Real estate investment trust Fairvest has posted an interim distribution of 67.83c per A share and 21.24c per B share for the six months ended March 31.

“Fairvest is operationally strong and agile in a tough environment. We are very pleased with the group’s performance in the past six months. We generated strong like-for-like net property income growth of 7%, relative to 4.4% at [the 2023 financial year-end].

“We achieved positive leasing, with rental reversions of +3% relative to +2.8% at year-end and increased the weighted average lease expiry (Wale) from 29 to 31 months over the same period. We also continued to dispose of noncore assets and strengthened our balance sheet with the proceeds,” says CEO Darren Wilder. 

He says that the group improved revenue and contractual escalation during the period, while keeping operational and administration costs well contained. 

The group points out that, in a challenging economic environment, vacancies increased from 4.5% at September 30, 2023, to 5.3% as at March 31, while gross leasable area of 133 149 m² was renewed at positive rental reversions of 3% overall and an aggregate retention rate of 87.1%.

New leases in respect of 80 092 m² were concluded. The weighted average lease escalation across the portfolio was 6.6%. The Wale was 31 months.

Property expenses increased by 8.8%, mainly driven by above-inflation increases in municipal costs, Fairvest avers.

PORTFOLIO RESTRUCTURE

The group’s stated strategic objective remains to continue its move towards a retail-focused fund by disposing of noncore assets. Wilder emphasises that as Fairvest undertakes this process, in the interim, assets will be maintained appropriately to garner satisfactory prices. 

Since the merger of Fairvest Property Holdings and Arrowhead Properties in January 2022, Fairvest has concluded disposals exceeding R1.3-billion.

Three office disposals valued at R259.5-million were concluded during the period under review at a 0.4% premium to book value. These offices had a 25.5% average vacancy rate.

Three more properties valued at R20.8-million are currently classified as held-for-sale pending registration and transfer.

The group continued to invest in its property portfolio over the interim reporting period with total capital expenditure of R113.9-million incurred.

DEBT FUNDING

Fairvest reduced its net debt, or loan-to-value (LTV) ratio, from 33.3% to 32.6% through disposals and remains well within the group and portfolio LTV covenants for its facilities.

The weighted average interest rate for the period reduced to 9.63% from 9.74% in September 2023.

The debt portfolio had a weighted average maturity of 1.9 years and 76.9% of the debt was hedged.

The interest rate swaps have a 1.3-year weighted average maturity.

At period end, Fairvest had cash on hand and undrawn debt facilities of about R651.9-million to apply towards growth.

ESG

Fairvest says it has continued to invest in renewable energy, with an additional R27.4-million invested in solar initiatives during the period under review.

It currently operates 39 solar plants with 17.8 MW of installed capacity, which generated 14.4% of the combined portfolio’s electricity requirement for the period.  

Nine more plants are in various stages of approval and implementation, which will add a further 5.2 MW of capacity.

Five solar-generator integration projects have also been commissioned and two more are currently under construction.

Water management remains a significant focus area, with 17 groundwater harvesting plants in operation and two more projects in the construction phase.

Smart monitoring equipment has been installed at 22 properties with another five on order and water savings projects are in operation at several properties. 

The group is also focusing on enhancing security at its retail assets through increased manpower and technology. 

OUTLOOK

Fairvest says it anticipates net property income growth, on a like-for-like basis, to exceed inflation and positive renewal reversion from all sectors for the full financial year. This is despite the challenging operating environment that is expected to persist.

It remains committed to its strategic objective of transitioning towards a retail-focused fund by disposing of noncore assets and this focus will continue throughout the remainder of the current financial year to September 30.

Since the merger, the group has also increased its shareholding in certain profitable co-owned retail assets, with a further four co-owned retail assets identified in which the minority shareholding will be acquired at accretive terms, aligning with its strategic objectives, Fairvest points out.

Owing to the progress in implementing the strategy and optimising the portfolio, distributable earnings per B share are now expected to be at the upper end of the guidance range issued in November 2023 of between 41.50c and 42.50c. 

Wilder emphasises the importance of sustainable growth to the group, highlighting that it has built a strong foundation for this, and would continue to bolster such.