Cape Town portfolio potential helps lift Spear Reit distributions

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Quintin Rossi, Group CEO attributes Spear’s successful navigation through the last 12 months to the execution of their operating strategy. Quintin Rossi, Group CEO attributes Spear’s successful navigation through the last 12 months to the execution of their operating strategy.

Western Cape-based property group, Spear Reit today reported a 16.36% annual growth in distribution per share as the company continues to emerge from the COVID-19 trading environment

Spear Reit Limited (JSE: SEA) marked the sixth reporting period since its debut on the JSE with a 16.36% growth in distribution per share for the 2022 financial year.  The company reported a trend towards a pre-covid rental collection profile of 98% rental collected versus billed, resulting in its pay-out ratio increasing to 88% for the full year, generating a total distribution per share of 68.25 cents.

Quintin Rossi, Group CEO attributes Spear’s successful navigation through the last 12 months to the execution of their operating strategy. “The collective focus, proximity and successful execution of our operating strategy has been the foundation upon which we have delivered the FY22 results. With immense pride and humility, we celebrate the 16.36% growth in distribution per share for FY22,” he said.  

Spear’s current assets under ownership are valued at R4,48 billion; an increase of 221% since listing in 2016, with the average property value increasing by 2.68% in FY22. Currently the Spear portfolio consists of 31 Western Cape assets, the top five (by value) equate to 48% of the total portfolio value and are spread across industrial, convenience retail and commercial real estate in the Cape Metropole. Spear’s portfolio segmentation reinforces the company’s strategy of diversification across selected property types, while supporting a Western Cape-only strategy. This ‘Western Cape only’ approach has proved to be a sound investment strategy which demonstrates a proximity advantage with the upshot of effective asset management and efficient property management turnaround times.

Spear has commenced its exit from its hospitality assets, with the disposal of the Double Tree by the Hilton Hotel in February 2022, contributing to the group achieving a forecasted reduction in loan to value well in advance of initial guidance. Spear’s loan to value has decreased from 46% in the first half of the 2022 financial year to its current rate of 39%.

Having achieved robust rental collections and an approximate 94% portfolio occupancy and similar tenant retention rates throughout FY22, the company successfully navigated through the COVID-19 operating environment with consistent cash collections and limited debtors’ creep.

Group revenue increased by 11.19% from 2021, largely owing to fewer tenant support measures, consistently improving cash flows and strong core portfolio performance. Shareholders will benefit from an increased pay-out ratio and distribution per share. Commenting on the financial performance, Rossi stated; “One of the hallmarks of Spear since inception was our ability to unlock value through active and hands-on asset management of the core portfolio. The unimaginable and unpredictable confrontation that the world endured due to COVID-19 and its residual effects sowed loss and devastation but has also resulted in strengthening the core competencies within our business operations.”

The past 12 months have also seen management implement and execute advances of their Environmental, Social and Governance performance. Spear’s Photovoltaics (PV) Solar Strategy has contributed to portfolio income growth resulting from roof lease income and a reduction in power consumption overheads.

Sticking to their Western Cape only growth strategy, Spear’s investment focus is to increase its investment into industrial warehousing, logistics and convenience retail assets that will complement the already defensive core portfolio that is underpinned by strong lease covenants and high-quality tenants.

Rossi confirmed that the group’s regional strategy continues to deliver positive results which will see Spear taking advantage of further growth opportunities within the Western Cape. Rossi has set an ambitious growth plan in place which will see Spear’s assets under ownership increase by a further R 11 billion by 2028. “Navigating the next financial year will not be easy, however, we are starting to see green shoots emerging as the travel, tourism, hospitality and services sector show a notable recovery together with general economic activity starting to materially improve and a return to office momentum picking up in the final six months of FY22,” he concluded.


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