Fairvest holds up in high-growth low-LSM consumer market

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Fairvest Property Holdings recently posted a full year distribution growth for the year to 30 June of 13.72 cents per linked unit. Fairvest Property Holdings recently posted a full year distribution growth for the year to 30 June of 13.72 cents per linked unit.

Fairvest Property Holdings, a retail property fund focused on mid-sized community and regional shopping centres, believes that the lower income market is showing the highest growth in retail demand.

The health of South Africa’s consumer in the midst of slow economic growth, indebtedness and rising interest rates might slow the retail sector.

But despite all this, Fairvest which has medium-sized community shopping centres in rural and township centres in its portfolio – recently posted a full year distribution growth for the year to 30 June of 13.72 cents per linked unit.

The results, represents a 30% increase on the prior year and exceeds the guidance issued to the market of 13.70 cents per linked unit.

Chief Executive Officer, Darren Wilder says: “We are pleased with the progress we made in the past year with extracting value from the current property portfolio and the addition of four attractive properties to sustain value creation in future.”

The listed property fund, which has a market capitalisation of about R739m, owns and manages a portfolio of 32 properties, valued at R1.1bn.

During the year, the weighted average contractual escalation for the portfolio was 7.2%, mainly as a result of the high component of national tenants of 78.6% of the portfolio, which provides unit holders with a relatively low risk investment profile.

Vacancies reduced from 9.0% to 7.0% during the period under review, despite a 24.8% increase in the lettable area of the portfolio. The group said it would sell one of its vacant properties and would further reduce vacancies to 4.6% of the portfolio.

Rental activity was positive, with a 7.8% escalation achieved on renewals and tenant retention for the year of 81.7%.

The interest bearing debt to asset ratio remains low at 20.1%, with targeted gearing levels of 35% to 40%, providing ample flexibility to take advantage of attractive acquisition opportunities.

As at 30 June 2014, 46.2% of the debt was fixed, with the intention of increasing this percentage to 70% through careful acquisitions. The weighted average all-in cost of funding is 8.66% with a weighted average maturity of 34 months.

Keillen Ndlovu, head of listed property funds at Stanlib, said the fund seems to be in good shape. The distribution growth of 9 to 10% is higher than the market average of 8 to 8.5%.

Ndlovu said the fund has a higher component of floating debt (46%) than market average though the low gearing of 20% (lower than market average of about 33%) helps to give some comfort.

"The fund offers values and is trading at a discount to NAV compared to the market which is trading at a premium. It's size and liquidity may be to blame for this," he said.

Old Mutual Investment Group portfolio manager Evan Robins said Fairvest’s market capitalisation was small and that a property counter needed to have a minimum R2bn market capitalisation to obtain the attention of institutional investors.

“It’s not a steadfast rule but as the sector consolidates, the property counters have to get bigger to attract large investors,” he said.

"The group’s specific focus provide unique access to the underdeveloped and high growth, lower LSM consumer market. A portfolio of high grade national and regional anchor tenants, strong tenant retention and healthy renewal escalations bode well for the steady and consistent creation of value for Fairvest unit holders,“ concluded Fairvest CEO Mr. Wilder.


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