Fairvest Limited announces its first interim results as a merged entity, with dividends equal to 100% of distributable income at 61.52 cents per A share and 21.33 cents per B share

0

Fairvest Limited today announced its first interim results as a merged entity, with dividends equal to 100% of distributable income at 61.52 cents per A share and 21.33 cents per B share.

Fairvest Property Holdings Limited and Arrowhead Properties Limited merged on January 26, 2022, creating a real estate company holding a diversified portfolio of commercial, office and industrial properties worth R11.77 billion, across all nine provinces of Africa from South. Fairvest’s portfolio comprises 143 assets with a GLA of 1,160,585m2, with retail properties representing 65%, office 24% and industrial 11% of the portfolio. The group also has a 61% stake in residential property owner Indluplace and an 8.6% stake in Dipula Income Fund.

Fairvest CEO Darren Wilder said the real estate sector, as well as the South African economy, has been severely affected by the ongoing effects of the COVID-19 pandemic, as well as civil unrest and flooding in Kwa-Zulu Natal. Despite the difficult environment, Fairvest reduced vacancies during the period and continues to do so, and delivered a strong direct portfolio performance.

Operations

The Fairvest team continued to perform by reacting and adapting to the volatile environment. For the six-month period to March 31, 2022, some 139,000 m² GLA are up for renewal, of which more than 123,000 m² have been renewed or re-let, representing a cumulative retention of 88.5% of GLA. The vacancy at the end of the period was 4.9% for trade and only 1% for industry. Office vacancy stands at 16.7%, with the sector remaining under pressure. While the reletting required a negative rental reversion of 7.8% overall, the weighted average duration of the leases remained at 28 months, despite a difficult environment. The weighted average indexation of leases across the entire portfolio was 6.7%.

The commercial and industrial portfolios performed well in the difficult economic cycle, while the majority of the office portfolio held up in a sector under pressure. Wilder said the team only identified about 25% of the office portfolio where performance was seen as problematic, and those properties are under intense scrutiny.

Strategic progress

The integration of the two activities began in February 2022, with the main objective being to move to a portfolio of convenience stores while creating long-term shareholder value. The first priority was to invest enough time to align staff with a new culture and gain a detailed understanding of Arrowhead’s portfolio. Wilder said that based on this thorough assessment, it is pleasing to report that the Group believes the value Fairvest first recognized for shareholders is achievable. The transaction has been accretive to earnings and net asset value from inception and there is potential to extract more value from the acquired portfolio. The management team is currently evaluating value extraction opportunities for each individual property. In the meantime, Fairvest will continue to do what it does best: focus on leasing space and collecting rent.

The group will also continue to invest in its properties, with total capital expenditure of R86.4 million on renovations and emergency water and power installations over the past six months.

Fairvest has made good progress towards its medium-term goal of a purely retail fund focused on the underserved market. The Group has successfully disposed of a number of properties over the past 18 months. During the reporting period, Fairvest successfully completed four divestments worth R61.6 million at a modest 1.5% discount to book value, which Wilder says is commendable in the environment current. The disposals included two retail properties and two industrial properties.

Debt and financing

At the end of the period, Fairvest had debt of R6.11 billion, representing a Loan to Value (“LTV”) ratio of 39.2%, well below the group and portfolio LTV commitments. The weighted average cost of funding was 8.4% and 69% of the total interest rate exposure was hedged. Loan facilities of R2.98 billion will expire within the next 12 months and the refinancing of a significant portion of these loan facilities is well advanced and expected to be completed by year end. The Group had cash and undrawn credit facilities of approximately R484.1 million at the end of the period, providing sufficient headroom to execute its strategic initiatives.

Environmental, Social and Governance (ESG) Projects

Fairvest currently operates 33 solar power plants with an installed capacity of 14.2 megawatts and six more solar power plants under construction that will add 2.4 megawatts of capacity. The total value of the factories is R173 million. Water management is also a key focus with several smart water monitoring and harvesting plants in operation and other plants in the exploration phase.

Outlook

The Group, in the revised prospectus issued in December 2021, forecast distributable profit for the 2022 financial year at 126.22 cents per A share and 41.48 cents per B share. Wilder said Fairvest expects the current difficult operating environment will continue in the short to medium term. However, despite the difficult environment, the Group is pleased to note that given the performance of the portfolio, the successful implementation of the merger and the synergies achieved through the merger, the distributable result per B share for the 12 month to September 30, 2022 was revised upwards by between 0% and 5% above the previous forecast, with no change in forecast distributable earnings per A share.

Share.

Comments are closed.