Spear Reit, the Western Cape specialist landlord, says it has recovered from the Covid-19 pandemic which prompted the state to lock down parts of the country, to limit the spread of the virus, especially to protect the vulnerable but at the expense of economic output.
The company which owns a property portfolio worth R4.48bn, grew its distribution per share (DPS) at 16.36% in the financial year to end-February, declaring a DPS of 68.25 cents.
Property fund managers tend to want to invest in those property companies which deliver high distribution or dividend growth. This because they want to provide consistent income payouts to pension funds.
Spear has almost reached pre-Covid performance levels, having collected 98% of its rents versus billed in the reporting period, resulting in a pay-out ratio of 88% for the year. Spear has 404 tenants and total vacancies were 28 580m2 of 6.24% of the complete portfolio.
CEO Quintin Rossi said he was highly pleased at Spear’s performance especially as a large portion of the financial year was challenged by the third wave of the pandemic in the middle of 2021.
“In many ways, our financial year was a story of two halves. The first half was difficult as we faced the fourth wave, while things improved in the second half as the economy opened up. Once again, the strengths of the Western Cape office, industrial and retail markets have been clear given how well our properties performed last year,” he said in a presentation on Thursday.
Group revenue increased 11.19% in the financial year, owing largely to Spear being able to ease its tenant support measures and improved cash flow.
“One of the hallmarks of Spear since inception was our ability to unlock value through active and hands-on asset management of the core portfolio. The unimaginable and unpredictable confrontation that the world endured due to COVID-19 and its residual effects sowed loss and devastation but has also resulted in strengthening the core competencies within our business operations,” Rossi said.
The past twelve months also saw management implement and execute parts of their Environmental, Social and Governance performance. Spear’s Photovoltaics (PV) Solar Strategy project contributed to portfolio income growth resulting from roof lease income and a reduction in power consumption overheads.
Spear’s top five properties by value were worth R2.2bn at the end of February 2002, making up 177 755 m2 of gross lettable area, and equating to 48% of the total portfolio by value. Rossi said these top five assets were all close to fully let which decreased the risk profile of the company. Spear’s total property portfolio had then grown 221% to R4.48bn since the fund listed on the JSE’s AltX in 2016 and later moved to the main board of the JSE. The average property value increasing by 2.68% in 2022 financial year.
Rossi said Spear was focused on owning industrial and convenience retail assets going forward. The group also owned high quality offices but acquisitions in the next financial year were not likely to involve a large number of offices.
He said Spear’s portfolio segmentation reinforced the company’s strategy of diversification across selected property types, while supporting a Western Cape-only strategy. This Western Cape only approach had been a sound investment strategy which demonstrated a proximity advantage with the upshot of effective asset management and efficient property management turnaround times.
Spear also started the exit from its hospitality assets, with the disposal of the Double Tree by the Hilton Hotel in February 2022, contributing to the group achieving a forecasted reduction in loan to value (LTV) well in advance of initial guidance. Spear’s LTV decreased from 46% in the first half of the 2022 financial year to its current rate of 39%.
LTV is used to indicate the strength of a property fund’s balance sheet. It measures a property company’s debt relative to the value of its asset portfolio. Fund managers advocate that LTVs should not exceed 40% as a prudent ceiling.
Looking forward, Rossi said management’s growth plan would see Spear’s assets under ownership increase by R11bn by 2028. This was as long as Spear could weather any shocks to the economy and country’s health system.
“Navigating the next financial year will not be easy, however, we are starting to see green shoots emerging as the travel, tourism, hospitality and services sector show a notable recovery together with general economic activity starting to materially improve and a return to office momentum picking up in the final six months of financial year 22,” said Rossi.