Spear REIT aims for full disinvestment from the hospitality sector by HY2024

CEO of Spear REIT, Quintin Rossi.

Spear REIT Limited, the only regionally, specialised Real Estate Investment Trust listed on the JSE, has published its interim results for the six months ended August 2022, reporting a 6.95% increase in group revenue.

The high quality and defensive nature of Spear’s asset base coupled with strong lease covenants, all overseen by a highly experienced asset management team, have reaped the results,” commented CEO, Quintin Rossi. 

The company also reported an increase of 5.93% in net property operating profit when compared to the prior corresponding period.

Distributable income per share increased by 6.09% to 41.26 cents per share, from 38.89 cents per share in the prior corresponding period with distribution per share having increased by 12.33% to 37.14 cents per share (based on a 90% pay-out ratio) from 33.06 cents per share in the prior corresponding period (85% pay-out ratio).

With revenue of R294 million for the period, Spear owns 30 properties across retail, commercial, industrial and hospitality sectors. A total Gross Lettable Area (GLA) of 443 155m2 maintaining a consistently high occupancy rate of 94%. The Spear portfolio is currently valued at R4.48 billion underpinned by contractual escalations of 6.34%, WALE (weighted average lease expiry) of 27 months and a high percentage of A-grade tenants. Letting activity shows a notable improvement on rental reversions, reported this period at (4.08%) and attributed to a flattening-out and move from negative towards positive rental growth territory.

Spear’s Loan to Value (LTV) of 38.69% is fully aligned with the growth strategy of operating a group LTV band ranging between 38% – 43% at any given time. Three non-core assets have been disposed of over the past nine months with a capital value of R179 million.  All properties were sold at a premium to book value and the disposal proceeds will be redeployed into accretive investment opportunities. Organic portfolio improvements to the value of R74 million have been allocated to the redevelopment of 50% of Blackheath Park due to the successful conclusion of a long-term lease with local manufacturer, Bravo Brands.

The group recently announced the R185 million acquisition of the 21 000m2 urban logistics park, ‘The Island’, situated in Paarden Island, Cape Town, funded via proceeds realised from recent non-core disposals and bank debt.  The Island Urban Logistics Park is 100% occupied by local and international tenants.

Rossi confirmed that Spear remains ‘on track’ to achieve a distributable income per share (DIPS) growth of between 5% and 7% for FY2023 based on no further Covid-related lockdowns, a realisation of the forecasted vacancy and lease renewal rates, mitigation of repo rate increases from the Reserve Bank, and no worsening load shedding burdens for the forthcoming months.

Spear maintains its exit strategy of its hospitality assets and the only remaining holding in this sector, 15 on Orange is let on a fixed-income, triple net lease agreement to The Capital Hotels & Apartment Group with zero exposure to variable income.