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Archives for October 2024

Spear REIT reports growth and resilience for HY2025

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Strength in strategy: Spear REIT reports growth and resilience for HY2025

Cape Town, 24 October 2024: Spear REIT Limited (SEA: SJ), the only regionally specialised Real Estate Investment Trust (REIT) listed on the JSE, has reported its interim results for the half-year ending on the 31st August 2024 (HY2025). With REITs experiencing varied performance due to challenging macroeconomic conditions, Spear delivered solid results, showcasing the resilience of its portfolio and its strategic focus on the Western Cape. The board of directors maintained a 95% payout ratio and announced a Distribution Per Share (DPS) of 39.53 cents for the six months ended on the 31st August 2024.

Quintin Rossi, CEO of Spear REIT Limited, commented on the results: “Within the context of the persistently tough trading environment, we are pleased with Spear’s performance in HY2025. The interim period has established a solid foundation to build on for the remainder of the financial year. Our Western Cape-focused strategy, coupled with our hands-on asset management approach, have allowed us to continue delivering value to our stakeholders as Spear delivers a mission statement-aligned financial and operational outcome for the reporting period. We continue to be optimistic as the economic landscape shows signs of improvement, particularly since the formation of the Government of National Unity (GNU) in South Africa, the easing off of loadshedding thanks to the stabilisation of the national grid, and the commencement of the interest rate tapering cycle by the SARB, which have all positively impacted investment confidence.” According to Rossi, these are encouraging signs for the real estate market, as sovereign bond yields compress, inflation comes under control and economic expansion commences, the property market is likely to see improved occupancy rates, increased tenant activity, and stronger financial performance.

Key financial and operational highlights

  • Distributable income per share (DIPS) for HY2025: 41.61cps (up 2.05% from HY2024)
  • Dividend per share (DPS) for HY2025: 39.53cps (up 3.14% from HY2024)
  • Payout ratio: 95.08%
  • Occupancy rate: 95.08%
  • Loan-to-Value (LTV) ratio: 23.93%
  • Interest Cover Ratio (ICR): 3.01 times
  • Tangible Net Asset Value (TNAV) per share: R11.74
  • Collection rate: 98,05%

Spear achieved a 6.34% increase in group revenue excluding smoothing, driven by strong leasing activity, reducing vacancies, and maintaining in-force escalations. The net property operating profit for HY2025 saw an increase of 1.92% compared to HY2024 excluding smoothing, reflecting resilient expense management despite difficult trading conditions. Commenting on Spear’s performance, Nesi Chetty, Fund Manager and Head of Property at Stanlib, said, “Leasing fundamentals across the Spear portfolio have been strong over the last 12 months. A buoyant jobs market, scarcity of land, an increasing Business Process Outsourcing (BPO) presence in the Western Cape, along with strong asset management from the company, have contributed to the strong year-to-date occupancies and escalation rates.”

The like-for-like contractual income growth was 9.54%, and the like-for-like net property operating profit grew by 9.48%, driven by decreased vacancies and strong in-force escalations and rental reversions. During the interim period, rental reversions improved to +5.35%, indicating positive outcomes in lease renewals and relets.

At the interim period, Spear’s portfolio was valued at R4.22 billion, consisting of 27 high-quality assets, with a total gross lettable area (GLA) of 405,709m². While the period presented several challenges, including increased property operating and management expenses due to the severe impact of storms and record-breaking rainfall in Cape Town between June and August 2024, profitability was marginally impacted by the higher-than-normal repairs and maintenance interventions required.

Management remains laser focused on absorbing these additional costs in the final six months of FY2025. During the interim results presentation, Rossi commended his team for their hands-on, ‘get stuck in’ approach, which he credits as a core element of the company’s culture and a key driver of its success.

The portfolio’s occupancy rate improved by 200 basis points to 95%, with the commercial office sector being a standout performer, seeing over 9,000m² of commercial office space let during HY2025. This resulted in a 616 basis points improvement in commercial office occupancy, indicating a strong return-to-office trend within the Western Cape. The company’s aggressive marketing and leasing initiatives have contributed to these positive outcomes, as management prioritised reducing overall vacancy rates, particularly in the office portfolio.

At the end of HY2025, the overall portfolio vacancy rate had decreased to 4.92%, down from 6.88% in FY2024. This improvement is well below the national average vacancy rates recorded by IPD and SAPOA, further emphasising Spear’s effective asset management strategy.

Spear’s contractual escalations averaged 7.47%, and the weighted average lease expiry (WALE) remained steady at 26 months, providing stability to the company’s income stream.

Spear’s balance sheet remains robust, with gearing reduced to 23.93% from 31.60% in FY2024. This was largely due to the disposal of non-core assets, including the Liberty Life Building in Century City and 142 Edward Street in Tygervalley. These disposals have strengthened the company’s liquidity position and enabled management to allocate capital into strategy aligned Western Cape investment opportunities.

The company has no immediate debt refinancing obligations, thanks to its proactive management of the debt portfolio, ensuring well-staggered refinancing terms and a defensive expiry schedule across its funding partners.

Spear’s rental collections remained strong, with a collection rate of 98.05% for HY2025, reflecting once again, effective tenant management and operational oversight.

In closing, Chetty added, “From a valuation perspective, Spear is trading at an attractive forward dividend yield, while still reflecting a notable discount to its latest reported NAV. The company maintains a robust pipeline of value-creating opportunities, including planned brownfield redevelopments. Spear is steadily becoming a core holding in many property funds, particularly within the small to mid-cap segment.”

 Outlook for FY2025

Looking ahead, management is optimistic about the prospects for the remainder of FY2025 as it integrates the newly acquired real estate portfolio, valued at R1.146 billion, from Emira Property Fund. This follows the announcement via SENS on 23 October 2024, confirming the successful implementation of the transaction. Following this acquisition, Spear’s total portfolio value has increased to R5.36 billion, with a market capitalisation of R3.2 billion.

Rossi added: “We remain focused on executing our strategic priorities for FY2025. With our high-quality portfolio, strong tenant relationships, and active asset management approach, this is an exciting time for the real estate sector and Spear is well-positioned to continue delivering value to our shareholders and stakeholders in the months ahead.”

Rossi concluded the interim results’ presentation by providing full-year distribution guidance, forecasting DIPS growth of between 2% – 4% compared to FY2024, with the payout ratio maintained at 95%. This outlook is supported by key assumptions, including no load-shedding for the remainder of FY2025, reduced vacancies, successful lease renewals, and stable tenant performance in absorbing rising utility and municipal costs.

“Our full-year guidance reflects the strength of our team and portfolio,” said Rossi. “We are confident that, with these positive indicators, we can continue to achieve our strategic objectives for the year.”

 

Redefine restructuring of R27.7 billion secured evergreen funding

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Redefine Properties launches an industry leading structure with R27.7 billion evergreen secured funding arrangement

 

Johannesburg, 15 October 2024 – Redefine Properties has achieved a major milestone with the successful restructuring of a R27.7 billion secured funding arrangement. This transaction, the largest of its kind in the South African listed property sector, marks a significant shift in how Redefine manages its funding. The innovative structure, designed as an evergreen arrangement, has streamlined business processes and set a new benchmark within the sector.

Redefine previously entered into bilateral loan agreements with funders, who were each given a segregated pool of security with a portfolio of assets. These facilities have now been restructured to allow for all funders to participate in a common shared security pool, which is governed by a common terms agreement upon which all funders can base their terms.

The portfolio of assets that will be used as the common security pool, comprises of 127 properties valued at R46.3 billion, is which represents 72% of Redefine’s direct South African property portfolio.

“By taking the assets that we believe are the core cash generation backbone of our business for the foreseeable future and putting that on equal footing to all of our funders, we are leveraging the strength of our well-diversified investment portfolio, giving us flexibility to price our debt sustainably throughout market cycles,” said Ntobeko Nyawo, CFO of Redefine.

Underlying flexibility agreements for the common security pool will give us the ability to maintain market relevant commercial agreements. Unlike other security structures of a similar nature, Redefine has chosen not to have a single clearing pricing point, giving the company the flexibility to manage concentration risk over time and throughout market cycles when refinancing maturities.

There are 11 funders including the big four SA banks and the typically large institutional investors in the secured lending space. However, the beauty of the structure is its evergreen nature without any lifetime limitations and will thus allow lenders to come and go over time seamlessly.

The new structure will govern Redefine’s lending going into the future with the terms agreed to applying to Redefine’s secured lending going forward. “Essentially, the common security pool structure will be the single market access point for any lender to offer secured debt to Redefine, giving it the flexibility to supply debt on an end-to-end basis,” Nyawo explained.

A simplified, efficient channel for raising debt

The benefit for Redefine is to ease the operational administration of its funding arrangements as the new structure materially simplifies the ways in which the business brings in funders of secured debt due to referencing a single security pool while enabling a channel to secure that debt in an efficient manner.

“One of the key benefits of bringing funders into a singular, common collateral pool is that it will enhance Redefine’s secured debt market appetite,” Nyawo said. “By ringfencing the funding to a single lender, the bilateral funding left little room for competition”.

As a consequence of the lending structure referencing a far more diversified security pool, funders gain cross-sector exposure that enhances their diversification, reducing concentration risk for lenders and thereby improving the credit profile.

It also makes it possible for Redefine to more effectively add potential differentiated funders like a Development Finance Institution (DFI) to the mix of secured funders, whereas in the past Redefine was unable add a DFI to another lender’s portfolio.

Importantly, the structure is underpinned by a mechanism, which has been clearly defined and agreed to by the common terms arrangement, that allows for the release of assets from this pool to support Redefine’s active asset management strategy.

“Through this restructure, Redefine has created a sustainable, diversified funding model that reduces market shadowing of debt and enables the execution of strategic priorities including the efficient sourcing of capital and diversify our funding base,” Nyawo said.

Sourcing capital efficiently throughout market cycles

“Creating a sustainable funding vehicle is central to our business model,” he added. “Since our company primarily depends on gearing, it is essential that we source capital efficiently through market cycles, which we have accomplished with this transaction. When funding pools were dispersed in the past, Redefine was beholden to the incumbent lender’s risk and pricing considerations as opposed to market clearing gearing and pricing. In contrast, a common security pool should support our earnings over time much more when market cycles are turning in our favour. Equally so, when the cycles turn against us, we will be much more adept at managing the challenges brought on by the rising cost of debt.”

Nyawo said that the extensive collaboration with the 11 key funders was instrumental to concluding this transaction, which is the largest common security structure the market has ever seen. “This extremely complex transaction was completed in less than six months, which is a testament to the tremendous work and commitment of the team leads of our partner lenders and advisors.

RMB was the mandated lead arranged for Redefine and Webber Wentzel acted as lenders counsel.

He added that the restructuring coincided with a time when fundamentals required for listed property re-rating, such as economic growth, which the new government of national unity is targeting at 3.3%, are encouraging and resulting in increased confidence in the sector. This, combined with the ability to raise capital efficiently, means Redefine is better positioned to fund both organic and inorganic growth opportunities, he said.

“The common funding pool’s evergreen structure we believe is fundamental to our long-term balance sheet management and truly supports our strategic ambitions of building a simplified, diversified cash accretive listed property investment portfolio,” Nyawo concludes.

ENDS

 

 

Growsmart Celebrates Top Learners at 2024 Finals

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Growsmart Educational Programme Celebrates Western Cape’s Top Learners at 2024 Finals

Cape Town, 09 October 2024 — The Growsmart Educational Programme, an initiative by Growthpoint Properties, celebrated the brightest young minds in the Western Cape at the pinnacle of its annual competition season. The final event took place at The Lookout, V&A Waterfront, where top-performing learners in literacy, mathematics, and story writing were honoured.

Launched in 2010, Growsmart is a nationally and internationally recognised initiative fully endorsed by various Education Departments and serves as the flagship programme of the Western Cape Department of Education. This impactful programme aims to enhance educational outcomes in underperforming schools by engaging learners in grades 4, 5, and 6 through a dynamic, curriculum-based competition. Focusing on literacy, mathematics, and story writing, Growsmart helps intermediate learners improve critical academic skills while fostering creativity and problem-solving abilities.

2024 Western Cape Competition

The 2024 competition kicked off in April, with schools from districts including Cape Metro and West Coast District participating. Following multiple rounds and semi-finals, the best 15 learners in literacy and mathematics and 10 learners in story writing advanced to the final competition.

In the Literacy Competition, the 15 finalists were selected from 327 participants and tested on their ability to spell, define, and use words in sentences, alongside their understanding of verbs, nouns, idioms, and adjectives. The winners are:

  • 1st Place: Delft South Primary School
  • 2nd Place: Teske Primary School
  • 3rd Place: Dagbreek Primary School

This marks Delft South Primary School’s second consecutive win, earning the school an iPad Lab valued at R350,000, further enhancing its learning resources.

In the Mathematics Competition, 15 finalists out of the 321 participants tackled questions ranging from BODMAS to problem-solving and mental maths. The winners are:

1st Place         Idasvallei Primary School

2nd Place        Diazville Primary School

3rd Place        Eikendal Primary School

The Story Writing Competition is a project-based, mentor-led event in which learners

submit their own original written stories. Nearly 166 storybooks were submitted. The

winners are:

1st Place                     Tuscany Primary School, Olwam Sondlo

2nd Place                    Helderkruin Primary School, Sobo Ndongo

3rd Place                    Kenmere Primary School, Jordan Theart

Most Creative             Kenmere Primary School, Kylah Simons

The winning schools were awarded prizes to further support their educational efforts and enhance their students’ learning experiences.

Inspiring Future Leaders

Jewel Harris, Founder of Growsmart and General Manager of Growthpoint Properties Cape Town, applauded the dedication and talent of this year’s participants. “Congratulations to everyone who took part in this year’s interactive programme. It has been more focused, relevant, engaging, and innovative than ever before. Well done to the winning learners, mentors, and schools.”

Shawn Theunissen, Head of Corporate Social Responsibility at Growthpoint Properties, echoed these sentiments, adding, “The winning learners and mentors represent the leaders of tomorrow and today. We’re incredibly proud of them all. Investing in positive social impact across the entire education value chain not only transforms lives today but also shapes future generations.”

A Platform for Continued Success

Beyond the competition, Growsmart provides learners with additional opportunities through the Growsmart Bursary Programme, supporting their ongoing educational journey.

As Growsmart concludes its fifteenth year in the Western Cape, the programme continues to expand its reach and impact, celebrating growing successes in the Eastern Cape and Limpopo. Growsmart remains dedicated to creating educational opportunities that empower communities and foster future global citizens within a more inclusive society.

Guests were greeted with a complimentary coffee generously sponsored by Vida e Caffè and served with a smile by their friendly baristas.

Congratulations to all the Western Cape winners!

Growthpoint advances sustainability goals with automation and 1ai

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Growthpoint Properties advances sustainability goals with automation and 1ai 

Growthpoint Properties (JSE: GRT) has developed a bespoke automation solution in partnership with 1ai, a leading provider of intelligent automation solutions, to streamline the processing of municipal invoices while unlocking valuable sustainability data. The initiative forms part of Growthpoint’s broader efforts in using pioneering technology to enhance operational efficiencies and reduce environmental impact to achieve its ambitious sustainability goals.

With its extensive South African portfolio spanning around 350 buildings, Growthpoint processes more than 1,100 municipal invoices each month, a task requiring around 160 hours of manual handling, and diverting resources from other vital activities. This makes it difficult to extract and apply critical data related to utility consumption, such as power and water use information.

Recognising the potential for automation to transform this process, Growthpoint collaborated with 1ai to develop a bespoke system that automates the invoice processing workflow while extracting and structuring the useful sustainability data embedded within the documents. The result is a process that combines advanced Robotic Process Automation (RPA) with powerful text extraction algorithms, designed to manage the varied formats and complexities of municipal invoices.

The project has already delivered substantial operational benefits. In addition to saving 475 hours per month across both invoice processing, as well as the extraction and analysis of sustainability data, Growthpoint can now redirect resources towards other efforts, such as enhancing sustainability reporting and supporting the company’s broader environmental, social, and governance (ESG) goals.

Engelbert Binedell, Chief Operating Officer at Growthpoint Properties, says, “Automation has significantly improved our invoice processing and data analysis capabilities. By accurately capturing detailed utility data, we are now better equipped to meet our sustainability targets and optimise resource management across our properties. This improves our efficiency and enhances our strategic decision-making process.”

Rudolph Janse van Rensburg, Founder and CEO of 1ai, adds, “Our partnership with Growthpoint demonstrates the practical value of intelligent automation in managing complex processes. By streamlining the processing of municipal invoices, and thereby unlocking critical sustainability data, we have helped Growthpoint enhance operational efficiency while gaining valuable insights that support their sustainability goals. Our collaboration reflects a shared commitment to leveraging technology to drive efficiency, sustainability, and innovation in the property sector.”

The success of the initiative is a key component of Growthpoint’s strategy of incorporating intelligent automation across various aspects of its operations, with plans to expand the application of RPA to other critical areas, including vendor onboarding and contract lifecycle management.

Binedell says the automation initiative aligns with Growthpoint’s vision of remaining at the forefront of sustainable property management and setting new standards for operational excellence and environmental stewardship within the industry.

Vukile continues its Iberian charge with Lar España disposal

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Vukile continues its Iberian charge while banking a significant profit of over R1.5 billion for shareholders with Lar España disposal

03 October 2024. Vukile Property Fund (JSE: VKE) confirmed its intention to accept an improved cash offer for its 28.8% stake in Lar España Real Estate following careful evaluation of its options. Vukile’s investment in Lar España, held through its 99.5%-owned Spanish subsidiary, Castellana Properties, has realised significant value for Vukile shareholders.

The consortium involving Hines European Real Estate Partners III and Grupo Lar Inversiones Inmobiliarias, Lar España’s asset manager, has increased the offer from EUR8.10 per Lar España share to EUR8.30 per share for all shareholders following its negotiations with Vukile.

The disposal will allow Vukile, via Castellana, to achieve an internal rate of return of approximately 45% p.a. since January 2022 in ZAR terms.  This represents an investment return of almost three-times in under three years from the initial Lar España investment.

Laurence Rapp, CEO of Vukile Property Fund, said: “Our ability to identify mispriced assets, both listed and unlisted, and interpret market nuances through our on-the-ground asset management expertise, defined by profound knowledge of the property industry and retail specialisation, inform our capital allocation strategy. Our synthesis of corporate finance and deal-making skills, together with property asset management, underpins dexterity in underwriting retail assets.”

When Vukile invested in Lar España, it was trading at approximately a 48% discount to net asset value (NAV). Vukile quickly identified this investment as a tremendous opportunity because of its asset and market alignment. The investment provided strategic optionality that, in all instances, provided significant potential for capital appreciation while receiving attractive dividends. During Vukile’s time as a significant Lar España shareholder, the share’s discount to NAV reduced materially.

While Lar España shares still trade at almost 19% discount to NAV based on the increased offer price, when viewed from the perspective of the yield on Lar España’s assets, Vukile believes the negotiated offer price presents an opportunity to redeploy capital into other strategically aligned and financially accretive opportunities with potentially better yields at significantly lower operational and deal execution risk.

While some in the market may have anticipated a counterbid, having considered all options, the complexity, cost and execution risk of doing so made this a less optimal solution. “This decision reflects Vukile’s disciplined approach to capital allocation and deal-making,” notes Rapp.

The company remains committed to its growth strategy in Spain and the Iberian Peninsula, where it has established a significant presence and pipeline of opportunities. From a standing start seven years ago, Vukile has grown Castellana to become the fifth biggest retail property owner in Spain. It is set to become the third largest by the end of 2024 and is well on its way to growing the largest retail property portfolio across the Iberian Peninsula.

Vukile’s acceptance of the Lar España offer comes after it launched the natural expansion of its Spanish growth into Portugal with the pre-funded acquisition of three shopping centres, which closed earlier this week. The transaction takes Vukile’s exposure to the Iberian Peninsula to 64% of its assets.

Following its recent capital raise for several well-progressed deals that Vukile is evaluating, and given it has a significant pipeline of opportunities with a number under active consideration in both Spain and Portugal, Vukile is confident that the proceeds from the offer will be redeployed in line with its expansion strategy in these key markets.

“By accepting the Lar España offer, Vukile is realising a substantial return for shareholders while maintaining its focus on strategic growth initiatives. Vukile is well-positioned to create further value for shareholders through disciplined investment and active asset management,” concludes Rapp.

 

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