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.
Operations
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.
Disposals
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.
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.
Outlook
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.