 of GLA. Office sector lease renewals continue to be concluded with positive rental reversions achieved in the vast majority of renewals concluded during the reporting period.

The lion share of commercial vacancies are attributable to the additional office space developed at Sable Square in the region of 2 300m2 and No.2 Long Street in the region of 2 000m2. Progress on the letting of the office additions at Sable Square and the office vacancies at No.2 Long Street has been positive with a number of post year ending lets being concluded on both properties.

The commercial portfolio (97 060m2) occupancy was at 93.47% at year end.

Retail:

The retail portfolio consists of 3 convenience retail centres that offer an ultra-convenience retail experience with ample parking. Spear’s retail assets are located in high growth nodes servicing the Century City and Northern Suburbs market. During the reporting period 43.59% (16,830m2) of retail GLA (38 606m2) was occupied by national retail tenants. Management has been gratified at the positive performance of its retail assets amidst tough trading conditions during the reporting period with key retail tenants showing positive growth in store revenue and footfall.

Spears retail assets will remain attractive locations for retailers to trade from given their high-quality tenant mix geared towards a convenience retail offering, ample shopper parking, ease of access and egress along with plum geographical locations offering easy access to all main arterial transportation routes. Management will remain focussed on the acquisition of convenience retail assets given their defensive nature in showing constant footfall and turnover during good & tough trading conditions in the market.

The retail portfolio (38 606m2) occupancy was at 100% at year end. 

Residential:

Spears residential portfolio for the reporting period continued to perform to the satisfaction of management with 100% occupancy rates. Currently only 2,46% of GLA is exposed to the residential sector however management has stated its intention to increase Spear’s residential holdings closer to 5-10% of GLA & 10-12% of portfolio value in the medium term through the development of approximately 200 residential units at Sable Square and 200 residential units in Paarden Eiland as part of its mixed-use development plans for the two assets.

Hospitality:

The current performance of the domestic economy continues to present challenges to the hospitality sector as both transient and group business has become more cost conscious. The hospitality sector over the reporting period has operated under less than optimal conditions due to a contracting economy and the severe drought that has plagued the Western Cape over the past 3 years.

The hospitality portfolio (28 065m2) occupancy was at 100% at year end

Prospects:

In light of the recent acquisitions, improved cost of debt and other operational efficiencies created within the company, management advises that distribution per share for the year ending 28 February 2019 is now anticipated to be between 9% and 11% higher than the total distribution for the year ended 28 February 2018.

The information and opinions contained above are recorded and expressed in good faith and are based upon reliable information provided to management. No representation, undertaking or guarantee of whatsoever nature is made or given with regard to the accuracy and/or completeness of such information and/or correctness of such opinions.

The revised forecast in distribution per share for the financial year ending 28 February 2019 has not been reviewed or reported on by the company’s auditors.

Executive management role change:

Announced at the Spear REIT Limited results presentation on the 17th of May 2018 was Quintin Rossi succeeding Mike Flax as the new Chief Executive Officer of Spear. Mike will be taking on the role of Executive Deputy Chairman focusing his energy on strategic growth plans for Spear’s development pipeline and unlocking value through this process as he has done on many previous occasions. Mike will further be available as a key mentor to Quintin as he assumes the leadership over the Group. Outgoing CEO Mike Flax said “Quintin has visibly demonstrated his abilities at the highest level and is ready to the leadership mantel and take Spear forward into the next era. I know that the entire board has full faith in Quintin’s talents and strengths while the staff have huge respect for his management style and decision-making skills”.

Newly appointed CEO Quintin Rossi said “I’ve had and will continue to be fortunate to have Mike as a key mentor as I together with my executive team execute the mission statement of Spear and continue to deliver on the platform Mike has set for us since listing. Spear will continue on its path of focusing on growth in annual distributions ahead of inflation, investment into high quality assets within the Western Cape and to be the landlord of choice in the region. I will ensure that Spear continues to unlock shareholder value where possible through active asset management, acquisitive & organic growth and through our value investing strategies. I wish to thank our board, my executive team and all of our staff for their unwavering support and I undertake to give you my best at all times.”

The latter revision is premised upon the following assumptions:

  • That a relatively stable macroeconomic environment will prevail;
  • That lease renewals are concluded as per the company forecast;
  • That no major tenant failures will take place and improved hospitality trading conditions;
  • That tenants will successfully absorb rising costs associated with utility consumption charges and municipal rates;
  • That the Western Cape experiences a wet winter that breaks the current drought.

2018 Financial Year Highlights:

  • Final dividend declared of 78.50 cents per share for the full year ended 28 February 2018.
  • The dividend declared exceeds the revised forecast by 1.95%
  • TNAV per share increased by 15.40% during the period to R 11.57 per share
  • R 1.69 billion in asset value increase during 2018 financial year
  • Portfolio fair value R 3.13 billion during 2018 financial year
  • Loan to value 38.48%.
  • Portfolio occupancy - 98.10%
Last modified on Thursday, 17 May 2018 16:15

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