Fairvest Limited has published its first set of annual results as a merged entity with dividends equal to 100% of distributable income at 126.22 cents per A share and 43.29 cents per B share, exceeding its guidance for the latter by 4.4%.
Fairvest Property Holdings and Arrowhead Properties Limited merged in late January 2022 and Fairvest Limited currently holds a portfolio of 141 retail, office, and industrial assets with a gross lettable area (GLA) of 1 150 862m2 valued at R12.1 billion across SA. Its retail properties represent 65% of the portfolio, office 24% and industrial 11% by revenue. The company also holds a 61% interest in residential property owner, Indluplace, with 119 residential properties valued at R3.4 billion, as well as a 5.1% interest in Dipula Income Fund.
Despite the weak economy, high interest rates, load shedding and the remaining effects of the pandemic, Fairvest has successfully concluded the merger and turned its focus to implementing a suitable structure for the new entity, de-risking the balance sheet, reducing vacancies, and commencing a disposal process for non-core assets said CEO, Darren Wilder. “Fairvest has made excellent progress in settling down the merged entities, achieving stable performance in the direct portfolio, reducing vacancies, disposing of seven properties with a further seven transacted, pending transfer, and reducing the company’s loan-to-value. He said that Fairvest is operationally strong and well-positioned for growth.”
While the REIT’s vacancies peaked at approximately 8% mid-year, its strong letting and tenant retention of over 87% has reduced its vacancies to 5.9% by yearend. Vacancies in its office portfolio have decreased from 16.7% at the interim stage to 13.6%, industrial vacancies were maintained at a low 1% and its retail vacancies reduced from 4.9% at the interim stage to 4.3%.
GLA of 246 797m2 came up for renewal during the year of which 215 632m2 was renewed or re-let. New deals in respect of 76 472m2 were concluded. Rental reversions were within expectation, at a negative 6.4% overall, comprising retail at -2.6%, office at -16.6% and industrial +0.4%.
The weighted average lease escalation across the portfolio was 6.4%, at an average net monthly rental per m² per sector of R133.12 for retail, R95.58 for office and R43.96 for industrial. The weighted average lease expiry was 29 months.
Operating costs were well-managed with the majority of increases well below inflation.
During the year, Fairvest concluded seven disposals, valued at R96.5 million at an average premium to book value of 1.4% and an average yield of 10.1%, which Wilder said is commendable in the current environment. The assets were identified as non-core and comprised four retail assets with a combined vacancy of 26%, one empty office building and two industrial buildings. A further seven properties valued at R500.9 million are currently classified as held-for-sale pending registration and transfer.
At year-end, Fairvest had debt of R6.1 billion, which represents a Group SA REIT Loan to Value (LTV) ratio of 38.1%, down from 39.2% at interims and well within the group and portfolio LTV covenants. The weighted average interest rate for the period ended was 8.97% (2021: 8.30%), increasing in line with the South African Reserve Bank repo rate. Loan facilities of R2.6 billion will expire within the next 12 months and the refinancing of a significant portion of these loan facilities is well-progressed and expected to be concluded within the next few months. Fairvest has entered into interest rate swaps of R4.1 billion to hedge 67.4% of total loans, with a targeted fixed debt percentage of 70%. Cash on hand and undrawn debt facilities of approximately R304.7 million at year-end provide ample headroom to execute its strategic initiatives.
Fairvest anticipates net property income from the core portfolio, on a like-for like basis, to increase by between 2% and 4% for the 2023 financial year. Operational performance is expected to remain robust, with strong growth from the retail and industrial sectors, partially offset by further pressure on the office sector. The significant increases in interest rates during the year will however have an impact on earnings for the 2023 financial year. It is expected that Dipula and Indluplace will continue to pay distributions for the full year in line with their current year distributions. The current dividend payout ratio of 100% of distributable earnings will be maintained and reviewed on a bi-annual basis.
