Spear Real Estate Investment Trust (Reit), the Western Cape landlord, is optimistic it will gain more liquidity in its shares and, resultant price growth, as investors warm more to the company’s consistent results.
On Friday, Spear released financial results for the six months to end-August 2022, reporting that its distributable income per share had risen 6.09% to 41.26 cents per share, from 38.89 cents per share in the prior corresponding period.
Its distribution per share increased 12.33% to 37.14 cents per share, based on a 90% pay-out ratio from 33.06 cents per share in the prior corresponding period.
CEO Quintin Rossi said Spear had rewarded its investors throughout the six years since it had listed. The company’s asset base had grown from R1.4bn in 2016 to about R4.48bn and it had returned dividends which grew at double digits initially and then settled at inflation beating numbers. Its market capitalisation however has been subdued recently like other listed Reits’ have. Spear’s market capitalisation sat at around R1.8bn on Friday and its stock was trading at large discount to the company’s net asset value (NAV).
But Rossi said Spear would be rewarded by the market if it continued to meet its targets and to impress its investors.
“As we enhance our earnings, I expect Spear to get a re-rating and more liquidity. The discount to NAV will then decrease. We are very pleased at how we have managed to provide strong returns consistently over numerous years. We have shown that by investing only in the Western Cape we have been able to become highly successful landlords as we are specialists,” said Rossi.
Rossi said that sustainable cash-flow was at the centre of Spear Reit’s objectives, no matter the market conditions that the fund operated in.
“The high quality and defensive nature of Spear’s asset base coupled with strong lease covenants, all overseen by a highly experienced asset management team, have reaped the results,” said Rossi.
“The high quality and defensive nature of Spear’s asset base coupled with strong lease covenants, all overseen by a highly experienced asset management team have reaped the results,” said Rossi.
Spear owns 30 properties across the retail, commercial, industrial and hospitality sectors. In its financial results, it reported it had earned revenue of R294m. Its assets are spread across a total gross lettable area (GLA) of 443 155m2 and maintained a high occupancy rate of 94% at the end of the reporting period.
Spear said its strong performance was underpinned by contractual escalations of 6.34%, a high weighted average lease expiry (WALE) of 27 months and a high percentage of A-grade tenants.
Letting activity showed an improvement on rental reversions, with Spear reporting a negative 4.08% movement, and attributing these to a flattening-out and move from negative towards positive rental growth.
Spear’s loan-to-value (LTV) was 38.69% at the end of the reporting period. Three non-core assets were disposed of over the past nine months at a capital value of R179m. These properties were sold at a premium to book value and the disposal proceeds were redeployed into other investment.
The group recently announced a R185m acquisition of a 21 000m2 logistics park called “The Island”, situated in Paarden Island, Cape Town, funded via proceeds from recent non-core disposals and bank debt. The Island is 100% occupied by local and international tenants.
“As supply chains and logistics services are redesigned as a result of the global pandemic and the adoption of a China-Plus-One strategy, urban logistics parks have become attractive investment opportunities in South Africa,” said Rossi.
Spear was on track to achieve a distributable income per share (Dips) growth of between 5% and 7% for the 2023 financial year, based on no further Covid-related lockdowns, a realisation of the forecasted vacancy and lease renewal rates, mitigation of repo rate increases from the Reserve Bank, and no worsening load shedding burdens for the forthcoming months.
Rossi said the Western Cape was a strong investment environment and was poised to outperform the rest of the South African economy and to drive development as job and income growth in the region surpasses other provinces.