Spear REIT Limited, the only regionally specialised Real Estate Investment Trust (REIT) listed on the JSE, has recently reported its annual financial results, posting 6.06% earnings growth amidst some of the toughest trading environments in recent years for the South African listed real estate sector.
“Spear has delivered distribution growth of 6.06% in one of the toughest trading environments experienced in decades. South Africa finds itself in very uncertain times with low levels of economic growth and the advent of the Covid-19 global pandemic. As the operating conditions present numerous headwinds, the strong performance of the core portfolio is testament to the quality of Spear’s portfolio and its ability to generate income growth for its shareholders. Delivering these types of results would not have been possible without its strategy of being hands-on managers of its assets, its regional focus and having excellent proximity to its assets” says CEO, Quintin Rossi.
Spear’s management team delivered on both their mission statement which is “to be the leading Western Cape focused REIT growing its distribution per share ahead of inflation annually to its shareholders” as well as their distribution growth forecasts for the 2020 financial year.
Spear’s management team equipped with its unique industry knowledge and regional know how were able to maintain a 97% tenant retention rate across the 436 436m2 diversified portfolio. Spear’s regional focus, tenant centric approach and product mix has been the catalyst for the results achieved.
The average property value has increased to R130 million compared to the previous reporting period of R127 million. Spear began the financial period with an opening vacancy of 7 992m2 and with 113 551m2 expiring during the year. Management has successfully renewed and re-let 121 018m2 at a positive reversion of 1.95%.
Spear’s Covid-19 response
Spear has implemented all required health & safety measures across its business and portfolio to best safeguard staff, tenants and service providers.
Rental collections have continued, be it at a slower rate as the hard lock down instituted by the South African Government on 26 March 2020 set in. Spear has reported the following FY2021 year to date rental collection profile:
- 98% of March 2020 rental collected
- 92% of April 2020 rental collected
- 64% of May to date rental collected
Management remains optimistic that it can maintain its collection momentum for the remainder of FY2021 (in the absence of any significant tenant failure) as it moved swiftly with lease restructures, temporary cash flow relief and rental deferments for those tenants in severe distress. Management however stressed that it is furthermore imperative for lock down levels to be relaxed as soon as possible to between level 3 and level 2 as this will re-open vast portions of the economy and allow many more tenants to recommence operations.
It is difficult to predict the progression of Covid-19 globally, the residual risks when the lock downs are lifted, and by extension the economic outcomes of the virus on the real estate sector and on Spear.
The hospitality portfolio has been most severely impacted YTD as a result of Covid-19 and associated lock downs. We have not forecasted any hospitality income for FY2021.
Spear remains well capitalised with sufficient liquidity and head room facilities circa R 180m – R200m cash availability post FY2020 final dividend. Ongoing stress tests are conducted as we move through each month of the year to plan for potential but unlikely scenarios during this very volatile time.
Spear will not be issuing any FY2021 distribution guidance. Management will provide regular updates to the market from November 2020 onwards regarding income recoveries, hospitality recovery, retail sector recovery and any disposal of non-core assets.
Rossi concludes that the outlook for the year ahead is largely uncertain as the impact of Covid-19 on our business, economy and citizens remain only partially visible right now. What is certain for our business, however, is that the only way out of this Covid-19 crisis is through it. We will get to the other side operational and on form – our fighting spirit has never been stronger.