SPEAR REIT LIMITED (JSE: SEA) the Cape-based regional Real Estate Investment Trust listed on the JSE, has released its unaudited consolidated interim results for the first half of 2023.
Spear REIT has declared an interim Distribution per Share (DPS) of 38.33 cents for the six months ending August 31, 2023 on a 94% pay-out ratio, demonstrating the company’s dedication to delivering consistent income and value to its shareholders. “I am enormously proud of the interim results generated during this reporting period. The entire company has worked collaboratively to achieve these results,” stated Quintin Rossi, CEO of Spear.
- HY24 DIPS growth compared to the prior corresponding period: -1.19%
- HY24 DPS growth compared to the prior corresponding period: +3.21% (based on an increased payout ratio of 94% versus the 90% payout ratio in HY23)
- Interim distribution per share: 38.33 cents per share based on a 94% pay-out ratio
- LFL Net Property Operating Profit Growth: +10.14%
- LFL income growth: +9.80%
- Portfolio value: R 4.46 billion
- Portfolio GLA: 426,588m²
- Asset value growth: 85% from FY23
- YTD Collection: 98.36%
- Occupancy: 94.19%
- LTV: 39.58%
- TNAV: R 11.62 per share
During the results presentation, Rossi highlighted the company’s exclusive focus on the Western Cape as a key factor in outperforming a somewhat challenged REIT sector. He noted, “The first half of the year tested our resilience, cost controls, and asset management skills. We consider ourselves fortunate to have 100% of our real estate assets located in the Western Cape, where cautious optimism prevails due to the positive effects of semigration, localisation, and international investment boosting real estate markets but not making it immune to trading headwinds.”
Strategic focus and unique advantage:
Confirming the semigration trend, Census 2022 results revealed a substantial surge in population growth in the Western Cape over the past decade, with a remarkable 27% increase, translating to a population of 7.4 million. Premier Alan Winde predicts that this figure is set to rise to approximately 8 million by 2030. The Western Cape remains a shining example of effective governance and administration. The latest findings from the Auditor General, presented for the 2022/2023 financial year, showcased the Western Cape Government’s performance, with all 14 provincial departments and 11 entities receiving a 100% unqualified audit outcome.
Spear is a specialist value investor in this market, with a hands-on asset management approach that has been pivotal in navigating the real estate environment of the Western Cape. A significant competitive advantage for Spear is its reliance on the City of Cape Town for electrical supply. With 93% of its assets powered by the city’s grid, the company successfully shields its tenants from the deeper challenges of load-shedding, making it an attractive proposition for businesses operating within its properties.
Leasing momentum and property value growth:
Despite a persistently challenging economic climate, Spear has achieved success in improving its leasing metrics. Notably, No.1 Waterhouse and the Bloemhof Building reached full occupancy in the first half of the year, with the Liberty Life Building securing fully let status post the half year. Once again, the focus on the Western Cape has proven to be a strategic advantage, with a total portfolio year-to-date increase of 5.85%.
Spear’s current portfolio consists of 28 high-quality assets, averaging R157.5 million per property. In total, the portfolio comprises a Gross Lettable Area (GLA) of 426,588 m2, valued at R4.46 billion. Key elements supporting the income stream include contractual escalations of 7.41%, a Weighted Average Lease Expiry (WALE) of 27 months and a heavily industrial sector exposure of 60% of total portfolio GLA. Spear maintains a consistently high occupancy rate, with vacancies well below national averages, resulting in an overall vacancy rate of 5.81% at the half year. Spear’s proactive asset management approach and strong lease covenants have led to 3.57% positive rental reversions and 98.36% rental collection rate.
With a Loan-to-Value (LTV) ratio of 39.58%, Spear maintains a strong and well-managed balance sheet. The company’s prudent approach to debt management positions it for sustainable growth and financial stability.
Following the successful rezoning of agricultural land for industrial use, Spear is leading the development of GTX Industrial Park in George. Phase 1 of the Airport Business Park/GTX Park, commenced on October 2, 2023. This project focuses on key infrastructure, providing a strong foundation for future expansion. GTX Park will offer modern industrial solutions, catering to logistics, warehousing, agri-logistics, last-mile delivery, and airport-related services, with unit sizes ranging from 350m² to 10,000m². The total capital investment for Phases 1 and 2 is estimated at R400 million, with an anticipated yield of 9.25% to 9.50%.
Rossi concluded, “The SA REIT sector continues to trade at deep discounts to NAV, which may persist as attractive Government bond yields, attract investor preference. The road ahead for REITs will be challenging as the sector recovers from the impact of COVID-19, load-shedding, reduced payout ratios, and challenging economic conditions. Both businesses and consumers are feeling the pinch of rising costs, with trading pressures remaining prevalent across the real estate sector. Amidst these challenges, the Western Cape undoubtedly remains the single best location to own real estate assets in South Africa.”