Fairvest still coining it in lower LSM nodes

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Fairvest Property Holdings CEO, Darren Wilder said the performance in the period, reflects sound management of the controllable factors, which has manifested in improvements in vacancies, tenant retention rates and expense ratios. Fairvest Property Holdings CEO, Darren Wilder said the performance in the period, reflects sound management of the controllable factors, which has manifested in improvements in vacancies, tenant retention rates and expense ratios.

Recent results from listed property group Fairvest Property Holdings, confirms that focusing on retail assets in lower LSM nodes can yield a great deal of results.

For the six months to December 2015, the company achieved an interim distribution of 8,171 cents per share, which represented a 10,02% increase on the comparable period, exceeding the guidance previously issued of between 9% and 10% growth in distribution.

CEO Darren Wilder said the performance in the period, reflects sound management of the controllable factors, which has manifested in improvements in vacancies, tenant retention rates and expense ratios.

Fairvest focuses on retail assets in non-metropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower LSM market in high-growth nodes, close to commuter networks.

Ian Anderson, the chief investment officer at Grindrod Asset Management says the results reflect what is possible from a small, focussed listed property company, despite the obvious economic headwinds.

"The management team have focussed their energy on improving the existing portfolio, while incrementally adding value through acquisitions. The high tenant retention ratio, lower vacancies and double-digit increases in new rental growth on new leases contributed to sector-leading like-for-like net property income growth. Unlike many other companies in the sector, Fairvest has focussed on its core market and delivered an excellent set of results because of that focus," says Anderson.

The portfolio consists of key retail properties situated across the country, with the largest representation in KwaZulu Natal (25%), Western Cape (18%) and Gauteng (17%).

The property portfolio at year-end consisted of 37 properties with a total market value of R1 722,8 million, an increase of 26,5% from the previous year.

Fairvest raised R100 million of new equity in the period, which was utilised in the acquisition of seven new properties in the Northern and Eastern Cape and Free State regions, for a combined value of R496,1 million.

The company also upgraded and modernised St George Square, Qualbert Centre and Tokai Junction.

The Fund contained its vacancies at 1,6% against a Sapoa average retail vacancies of 5,3% and an improved tenant retention ratio of 84,3%.

Revenue for the period increased by 50,4% to R134,4 million as a result of income growth in the historic portfolio as well as acquisitions. Gross property expenses ratio increased from 36,8% to 37,2%, almost entirely as a result of increases in rates and taxes and electricity.

The net property expenses ratio (net of utilities) decreased from 17,3% to 17,0%. Distributable earnings increased by 37,3% to R53,8 million.

The loan to value ("LTV") ratio at the end of the period was 28,7%, with 36,2% of the debt fixed either through swaps or fixed rate loans. Outstanding debt has a weighted average all-in cost of funding of 8,8% and a weighted average maturity of 27 months. The LTV is expected to increase to 33,3% post the conclusion of the Parow Spar and Mainstream acquisitions.

Wilder concludes: “Despite the tough economic conditions that prevail, we are confident that the improved occupancies, together with the most recent property acquisitions completed, should allow us to achieve distribution growth of between 9,25% and 10,25% for the 2016 financial year.

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Listed Property / REITs  |  Ian Anderson  |  Fairvest Property Holdings Ltd  |  Darren Wilder