Western Cape-focused Spear Reit intends to increase its investment in the region by acquiring industrial, manufacturing and logistics assets as well as convenience retail assets that are underpinned by strong lease covenants and high-quality tenants.
Spear Reit, whose portfolio is valued at R4.48bn, has ambitious plans to grow assets under ownership to about R11bn by 2028. Asset acquisitions in the next six to seven years will be funded through debt, equity and the disposal of noncore assets.
“We are not obsessed with size, the R11bn is a target number and our priority in achieving this growth ambition is income,” CEO Quintin Rossi told Business Day.
Rossi said Spear is highly liquid with R230m cash available, R280m debt refinanced and R270m debt settled during the 2022 financial year. The group’s gearing has reduced to 39.05% from 45.81% in the 2021 financial year due to a R254m capital raising in February 2022 and fair asset value stabilisation and improvement.
Group total net debt has come down to R1.78bn from R2.105bn in February 2021, with asset disposals also helping to further strengthen the balance sheet and reduce debt. During the reporting period Spear disposed of the DoubleTree by Hilton, Cape Town, and an industrial property in Bellville South.
Spear Reit has 31 assets in the Western Cape, mainly in Cape Town. Its portfolio includes industrial, commercial, retail and mixed-use assets.
Rossi said growth would be organic value addition, developments and redevelopments and acquisitive growth. During the 2022 financial year, Spear completed the redevelopment of Nampak Warehouse in Epping at a cost of R34m, paid in cash, with a 9.33% target yield.
The group acquired 27 Junction, an industrial property in Parow let to Pepkor on a 10-year lease agreement. Spear will redevelop 52,000m2 of Marine Place in Paarden Eiland into a mixed-use precinct with a development cost of R1.4bn and is looking for partners for this project.
“We will keep focusing on owning the right assets in the right nodes with a firm bias towards industrial, warehousing, logistics and convenience retail assets within the Western Cape,” Rossi said.
The reliability of both provincial and metropolitan infrastructure has enabled Spear to deliver positive results. “The Western Cape real estate sector has proved to be more resilient than other provinces in SA in the face of prolonged economic pressures locally and globally,” he said.
The Western Cape’s focused approach to creating a conducive investment environment such as consistent service delivery, and positioning itself as a trustworthy partner, makes the province an attractive investment location and this bodes well for Spear’s growth pipeline, he said.
Rapid urbanisation and semigration to the Western Cape will result in increased demand for commercial and residential property. Semigration is the movement of people from one city or province to another.
Rossi said the green economy and the Western Cape’s approach to securing an independent electricity supply are some of the factors that drive investment into the region. To date, Spear has invested R75m in solar energy through the installation of solar panels across its portfolio.
“Our ‘Western Cape only’ approach has proved to be a sound investment strategy which demonstrates a proximity advantage with the upshot of effective asset management and efficient property management turnaround times,” said Rossi.
He said given the Cape Town metro’s geography, the scarcity of zoned and developable land will result in new residential, retail, and industrial nodes as more South Africans choose the province as their new economic and residential home.
In its financial results for the period ended February 28, Spear Reit’s revenue grew to R574m from R531m in 2021, mainly due to reduced tenant support measures, consistently improving cash flows and a strong core portfolio performance.
The distribution per share was 68.25c, largely driven by income restoration across its portfolio, including the DoubleTree sale. Earnings enhancements were achieved as a result of the fixed-income lease concluded at 15 on Orange which commenced in August 2021, contributing R10m.
Rossi said strong distributions resulted from strong rental collections of more than 98% as tenants were able to repay the historical Covid-19 rental deferments as well as their current monthly rent.
Over the past 24 months Spear has maintained 94% occupancy across its portfolio and 94% tenant retention. Rossi said this shows the fund’s quality of assets.
“We are starting to see green shoots emerging as the travel, tourism, hospitality and services sectors show a notable recovery together with general economic activity starting to materially improve and a return to office momentum picking up in the final six months of the 2022 financial year.”
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