Reductions in arrears, vacancies and loan-to-value ratio ensures Fairvest remains well positioned to grow its portfolio, achieve scale, and unlock further value for shareholders.
· Distribution for the year increased by 5% to 22.063 cents per share
· Loan-to-value ratio decreased to 31.4%
· Strong collections with reduced arrears of 2.8% of revenue
· Vacancies reduced to 3.7% of total lettable area
· Interest cover ratio increased to 3.3 times
· Like-for-like property portfolio increased by 3.9% valued at R3.44 billion
Monday 13 September 2021 – JSE listed REIT Fairvest Property Holdings Limited (“Fairvest”) today reported its results for the full year ended 30 June 2021. Fairvest delivered a guidance-beating 5% increase in distribution per share to shareholders of 22.063 cents, during what was a challenging year for retail-focused REITS. Fairvest shareholders passed all resolutions relating to the share swap transaction with Arrowhead as well as its asset manager internalisation at last week’s general meeting.
Against a backdrop of low economic growth and a weakened global macro environment, exacerbated by Covid-19, Fairvest delivered a strong performance, with the valuation of the Group’s 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.
Commenting on the results Fairvest CEO, Darren Wilder, said: “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.
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.”
Investment into Solar already reaping ESG and cost benefits
Fairvest is placing increasing focus on environmental, social and governance (ESG) factors in the management of its properties. With environmental impact in particular being at the forefront, the Group continues to create value by sourcing energy efficient solutions, such as solar, that are yield enhancing to the portfolio and reduce the overall impact the Group has on the natural environment.
In the past year, as part of its ESG and sustainability initiatives, Fairvest invested R20.5 million on photovoltaic rooftop solar installations at 22 sites across the portfolio. The value of the installations, as at 30 June 2021, was R122.4 million, with savings to the value of R10.3 million being realised during year.
CFO Jacques Kriel, said: “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.
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 FY22,” Kriel added.
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.
Civil unrest: update
Post the year-end the Group 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. The majority of 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 R6.8m and this amount was expected to increase marginally as the Group completes the claims process. Total capital expenditure incurred to date amount to R9.4m, which has all been claimed from SASRIA. The majority of tenants have commenced trading, with only a small portion electing to cancel their leases.
Of the 73 331 m2 of tenants affected by the riots and looting, 94% are trading or are able trade. Seven tenants have elected to cancel their lease agreements.
Prospects and Outlook
At last week’s general meeting, the majority of Fairvest shareholders voted in favour of the resolutions relating to the share swap transaction with Arrowhead. 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 engaging 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.
Instinctif Partners 011 447 3030
Catherine Tayler 082 609 7040
Bryan Silke 083 270 0720
NOTES TO EDITORS
Fairvest is a South African Real Estate Investment Trust (“REIT”) listed on the Johannesburg Stock Exchange (“JSE”) and A2X; with a focus on retail assets weighted toward nonmetropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower living standard measure (“LSM”) market, in high-growth nodes, close to commuter networks.
The Fairvest property portfolio, valued at R3.44 billion and consisting of 43 properties with 250 896 m² of lettable area, is well diversified across South Africa, with the four largest provinces, Gauteng, KwaZulu-Natal, Western Cape and Free State contributing 76.7% of revenue. The high national tenant component of 75.5% of the portfolio provides shareholders with a lower-risk investment profile, with national food retailers occupying 35.3% of the portfolio by Gross Lettable Area (“GLA”).
In an industry that has been severely impacted by the COVID-19 pandemic, Fairvest continues to be one of the best performing property stocks in the South African market. In the latest report by the SA REIT Association, Fairvest features as a top three-performer over 3, 5 and 10 years, underscoring its consistent performance over time.