Spear Reit — which has a growing niche in convenience retail and industrial properties — will sell a commercial building in the busy node of Paarden Eiland in Cape Town to Snow Storm Investments for R22.5m.
The building at 8 Section Street is a flexible retail and office property leased to Inospace, a company that provides a range of spaces suitable for small and medium enterprises (SME) with flexible lease options.
“The disposal is part of our strategy to recycle capital into larger convenience retail and industrial assets in the Western Cape,” said CEO Quintin Rossi.
Spear said this is part of its strategy is to continue selling noncore assets within its portfolio enabling the company to invest into strategically located industrial and convenience retail opportunities that are valued more than the minimum investment criteria threshold of R100m.
JSE-listed Spear is a regionally focused real estate investment trust (Reit) which owns 32 assets in the Western Cape, predominantly in Cape Town. Its portfolio includes industrial, commercial, retail and mixed-use.
The disposal is also part of Spear’s plan to reduce its loan-to-value (LTV) to a range of 38%-43%. Rossi said the sale of this property will further reduce the company’s LTV by 30 basis points to 38.5%-39.5%.
Rossi said the deal was concluded at a 7.56% net premium to book value of the asset after deducting all transaction costs. “The transaction reinforces the conservative nature of Spear’s portfolio valuations and gives further credence to overall portfolio valuations.”
He told Business Day that the buyer of the property is a non-Western Cape investor. “We’ve seen a substantial increase for these types of assets especially from investors outside the region after the July riots [in KwaZulu-Natal].”
Rossi said the rate of semigration into the Western Cape will indirectly and directly benefit Spear as semigrants would require an operational home and would spend in some of their retail assets.
Semigration trends — the movement of people between provinces and towns — has seen increases in buyer activity in the residential sector from Gauteng and KwaZulu-Natal.
Rossi said within their portfolio, commercial and industrial property inquiries have peaked, adding that this bodes well for property prices and market activity overall.
The transaction is unconditional and the property transfer is expected to be in July.
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