Fairvest Property Holdings, the South African landlord for shopping centres, office and industrial real estate, has recorded lower vacancy rates and positive letting activity for its mostly rural and small town property portfolio, with high inflation and power outages casting a shadow on its outlook.
Vacancies across its portfolio increased slightly to 5.96% as at the end of its March 2023 interim period. Overall though, Fairvest experienced “positive letting activity and a strong performance” from its portfolio despite “a very challenging economic environment” for South Africa, CEO Darren Wilder said yesterday.
The merger between Arrowhead Properties and Fairvest was successfully implemented during the 2022 financial period.
For the interim period under review, Fairvest managed to renew 81 505 square metres of the 103 545 square metres that fell under renewal, yielding an aggregate retention of 90.7% of its real estate space. Moreover, rental reversions at 1.8% were deemed positive while “new deals in respect of 49 430 square metres were concluded” for the period under review.
However, there are worries that South Africa’s economic headwinds may start impacting some of the REIT company’s clients. Big business executives in South Africa have warned that load shedding and other economic difficulties such as higher interest rates may worsen for the business sector.
Fairvest said “high inflation, load shedding and dysfunctional local municipalities are expected to continue to negatively impact economic growth” in the short term. The company’s shares on the JSE inched up 3.18% to around R2.92 in Wednesday trade session.
So severe has been load shedding that Fairvest spent R8.3 million in the six months under review on diesel to power up alternative energy provision, of which 86.9% has been passed on to its tenants.
Of the R91.2 million invested in capital expenditure during the half-year period, about R10.3m relates to further investments in solar initiatives for Fairvest. As many as 38 solar plants are now fully operational with 16.4MW of installed capacity.
Its solar plants produced 11.7% of the combined portfolio’s electricity requirement for the six-month period with R16.6m worth of clean energy produced for the period. This was after solar farms at Cleary Park and Eersterust shopping centres were switched on in February while the Midrand IBG plant went online in March.
Fairvest is, however, disposing of non-core assets as a strategy aimed at reorienting towards a retail focussed REIT. To this end, “disposals are expected to continue” after “four disposals” during the period while a further 10 properties with a value of R442.1 million are currently under hold for sale.
The company, maintaining its 100% payout ratio to members is paying a dividend of 64.60 cents per A share and 20.97 cents per B share for the six months period to end March 2023. This was after its net property income increased by 5% across its portfolio of 137 retail, office and industrial properties valued at R11.9 billion.
Group loans closed the period at R4.8bn as well as loan facilities amounting R2.3bn and falling due within the next one year. Fairvest has now “embarked on a syndicated loan process to re-finance these maturities and streamline the borrowing structure” for the group.
“We have received credit approved commitments from all our lenders, resulting in a heavily oversubscribed transaction. We are in the process finalising the loan documentation and expect funds to flow in the next six weeks.”
BUSINESS REPORT