JSE-listed real estate investment trust (Reit) Fairvest has announced its financial results for the six months to March 31, with an interim distribution of 69.66c per A share and 23.10c per B share.

The latter represents an 8.8% growth rate, significantly outpacing the Consumer Price Index (CPI).

Fairvest owns and manages a direct property portfolio comprising 127 retail, office and industrial properties, valued at R12.5-billion, with an average property value of R98.1-million.

During the six months, the group increased its holdings in Dipula Properties from 5% to 26.3%, which was accretive to earnings, loan-to-value and net asset value.

“Fairvest is making consistent progress in transforming its diverse portfolio by improving the quality while pursuing its aim of becoming a retail-only Reit servicing low-income communities in South Africa.

“This is achieved by disposing of noncore assets and reinvesting in retail-focused properties. Approximately 70% of revenue is already generated from retail properties,” says CEO Darren Wilder.

Fairvest says it experienced positive letting activity, with 236 new deals and 216 renewals concluded over the six months.

Pleasingly, the company says the new deal weighted average lease expiry has increased from 36.7 months, as at September 30, 2024, to 47.3 months. Positive rental reversions continued to improve from 3.6% to 4.3%.

Average gross rentals have increased by 2.5% to R130.69/m² since year-end.

The weighted average lease escalation across the portfolio was stable at 6.6%, with a weighted average lease expiry increasing from 28.6 to 31 months. While vacancies have edged up from 4.3% to 5.5%, they remain low, with a tenant retention of 81.3%. 

The group says it continued to exercise strict control over its expenses, with the entire 8% increase in property expenses linked to higher municipal costs. Excluding this factor, operating expenses decreased by 1.9%.

Meanwhile, Fairvest disposed of one industrial property valued at R24-million during the period.

The transaction was concluded at an average yield of 9% and a 14.3% premium to book value, underscoring its conservative valuation approach.

Fairvest explains that it continued to invest in the portfolio, incurring capital expenditure of R139-million, of which R19.8-million relates to further investments in solar initiatives.

The group also invested R76.6-million in fibre network infrastructure, which earns rental income.

Fairvest says the group’s net loans of R4.4-billion represent an SA Reit loan-to-value (LTV) of 31.8%, a 150 basis point reduction from the LTV of 33.3% as at September 30, 2024.

The weighted average interest rate for the group improved by 32 basis points to 9.38%, compared with 9.7% in September 2024, with a weighted average maturity of 1.9 years. 

Fairvest says it remains well within the group and portfolio LTV and interest cover ratio covenants. As at March 31, the group had cash on hand and undrawn debt facilities of R547.4-million to apply towards growth.

ESG

Moreover, Fairvest says the group has made significant progress with its business continuity strategy during adverse conditions. Currently, around 48.3% of the portfolio gross lettable area (GLA) has access to either partial or complete backup power.

The group has also continued to invest in renewable energy, increasing the number of solar plants to 46, with a total installed capacity of 21.9 MW.

These plants provided 16.7% of the combined portfolio’s electricity needs in the six months. Clean, renewable energy generated during this time amounted to R33.1-million.

A further eight plants are currently undergoing feasibility assessments, approvals and implementation, which will add 2.1 MW of capacity.

Water management remains a significant focus area.

Fairvest says a range of water management and water savings projects are underway, including 23 operational groundwater harvesting plants and the strategic installation of 29 instances of smart monitoring equipment to enable early leak detection.

POSITIVE GROWTH EXPECTED

Wilder says the portfolio continues to benefit from the disciplined execution of Fairvest’s strategic objectives – vacancies remain consistently low, tenant quality has improved and the portfolio remains operationally robust.

“These solid fundamentals, combined with conservative balance sheet management, position the group for sustained growth.”

Given the strong operational metrics and accretive transactions concluded, Fairvest expects distributable earnings per B share to increase by between 8% and 10% for the 2025 financial year.

In line with the company’s memorandum of incorporation, the distribution per A share will increase by the lesser of 5% or the most recent CPI value.

The board has resolved to maintain the current dividend payout ratio of 100% of distributable earnings.

Consistent with its strategy to expand its portfolio of retail assets, Fairvest also announced the acquisition of five retail properties located in KwaZulu-Natal and the Western Cape.

The total value of the acquisitions is R477.7-million with a blended yield of 9.81%. Fairvest concluded agreements to acquire Nquthu Shopping Centre, Ulundi Shopping Centre, Eyethu Junction, and Shoprite Manguzi in KwaZulu-Natal. These shopping centres have key food retailers, including Shoprite, Boxer and SuperSpar as anchor tenants.

Fairvest has, in addition, entered into an agreement to acquire Thembalethu Square, located outside George in the Western Cape, which is anchored by Shoprite and Boxer. Fairvest owns 51% of the issued shares in the new acquiring company.

The new shopping centres will add 34 118m² of GLA to the retail portfolio.