JSE-listed real estate investment trust Fairvest continues to move towards becoming a retail-focused fund by recycling out noncore assets, with disposals expected to continue.

Fairvest sold four assets for R252.5-million at an average premium to book value of 0.2%, and at an average yield of 11.2%, during the six-month period ended March 31.

During a presentation of the group's interim results on May 31, Fairvest CEO Darren Wilder highlighted that Fairvest had sold ten assets after the end of the reporting period.

Three assets, valued at R85.5-million, were transferred during May, while a further seven assets worth R356.6-million had been sold and were still to be transferred.

As part of its strategy of transforming into a retail-only fund, the group would most likely see the further sale of a portion of its portfolio over the next 12 months, he added.

“The sales pipeline will increase as we become more satisfied that the assets are appropriately let to achieve satisfactory value,” he said.

Additionally, Fairvest believes some of its industrial assets are now ready for sale, Wilder highlighted.

The focus for the remainder of the financial year will be to further reduce vacancies, implement additional operational efficiencies and realise further synergies from the merger with Arrowhead Properties in 2022.

The group projected net property income growth from all sectors on a like-for-like basis for the full financial year to be achieved, he added.

Fairvest had concentrated its efforts on enhancing letting activity. Despite the challenging circumstances, the business had shown resilience with like-for-like net property income growth of 5%, Wilder averred.

Property income increased to R958-million, up from R638.5-million during the comparable interim period in the 2022 financial year, and profit from operations increased to R521-million, up from R211.1-million.

Headline earnings a share from continuing operations dropped to 57.26c an A share, down from 157.63c an A share achieved in the six months to March 31, 2022.

The company declared a dividend of 64.60c an A share and 20.97c an B share for the six-month period, retaining its 100% pay-out ratio.

Wilder noted that the group was confident of meeting its guidance for the full financial year of between 40.50c and 42c a share.

Further, SA Corporate Real Estate made a firm intention announcement to acquire all the issued shares of Indluplace for R3.40 a share. Fairvest provided a binding commitment to SA Corporate to vote in favour of the scheme for its 61% shareholding.

Fairvest expected the R651.4-million proceeds from the disposal to initially be allocated to floating rate debt, which would reduce the group's loan-to-value to approximately 33%. This anticipated disposal marked significant progress in Fairvest's strategic realignment by disposing of its residential investment, he added.

The group has debt of R4.8-billion, which represents a loan-to-value ratio of 38.4% and is a marginal increase since September 2022. The weighted average interest rate for the period ended was 9.2%, compared to 8.9% achieved by September 30, 2022, increasing in line with the South African Reserve Bank repo rate.

The group had maintained the interest cover ratio at 2.5 times, which was in excess of the two-times cover required by its funders, said Fairvest CFO Jacques Kriel.

The group had entered into interest rate swaps of R3.4-billion to hedge 71.1% of total debt. Further cash on hand and undrawn debt facilities of about R360.4-million at period's end provided further headroom to execute its strategic initiatives, he highlighted.

Meanwhile, solar and backup energy had become critical in the marketplace, and the issue had become a real risk to the business, said Wilder.

Fairvest generated about 11.7% of its power during the six-month period from solar energy plants, yielding clean energy worth R16.6-million. The group has 38 fully functional solar plants with an installed capacity of 16.4 MW.

The group has allocated R10.3-million for further solar initiatives and has a further 12 approved plants in various stages of implementation, which will add 7.6 MW capacity.

However, generators remained necessary, and the company was piloting the use of solar to reduce energy costs while ensuring that its facilities had full backup power, said Fairvest retail COO Riaz Kader.

Some of the group's core and anchor tenants have installed their own backup power generators and Fairvest typically provides backup power for common areas of its portfolio. The group aims to use solar capacity to reduce the costs of the use of these generators and is in talks with its anchor tenants.

It had piloted this energy-saving approach at two sites and results were promising. The group was also proud of its first solar farm, which was beating projections, and it had applied to the municipal council to expand it, he added.

Large-scale battery energy storage systems remain too expensive currently, although Fairvest is investigating the provision of powerwall backup energy solutions, which have batteries and inverters, for line shops that are struggling with power shortages.

“Most line shops need help now, and we are looking at amortising these powerwall solutions over time, while simultaneously future-proofing our assets and developing sustainable income streams,” Kader said.

Fairvest's integrated back-up power strategy, in response to the recent, severe loadshedding, is aimed at maintaining business continuity in adverse conditions.

“Currently, the group operates 47 generators, accounting for 11.9 MVA of installed capacity. This means 42% of the portfolio benefits from partial or full back-up power. Over a six-month period, Fairvest spent R8.3-million in diesel, and recovered R7.2-million,” he said.

Additionally, Fairvest is also pursuing water harvesting to ensure its operations are sustainable and is investigating rain and groundwater harvesting such as from springs and boreholes. It is testing various water technologies at different sites.

It had implemented smart monitoring equipment at 12 locations for early leak detection, and this complemented the existing 13 operational groundwater harvesting plants, said Kader.

“The weak South African economy, higher interest rates and sustained loadshedding have continued the challenging operating environment during the reporting period,” said Wilder.

“High inflation, loadshedding and dysfunctional local municipalities are expected to continue to negatively impact on economic growth. The challenging operating environment is expected to continue, with the current higher interest rates to remain.

“Despite these impediments, Fairvest continues to successfully implement the strategic objectives of the group by de-risking the balance sheet, reducing vacancies and disposing of noncore assets. Fairvest has made excellent progress by achieving like-for-like net property income growth across all sectors, disposing of four properties with a further ten transacted. The group is operationally strong and well-positioned for the challenges ahead,” he said.