Fairvest Property Holdings Limited today announced a full year distribution of 16.660 cents per share, which represents a 10.29% increase on the comparable period and again exceeded the guidance previously issued.
Chief Executive Officer, Darren Wilder says: “We are pleased with Fairvest’s performance over the past year. The company has consistently delivered on key performance metrics, which for 2016 include distributions which have been growing ahead of expectations, a 41% growth in the property portfolio, a further reduction in vacancies and a successful equity raising”.
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 Fairvest property portfolio consists of 39 properties, with 185 937m² of lettable area and valued at R1 925.1 million. The portfolio is geographically diversified across South Africa. A high national tenant component of 77.6% of the portfolio provides unit holders with a relatively low risk investment profile.
Wilder said that the 41.4% growth in the property portfolio is as a result of a R412.3 million acquisition, capital expenditure incurred of R31.9 million, as well as the historic portfolio increasing by 8.8% relative to the previous year. The average value per property increased by 23.2% to R49.4 million, while the average value per square meter increased by 5.9% to R10 354/m². The company raised R100 million of new equity during the year, which was used to partially fund the acquisition.
Fairvest declared a final dividend distribution of 8.489 cents per share for the six months ended 30 June 2016, representing a 10.55% increase on the prior period. This brings the total combined dividend for the year to 16.660 cents per share, which is a 10.29% increase from the previous year, exceeding Fairvest’s updated guidance issued in March 2016 of between 9.25% and 10.25% growth in distribution for the full year.
Revenue for the year ended 30 June 2016 increased by 48.9% to R279.7 million, as a result of income growth in the historic portfolio as well as the acquisitions during the year. Gross rentals trended upwards, with an 8.2% increase in the weighted average rental to R99.40/m². The weighted average contractual escalation across the portfolio was 7.5%.
Net profit from property operations increased by 44.3% to R176.3 million, while administration expenses increased by 37.4% to R16.7 million, resulting in distributable earnings increasing by 28.8% to R109.7 million. The net property expense ratio (expenses net of utility recoveries) remained in line with the previous year at 17.3%, which continues to demonstrate good cost containment and effective recoveries.
Fairvest acquired seven properties during the year, including Sibilo Shopping Centre in the Northern Cape, Middestad Centre and Mega Park in the Free State, Parow Valley Spar in the Western Cape and Elliotdale, Mqanduli and Tabankulu Boxer Stores in the Eastern Cape. It also acquired Macassar Shoprite after year-end. Fairvest is in the process of concluding an agreement of sale with a black empowered consortium for the disposal of SASSA House. Fairvest will provide vendor finance for the transaction and the new shareholders will be required to conclude a lease renewal with Department of Public Works.
The company successfully added value in key aspects of the portfolio this year, converting previously unlettable space at St George Square which it acquired for no value, into 1 813m² of new retail and storage space. In addition to the creation of additional GLA, the aesthetics of the centre has been enhanced to improve the overall shopping experience. The Qualbert Centre was also redeveloped and positively repositioned through the introduction of a food anchor, resulting in significantly reduced vacancies and an improvement in the overall tenant quality.
During the year under review 62 new leases with a GLA of 8 695m² were concluded. Renewal activity was also positive, with an 11.6% escalation achieved on the 19 424m² of leases that were renewed during the year. Tenant retention improved further to 85.2%.
Fairvest remains conservatively geared with a loan to value ratio (LTV) of 29.7% at year-end, and 57.7% of its debt fixed, a substantial improvement from the 36.2% fixed debt component as at 31 December 2015. The debt had a weighted average expiry of 27 months and a weighted average all-in cost of funding of 9.42% at 30 June 2016. After year-end, an additional interest rate swap to the value of R100 million was entered into, which will, after the conclusion of the Macassar Shoprite acquisition, increase LTV to 33.4% and the fixed component of debt to 62.7%.
Wilder said: “We expect pressure to remain on tenants in a low economic growth and rising interest rate environment, and for trading conditions to remain challenging. We are however confident that Fairvest should be able to achieve distribution growth of between 9% and 10% for the 2017 financial year, given that the portfolio is well positioned despite the weak economic outlook. We have a low risk tenant base and the improved portfolio quality should continue to achieve strong growth in distributions. We will remain conservatively geared and sufficiently hedged to minimize the impact of potential interest rate increases.”