Spear targets dividend increase as Western Cape assets pay off

CEO Mike Flax said that investors had been attracted to Spear because it was committed to paying regular income from carefully selected assets.

Property company Spear Reit has revised its dividend for the 2018 financial year to as much as 79c following a strong performance in the interim period.

The Western Cape-focused property entity, which is the only regionally specialised real estate investment trust (Reit) on the JSE, had initially forecast a dividend of 74c for 2018.

CEO Mike Flax said that investors had been attracted to Spear because it was committed to paying regular income from carefully selected assets.

"We have revised our full-year dividend to between 77c and 79c for the full financial year to February," said Flax.

For the six months to August, Spear declared an interim dividend of 36.95c per share.

Spear listed on the JSE in November 2016 with assets worth R1.5bn and a market capitalisation of about R900m. Since then, it has added about R1.4bn worth of acquisitions.

Spear’s property portfolio consists of 31 Western Cape assets with an average value per asset of R87.5m. The portfolio’s income stream is underpinned by average contractual escalations of 8%, according to Spear Reit MD Quintin Rossi.

The company invests in industrial, office, residential, hotel and retail properties.

"Portfolio vacancies remain at levels well below national averages for commercial, industrial, retail, residential and hospitality assets," said Flax. "The year to date has seen exceptional asset growth for Spear, with new acquisitions in excess of R1.14bn in the Western Cape. These transactions resulted in Spear close on doubling our asset base and market cap from R942m in February 2017, to R1.7bn currently."

The company’s net asset value per share increased 4.6% during the reporting period to R10.49 per share.

Gearing at the end of August 2017 was a conservative 37% and Flax said interest rate risk had been well-hedged with fixed borrowings at 71%.

Rossi said Spear’s focus over the interim period was to incorporate the newly acquired assets into the property and asset management platforms.

The property company’s industrial assets performed in line with management’s expectations during the interim period, with occupancy at 99.95%, said Rossi.

The largest asset in the industrial portfolio was the recently acquired R400m Mega Park in Bellville Industria. The office assets also performed to management’s expectations and occupancy was at 95.53% for the reporting period.

Despite tough trading conditions, having 40% of retail space occupied by nationals allowed Spear to keep occupancy at 98.49% for the reporting period for its retail properties.

Rossi said that Spear’s residential portfolio had a 100% occupancy rate.

The hotel assets, DoubleTree by Hilton and 15 on Orange, were expected to perform better during the holiday season.

Liliane Barnard, CEO of Metope Investment Managers, said that Spear Reit’s push for regular double digit income growth was attractive.