Fairvest Ltd.’s interim results indicate a sound operational performance despite economic headwinds

CEO of Fairvest Limited, Darren Wilder.

Fairvest Limited has published its interim results for the six months ended March 2023 with a dividend equal to 100% of distributable income of 64.60 cents per A share and 20.97 cents per B share.

The merger between Arrowhead Properties Limited and Fairvest Property Holdings Limited was successfully implemented during the 2022 financial period. Focused on transitioning to a convenience retail portfolio, Fairvest Limited has 137 assets, gross lettable area (GLA) 1 127 134m2 with an average property value of R87.2 million with 51% of the properties located in Gauteng by GLA. The portfolio comprises of 67% retail, 22% office and 11% industrial by revenue. The group also holds a 60.9% interest in Indluplace Properties Limited which owns a portfolio of residential properties, and a 5.1% interest in Dipula Income Fund Limited.

CEO of Fairvest, Darren Wilder says the weak South African economy, higher interest rates and sustained loadshedding, have continued the challenging operating environment during the reporting period. Despite these impediments, Fairvest continues to successfully implement its strategic objectives by de-risking the balance sheet, reducing vacancies and disposing of non-core assets. He says Fairvest has made excellent progress by achieving like-for-like net property income growth of 5% across all sectors, disposing of four properties with a further ten transacted. “Fairvest is operationally strong and well-positioned for the challenges ahead.”

The company reported robust rental reversions on the 81 505m2 that were renewed or relet, with a positive 1.8% overall reversion, with the retail sector at positive 2.3%, the industrial sector at positive 4.3%, and an improving but still negative 1.3% in the office sector. 90.7% of tenants that were up for renewal were renewed or relet. On a like-for-like basis, net property income increased by 5%, with a 3.5% increase in the retail sector, a 5.2% increase in the office sector and a 14.9% increase in the industrial sector.  

Currently, the portfolio’s weighted average lease escalation improved from 6.4% to 6.6%, as the group moves closer to its strategic objective of escalations above 7%. The weighted average monthly rental per m² per sector of R151.80 for retail, R114.00 for office and R48.02 for industrial. The weighted average lease expiry was 26 months.

Fairvest has effectively managed to maintain an overall vacancy rate of 5.96%. Dissecting this further, the retail sector was at 4.3%, the office sector at 13.9%, and the industrial sector reported a marginal 1.5% vacancy rate.

During the reporting period, SA Corporate Real Estate Limited made a firm intention announcement to acquire all the issued shares of Indluplace for R3.40 per share. Fairvest provided a binding commitment to SA Corporate to vote in favour of the scheme for its 61% shareholding. Fairvest expects the R651.4 million proceeds from the disposal to initially be allocated to floating rate debt, which will reduce the group LTV to approximately 33%.

Fairvest sold four assets for R252.5 million at an average premium to book value of 0.2% at an average yield of 11.2%. A further three assets valued at R85.5 million transferred during May 2023, with a further seven assets worth R356.6 million have been sold and are still to be transferred, subject to conditions precedent. “These assets were identified as non-core. We have managed, on an ongoing basis, to continue to sell assets to our network of buyers” noted Wilder.

Looking ahead, the company’s focus for the remainder of the fiscal year will be on further reducing vacancies, optimizing operational efficiencies, and capitalizing on the synergies emerging from the merger. On a like-for-like basis we expect growth across all sectors.

Fairvest anticipates distributable earnings per B share for the complete financial year to range between 40.50 and 42 cents per share. In accordance with the group’s memorandum of incorporation, the distribution per A share is set to rise by the lesser of 5% or the most recent Consumer Price Index. 

Its board has resolved to maintain the current 100% dividend pay-out ratio of distributable earnings.