Mid-sized cap Fairvest says it will continue to sell noncore assets and optimise its existing portfolio to reach its objective of becoming a retail-focused real estate investment trust (Reit).
In its pre-close presentation for the period ending September 30, the company said the merger with Arrowhead in January was to ultimately create a retail-focused fund servicing the lower LSM and previously underserviced areas.
“We remain focused on this strategy. However, we cannot put a specific time frame to this as it requires time,” said CEO Darren Wilder.
Following the merger with Arrowhead Properties on January 26, Fairvest now owns a diversified property portfolio valued at R11.8bn. Its portfolio comprises 148 industrial, office and retail assets. It also holds a 61% stake in listed residential Reit Indluplace Properties and 5.1% in Dipula Income Fund.
Wilder said Fairvest will dispose of its entire office portfolio, which comprises 38 properties that account for 26.6% by gross lettable area (GLA) and contribute 25% to revenue. They will prioritise 10 offices in Houghton, Rosebank, Sandton and Pretoria that have a 73% vacancy rate. Once the 10 are sold, this will reduce the overall vacancies to about 5%. Office vacancies across the portfolio have reduced slightly to 15.4% from 16.7% in March 2022.
“We acknowledge the weak office property market, but we are not selling to bargain hunters,” said Wilder, adding that they are looking to extract value before selling any assets.
He said the focus for now is to dispose of the problematic office properties and the company will continue to sell off noncore assets in line with strategy. The company is negotiating selling about three assets.
“Due to oversupply, the office space is very competitive, and we are achieving below R100/m2 in rentals.”
Wilder said with many companies returning to the office, they are starting to see demand for space measuring below 500m2, along with existing tenants taking up additional space.
The industrial portfolio of 26 properties is strong, with rising demand for large multi-let parks with vacancies of about 1%. The retail portfolio of 77 assets contributes over 65% in revenue and has low vacancies of 4.5%, with intentions to reduce this to 3%.
Wilder said their smaller retail properties are performing well, and with the disposal of noncore assets, the first to go will be offices and industrial before selling off smaller retail assets.
Fairvest is working hard to increase tenant quality and tenant mix within its malls, with big national tenants like TFG, Boxer and Shoprite wanting to expand within its portfolio.
Wilder said they would consider acquiring new retail assets in line with their investment criteria. He said the Indluplace investment is not aligned with the growth strategy, however, at the current share price, Fairvest will not sell until a natural suitor comes along.
“Our focus is to continue to simplify the business, lease vacant space and sell noncore assets, especially the 10 problematic office assets,” said Wilder.
Its gearing level is sitting at 39.8% and is expected to remain below 40% by the end of the financial year.
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