Spear REIT Limited defies subdued property sector with interim results

Quintin Rossi, CEO SPEAR REIT Limited.
Quintin Rossi, CEO Spear REIT Limited.

Spear REIT Limited has released their FY2020 interim results for the six months to end of August 2019 announcing a 7% growth in distribution compared to the prior year interim period.

Amidst the tough trading conditions and the subdued performance of the real estate sector as a whole in South Africa, Spear should be one of a REIT investors go to stocks. Spear is a focused pure property play with an easy to understand income statement, clean balance sheet and management team that has consistently delivered on market guidance. Spear’s hands-on asset management, active operational & prudent financial management strategy has been a major contributor to the achievement of its interim FY2020 results.” comments Quintin Rossi – CEO Spear REIT Limited.

Spear REIT Limited remains the only regionally specialised Real Estate Investment Trust listed on the Johannesburg Stock Exchange (JSE). As a regional specialist, Spear obtains its diversification through asset type investing into high-quality commercial, retail, industrial, mixed-use and hospitality assets in the Western Cape with a distinct focus on the Cape Town region.

Spear announced an interim distribution of 44,64 cents per share for the six months ending 31 August 2019. At interim period Spear’s tangible net asset value (“TNAV”) per share increased by 0.07% from August 2018 interim period to R 11.64.

Rossi continues: “The financial results achieved are attributable to the high-quality nature of Spear’s assets, strong contractual income, tenant recoveries and savings on finance costs. Despite ongoing headwinds in the local economy and a far slower than anticipated recovery of the hospitality
sector distribution targets were achieved.

Positive rental reversions on lease renewals and re-lets has been a key contributor to the financial results for the interim period with a 2.72% positive rental reversion for the interim period on renewals and new lets of 100 141m2. Vacancy rates across the portfolio were at 1,85% at the interim period decreasing from FY2019: 1,98%.

Group gearing decreased to 38.43% (FY2019:39.58%) during the interim period. Spear’s diversified portfolio presents a value proposition in that the overall rate per square meter is R 9 472/m2 with replacement costs closer to R 24 000/m 2 with the average portfolio rental rate being R 96/m 2.

There are no immediate debt refinancing concerns within the business with an all in cost of debt of 8.85% and 64% of the debt portfolio fixed up to periods of 36 months.

Spear’s current property portfolio consists of 31 high-quality assets with an average asset value of R126 million per property. The overall gross lettable area (GLA) at the interim period was 413 832m2 valued at R 3.92 billion. The portfolio’s income stream is underpinned by contractual escalations of
8.08%, a weighted average lease expiry (WALE) of 29 months together with a high percentage of A- grade tenants (listed and large nationals) comprising 65% of portfolio GLA. One of the hallmarks of Spear’s portfolio has been its high occupancy rate with vacancies well below the national averages recorded by IPD & SAPOA with an overall vacancy of 1.85% at the end of the interim period (FY2019:1.98% portfolio vacancies).

Rossi concludes, “I am extremely proud of the entire team and this achievement is a testament of their hard work. If there was a time to take notice of a well run real estate operation and opportunity it would be now. Spear has again delivered market beating interim results in what some would say is one of the toughest trading environments in South Africa in two decades.”