Fairvest Property Holdings has released its results for the year ended 30 June 2021, delivering a 5% increase in distribution per share of 22.063 cents.
Despite low economic growth and the weakened global macro environment, the company delivered a strong performance with the valuation of its asset portfolio increasing by 3.9% to R3.44 billion. Added to this, arrears reduced to 2.8% of revenue and vacancies reduced to 3.7% of total lettable area. The group’s loan-to-value (LTV) ratio lowered to 31.4% – well within bank covenant levels.
“We are exceptionally pleased with the results which were ahead of our expectations. During a year in which the country’s unemployment levels reached record levels, and where retail-focused businesses felt severe revenue pressure, our team has demonstrated resilience and brought into focus its proven track record in the areas of leasing and asset management” commented Fairvest CEO, Darren Wilder.
“We were able to stay close to our tenants and help them navigate their way through the various government trading restrictions. In many cases we granted both rental credits and deferrals which enabled many businesses to remain trading, which contributed to lower vacancies and arrears as compared to the prior year.”
With a focus on environmental, social, and governance (ESG) factors in the management of all its properties, Fairvest continues to create value by sourcing energy efficient solutions such as solar that are yield enhancing to its portfolio, reducing the group’s overall impact on the environment.
Over the past year, Fairvest invested R20.5 million on photovoltaic rooftop solar installations at 22 sites across its portfolio. The value of these installations as at 30 June 2021 was R122.4 million with savings to the value of R10.3 million realised during the reporting period.
“The group achieved a strong set of results, delivering on all key metrics. Revenue increased by 3.4% to R550.1 million and net profit from property operations increased by 7.5% to R354.9 million” comments CFO of Fairvest, Jacques Kriel.
“Our collection and vacancy metrics both improved during the year, and notwithstanding the impact of the civil unrest which took place after the year-end, early signs are that this trend will continue into FY2022”.
In terms of distribution guidance, management anticipates Fairvest (after the asset manager internalisation) to deliver a 4% – 5% growth in distribution for the 2022 financial year.
Post the year-end, Fairvest had 12 properties across KwaZulu-Natal and Gauteng negatively impacted by the civil unrest. The extent of the damage to the properties was largely limited to shop fronts, roller shutter doors, fixtures, and fittings. Two properties within the portfolio, Richmond Shopping Centre, and Bara Precinct, had partial fire damage affecting a small percentage of their gross lettable area. Most tenants have commenced trading, with only a negligible minority of those affected (seven tenants totalling 1 179 m2) electing to cancel their lease agreements, with reletting already underway.
Total loss of rental claims to date amounted to R6.8 million and this amount was expected to increase marginally as the group completes the claims process. Total capital expenditure incurred to date amount to R9.4 million, which has all been claimed from SASRIA. Most tenants have commenced trading, with only a small portion electing to cancel their leases.
Of the 73 331m2 of tenants affected by the riots and looting, 94% are trading or are able trade. Seven tenants have elected to cancel their lease agreements.
At the company’s recent general meeting, the majority of Fairvest shareholders voted in favour of the resolutions relating to the share swap transaction with Arrowhead Properties. The transaction remains subject to conditions precedent, including competition commission approval.
However, Fairvest intends to exercise its rights as an Arrowhead shareholder to unlock value for shareholders of both Arrowhead and Fairvest, an initiative that has been received positively by shareholders in both companies. It is Fairvest’s view that investors generally favour larger REITs in which their investment is liquid, and shareholders have expressed confidence in Fairvest’s ability to unlock value both operationally and through capital allocation within its traditional low-income retail focus as well as from other sub-classes of investment property.
Fairvest and Arrowhead continue to engage constructively regarding a single-step merger and shareholders will be kept informed of the outcome of this engagement.
Although both the global macro-outlook as well as the lasting impact of Covid-19 on the South African economy remain uncertain, Fairvest remains well positioned, with its clearly focused strategy servicing non-metropolitan and lower-LSM markets of mainly grocery anchored assets. These assets proved more resilient during the pandemic with the recovery being quicker than anticipated.
“Consequently, although trading challenges around the low growth environment are likely to persist, Fairvest’s experienced team with its proven track record remains confident that it can achieve growth in distributions and continue to unlock value through scale for our stakeholders, concluded Wilder.