Archives for May 2023

Fairvest Ltd: Interim results indicate robust operational performance despite economic headwinds

Fairvest Limited announced its interim results with a dividend equal to 100% of distributable income of 64.60 cents per A share and 20.97 cents per B share.

Fairvest is a South African Real Estate Investment Trust (“REIT”) listed on the JSE and A2X exchanges, holding an R11.9 billion diversified portfolio of retail, office and industrial properties across all nine provinces of South Africa. The Fairvest team continues to perform in a tough environment by responding and adapting to the rapidly changing environment.

The merger between Arrowhead Properties Limited and Fairvest Property Holdings Limited was successfully implemented during the 2022 financial period. Focused on transitioning to a convenience retail portfolio while creating long-term shareholder value. Fairvest Limited has 137 assets, gross lettable area (“GLA”) 1 127 134m2 with an average property value of R87.2 million, with 51% of the properties in Gauteng by GLA. The portfolio comprises 67% retail, 22% office and 11% industrial by revenue. The Group also holds a 60.9% interest in Indluplace Properties Limited (“Indluplace”) and owns a portfolio of residential properties and a 5.1% interest in Dipula Income Fund Limited.

Fairvest CEO Darren Wilder said the weak South African economy, higher interest rates and sustained load shedding had continued the challenging operating environment during the reporting period. Despite these impediments, Fairvest continues to successfully implement the strategic objectives of the Group by de-risking the balance sheet, reducing vacancies and disposing of non-core assets. He said Fairvest had made excellent progress by achieving like-for-like net property income growth across all sectors, disposing of four properties with a
further ten transacted. He said that Fairvest is operationally strong and well-positioned for the challenges ahead.


Despite the significant economic challenges, Fairvest has effectively concentrated its efforts on enhancing letting activity while delivering promising results. “Despite these circumstances, the business has shown resilience with like-for-like net property income growth of 5.0%,” added Wilder.

The Group reported robust rental reversions on the 81,505m2 that were renewed or relet, with a positive 1.8% overall reversion, with the retail sector at positive 2.3%, the industrial sector at positive 4.3%, and an improving but still negative 1.3% in the office sector. 90.7% of tenants that were up for renewal were renewed or relet. On a like-for-like basis, net property income increased by 5.0%, with a 3.5% increase in the retail sector, a 5.2% increase in the office sector and a 14.9% increase in the industrial sector.

Currently, the portfolio’s weighted average lease escalation improved from 6.4% to 6.6% as the Group moves closer to its strategic objective of escalations above 7%. The weighted average monthly rental per m² per sector of R151.80 for retail, R114.00 for office and R48.02 for industrial. The weighted average lease expiry was 26 months.

During the review period, Fairvest has effectively managed to maintain an overall vacancy rate of 5.96%. Dissecting this further, the retail sector was at 4.3%, the office sector at 13.9%, and the industrial sector reported a marginal 1.5% vacancy rate. The leasing team at Fairvest has strategically prioritized reducing vacancies across all sectors, with a special emphasis on the office sector.


In line with their communicated strategy at the time of the merger with Arrowhead, Fairvest is actively realigning its portfolio, primarily focusing on retail assets.

During the reporting period, SA Corporate Real Estate Limited (“SA Corporate”) announced a firm intention to acquire all the issued shares of Indluplace for R3.40 per share.

Fairvest provided a binding commitment to SA Corporate to vote in favour of the scheme for its 61% shareholding. Fairvest expects the R651.4 million proceeds from the disposal to initially be allocated to floating rate debt, which will reduce the Group LTV to approximately 33%. This anticipated disposal marks significant progress in Fairvest’s strategic realignment by disposing of their residential investment.

During the period under review, the Group sold four assets for R252.5 million at an average premium to book value of 0.2% at an average yield of 11.2%. A further three assets valued at R85.5 million were transferred during May 2023, with a further seven assets worth R356.6 million have been sold and are still to be transferred, subject to conditions precedent. “These assets were identified as non-core. We have managed, on an ongoing basis, to continue to sell assets to our network of buyers,” said Darren Wilder.

Debt funding

The Group has debt of R4.8 billion which represents an LTV ratio of 38.4%, a marginal increase since September 2022. The weighted average interest rate for the period ended was 9.2% (Sep-22: 8.9%), increasing in line with the South African Reserve Bank repo rate. The Group has maintained the interest cover ratio at 2.5 times, which is well in excess of two times the cover required by its funders.

Jacques Kriel
Jacques Kriel, Fairvest Ltd CFO

The Group has entered into interest rate swaps of R3.4 billion to hedge 71.1% of total debt. Further cash on hand and undrawn debt facilities of approximately R360.4 million at the period end provide further headroom to execute its strategic initiatives, said CFO Jacques Kriel.

The Group commenced a debt syndication process, which closed after the end of the reporting period. Demand from all the major banks was high, with credit-approved bids received nearly three times the debt offered. R2.1 billion of new debt were secured, with a weighted average maturity in excess of three years. All debt maturing in the next 12 months will be refinanced through this process and is expected to be finalised in the next six weeks. The margin achieved is a significant improvement to the current weighted average cost of funding.

Environmental, Social and Governance (ESG) Projects

Fairvest’s CEO, Darren Wilder, confirmed that the Group is implementing an integrated backup power strategy in response to the recent severe load shedding. This backup power strategy encompasses investigating transitioning from on-grid to off-grid or semi-off-grid solar systems. It also includes utilising advanced technology such as fuel-saving equipment, batteries, and expanded generator capacities, all aimed at maintaining business continuity in adverse conditions.

Currently, the Group operates 47 generators, accounting for 11.9 MVA of installed capacity. This provision allows 42% of the portfolio to benefit from partial or full backup power. Over six months, Fairvest spent R8.3 million on diesel, recovering R7.2 million.

Fairvest remains committed to enhancing its portfolio, as indicated by a capital expenditure of R91.2 million, of which R10.3 million was allocated towards further solar initiatives. The Group has 38 fully functional solar plants with an installed capacity of 16.4 MWp. During the six months, these solar plants contributed to 11.7% of the portfolio’s total electricity demand, yielding clean energy worth R16.6 million. We have a further 12 approved plants in various stages of implementation, which will add 7.6MWp capacity.

The strategic implementation of smart monitoring equipment at 12 locations for early leak detection marks a significant stride, complementing the existing 13 operational groundwater harvesting plants.


Looking ahead, Fairvest’s focus for the remainder of the fiscal year will be on further reducing vacancies, optimising operational efficiencies, and capitalising on the synergies emerging from the merger. On a like-for-like basis, we expect growth across all sectors.

Fairvest anticipates distributable earnings per B share for the complete financial year to range between 40.50 and 42.00 cents per share. In accordance with the Group’s memorandum of incorporation, the distribution per A share is set to rise by the lesser of 5% or the most recent Consumer Price Index.

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


SA REIT Association finalising its sustainability disclosure framework for the real estate sector

The South African Real Estate Investment Trust (SA REIT) Association is in the final stages of developing its Sustainability Disclosure Guide & Framework, aimed at assisting South African REITs in aligning with international best practices in environmental, social, and governance (ESG) reporting.

With increasing significance placed on sustainability reporting by international and local investors, governments, and stakeholders, the guide will serve as a valuable resource for REITs and real estate organisations seeking to enhance their sustainability reporting efforts.

By summarising the essential elements of sustainability-related information, the SA REIT Association’s Sustainability Disclosure Guide empowers organisations to navigate their sustainability reporting journey effectively. Given their integral role in the national economy, REITs play a pivotal role in attracting investment, making robust ESG reporting essential.

“We recognise the imperative need for systemic change to foster a more equitable society and economy that operates within ecological boundaries, committed to sustainable development,” affirms Joanne Solomon, Chief Executive Officer of the SA REIT Association.

The draft framework emphasises the importance of balancing present needs with future generations’ requirements to ensure a sustainable future for all. As ESG performance gains prominence globally, driven by new regulations and increasing investor demand for transparent information, accurate and reliable ESG reporting has become indispensable. Consequently, there is a growing need for consistent, comparable, and verifiable sustainability metrics and narrative disclosure.

Phil Barttram, a SA REIT Association’s Research Committee member, highlights that effective ESG reporting stems from an integrated ESG strategy. Furthermore, Barttram emphasises the multiple benefits of improved ESG reporting, including improved access to capital, enhanced corporate reputation, and potentially, the identification of mispriced real estate assets that don’t accurately reflect their environmental and social risks.

Barttram underscores the significant growth in investor interest in ESG over the past few years and the increasing focus of international regulators on ESG disclosure. While South African REITs continue personalising their ESG journey and communication with stakeholders, notable improvements in the quality of ESG disclosures have already been observed.

Barttram emphasises the importance of incorporating ESG thinking throughout a corporate’s strategy and governance, which will require many REITs to expand their internal ESG capabilities at the board and operational levels. In addition,  referencing the sector-specific disclosure standards and frameworks will assist REITS in the development of consistent and comparable ESG commitments, goals, and metrics.

As companies embrace ESG initiatives, including technologies and systems supporting future regulations and net-zero commitments, a recent PwC report cautions against short-term share price swings and pushback. However, the report underscores that neglecting ESG investments will result in significantly lower accumulated value than successful ESG approaches. Companies are advised to define a business strategy with a compelling long-term ESG roadmap, striking a balance between short-term key performance indicators and addressing investor expectations.

Aligning with international best practices, the SA REIT Association’s forthcoming guide for the sector seeks to ensure global alignment and follows the guidance of organisations such as the European Real Estate Association (EPRA) and the United States National Association of Real Estate Investment Trusts (NAREIT).

While standardised data and reporting offer benefits, it is crucial to consider REITs’ specific operations and locations to ensure contextual understanding.

In line with global investor priorities, effective corporate governance and greenhouse gas emissions reduction are among the key ESG-related outcomes that businesses must deliver. The SA REIT Association supports the guidance provided by the Johannesburg Stock Exchange (JSE) and recommends that its members adhere to the JSE’s recommendations for reporting and disclosures.

The JSE’s voluntary Sustainability and Climate Change Disclosure Guidance, published in June 2022, is an important reference for the Association and its members.

Recognising the need for reliable and consistent ESG reporting, the SA REIT Association acknowledges the value of widely embraced reporting frameworks and standards such as the Global Reporting Initiative (GRI) standards, Sustainability Accounting Standards Boards, Task Force on Climate-related Financial Disclosures (TCFD), and the 17 UN Sustainable Development Goals (SDGs).

By following key insights and patterns from these varying recommendations, the Association strives to ensure the comprehensive and meaningful integration of ESG reporting within the South African REIT industry.

SPEAR REIT posts an 11.31% growth in distribution per share for FY23

SPEAR REIT LIMITED (JSE: SEA) marked its FY23 reporting period with an 11.31% growth in distribution per share (DPS), resulting in a DPS of 75.97 cents for the financial year and a final distribution per share of 38.84 cents for the 6 months ending 28 February 2023.

Spear reported annual revenue of R 581,2 million for FY23, up from R 574,8 million in FY22. CEO, Quintin Rossi says that management has held firm on its key strategic objectives of being Western Cape-focused specialists in industrial, commercial, retail, and mixed-use property assets.

The company’s strong focus on this strategy, coupled with the emphasis on hands-on asset management, has yielded fruitful results and has enabled it to navigate through a challenging and unpredictable trading environment, successfully.

Addressing shareholders at the FY23 annual results presentation, Rossi highlighted the company’s fundamental features, underpinned by a simple capital structure, and easy-to-understand business operating model. With no exposure to cross-currency interest rate swaps, Spear continues to maintain a robust financial position. A key strength of Spear is its acute understanding of the Western Cape real estate market and its by-design approach of being within close proximity to all of its assets.

Supported by a proven and positive track record, Spear has consistently generated positive net cash flows from its operations. The management team and board of directors are heavily invested in the business, showcasing a clear alignment of interests with shareholders. Spear’s revenue growth for the reporting period was 3.48%, complemented by a 5.43% net property operating profit growth.

Notably, expenses were prudently managed, with only a 1.15% increase in operating expenses and a 1.13% decrease in administrative expenses.

Rossi remarked: “These attributes, as simplistic as they may seem, continue to form the foundation of our core business. We remain dedicated to delivering value and driving growth in alignment with the interests of our shareholders.”

During the presentation, the company highlighted a 1.50% increase in Tangible Net Asset Value Per Share from FY2022 to R11.47. With a solid portfolio consisting of 28 assets valued at a total of R4.22 billion, Spear has achieved an impressive FY23 cash collection rate of 98.61%. The company has strategically reduced the size and value of its core portfolio through close to R500 million of assets sold. The disposals of non-core assets and assets in the hospitality sector bolstered the balance sheet and led to a reported Loan-to-Value (LTV) ratio of 36.30%.

This bodes well for the outlook, as Rossi confirmed: “The proceeds from these disposals have been strategically reinvested to strengthen the balance sheet, positioning Spear for future growth as opportunities arise amidst shifting interest rate cycles.”

Management reported improved in-force escalation metrics of 7.4% for FY2023, an uptick from 6.3% in FY22. A hallmark of Spear since its inception has been strong portfolio occupancy rates as management executes its early-engagement strategy. For FY23, the reported portfolio occupancy rate was 92.18%.


The projected performance of Spear remains directly linked to its regionally focused strategy of operating within the Western Cape economy as it maintains resilience across the real estate sector. The effects of semigration and general confidence in provincial infrastructure and administration remain key capital attraction points, placing Spear in a favourable position to expand its investment universe further across the Western Cape.

Although the macroeconomic conditions within South Africa remain a major concern, exacerbated by the crippling energy crisis and high unemployment rate, Spear’s core portfolio remains defensive, underpinned by strong lease covenants in highly desirable locations within the Western Cape. Rossi accepts that the trading climate remains challenging, and the longer-term impact of the above factors is likely to affect cost creep, placing pressure on margins, cost of occupancies, and net property income.

Management will cautiously navigate and mitigate, as far as possible, the negative impact of interest rate increases and operating cost creep. Rossi noted: “We do expect our portfolio to generate some growth in the year ahead, but the extent of the growth is currently difficult to quantify given the myriad of headwinds South Africa is currently experiencing. But despite the headwinds already experienced and overcome, Spear’s FY23 financial performance has delivered impressive results, reflecting a focused, nimble, and consistent business approach. Spear remains a business that is acutely and actively managed to effectively counter negative market forces, and this strategy will continue moving forward,” said Rossi in closing.


  • Spear owns assets valued at R4.22BN, with a diversified portfolio consisting of 28 assets.
  • Loan-to-Value (LTV) ratio stands at 36.30%.
  • Distribution per Share (DPS) of 75.97 cents.
  • Tangible Net Asset Value Per Share increased by 1.50% from FY2022, reaching R11.47.
  • Cash collections at a 98.61% collection rate and net cash derived from operating activities amounting to R43M.
  • In-force escalation of 7.4% for FY2023.
  • 26 assets are directly supplied by the City of Cape Town’s electricity supply.
  • ESG performance is real and measurable, through its bursary programme, solar PV, and water augmentation solutions, all continuing its policy of sustainable returns.