Chief Executive Officer of Fairvest Property, Darren Wilder.
Fairvest Property Holdings Limited today announced an interim distribution of 8,171 cents per share, which represents a 10,02% increase on the comparable period, again exceeding the guidance previously issued of between 9% and 10% growth in distribution.
Chief Executive Officer, Darren Wilder says: “Fairvest performance in the six months to December 2015 reflects sound management of the controllable factors, which has manifested in improvements in vacancies, tenant retention rates and expense ratios. Our recent acquisitions have added further diversification to an already well-balanced portfolio, while recent value-adding property upgrades appealed to new and current tenants alike.”
Fairvest focuses on retail assets in non-metropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower LSM market in high-growth nodes, close to commuter networks. The portfolio consists of key retail properties situated across the country, with the largest representation in KwaZulu Natal (25%), Western Cape (18%) and Gauteng (17%).
The property portfolio at year-end consisted of 37 properties with a gross lettable area of 173 999m² and a total market value of R1 722,8 million, an increase of 26,5% from the previous year. The increase was due to acquisitions during the period as well as capital expenditure incurred. The board of directors decided not to revalue the portfolio at 31 December 2015, given the volatility and uncertainty in the markets.
Fairvest raised R100 million of new equity in the period, which was utilised in the acquisition of seven new properties in the Northern and Eastern Cape and Free State regions, for a combined value of R496,1 million. Three of these properties transferred during the period, while the remaining properties are expected to transfer before the financial year-end. The company also upgraded and modernised St George Square, Qualbert Centre and Tokai Junction, which unlocked additional space and value, reduced vacancies and improved tenant quality. This has contributed to an all-time low vacancy rate of 1,6% (against a Sapoa average retail vacancies of 5,3%) and an improved tenant retention ratio of 84,3%. An average increase of 13,1% was achieved on renewals during the period and 33 new leases were concluded. The portfolio has an anchor and national tenant component of 77,4%, indicating a relatively low risk investment profile.
Revenue for the period increased by 50,4% to R134,4 million as a result of income growth in the historic portfolio as well as acquisitions. Property expenses were well maintained, with the gross property expenses ratio increasing marginally from 36,8% to 37,2%, almost entirely as a result of increases in rates and taxes and electricity. The net property expenses ratio (net of utilities) decreased pleasingly from 17,3% to 17,0%, due to a strong focus on cost containment and more efficient municipal recoveries. Distributable earnings increased by 37,3% to R53,8 million.
Gross rentals across the portfolio trended upwards, with a 5,9% increase in the weighted average rental to R97,25/m² at 31 December 2015, compared to R91,85/m² at 30 June 2015 and a weighted average contractual escalation rate of 7,5%. The average lease expiry is 37 months. Wilder said “In a market where the consumer is fragile the Fairvest management team focus on two key areas of the business, arrears and letting and we do both well.”
The loan to value (“LTV”) ratio at the end of the period was 28,7%, with 36,2% of the debt fixed either through swaps or fixed rate loans. Outstanding debt has a weighted average all-in cost of funding of 8,8% and a weighted average maturity of 27 months. The LTV is expected to increase to 33,3% post the conclusion of the Parow Spar and Mainstream acquisitions. Given the relative inability to increase the fixed rate component of funding due to high costs in a volatile environment, the board has decided to follow a prudent approach, should the current volatility in the market prevail, by disposing of non-core assets in order to reduce the LTV to below 25%.
Chief Executive Officer, Darren Wilder concludes: “Our promise to shareholders is to invest in quality retail assets with sustainable income streams and manage these efficiently, in order to maximise stakeholder value. We are pleased with the progress we have made during this period in fulfilling that promise. Despite the tough economic conditions that prevail, we are confident that the improved occupancies, together with the most recent property acquisitions completed, should allow us to achieve distribution growth of between 9,25% and 10,25% for the 2016 financial year”.