Sharply focused fund hits the spot

Spear Reit is the only Western Cape property specialised fund listed on the JSE. The company has grown strongly since Mike Flax listed it in November 2016.

The company does not have a bias to any particular type of property asset but it only buys assets which are in the Western Cape. Flax recently became executive chair and the MD he appointed, Quintin Rossi, became the new CEO.

Spear listed with assets worth R1.5bn and a market cap of about R900m. Since then, it has grown to own R3.3bn in assets and the company has an impressive pipeline of potential deals because Flax and Rossi have a strong network of property contacts.

The asset portfolio should reach R5bn by the end of 2018 say some fund managers.

Spear’s strategy is to grow, but not for growth’s sake, and Flax and Rossi say they will not be aggressive in a weak economic environment. Real estate throughout the country is under pressure. This includes the residential market in Cape Town, where house price growth has begun to taper off.

Rossi says Spear is acquiring assets that he believes will add value to the Reit for a few years. It may need to sell some of its assets during the rest of the 2018 calendar year and the first half of 2019.

The group sold a vacant office property, 142 Bree Street, located in the Cape Town CBD, for R150m in March. This was at a substantial premium to the book value of the property.

Rossi says Spear is benefiting largely from semigration because his team understands where people want to stay in Cape Town and that people who move from Gauteng to the Mother City are not only look-

ing to live in upper-market areas.

“People from all walks of life are seeking opportunities in the Cape. Not everyone can afford to live on the Atlantic seaboard but they may be attracted to nodes like Somerset West and Bellville. More people are starting businesses in the Cape and some international groups are opening Cape Town offices. They then attract potential employees from other cities and fuel semigration,” he says.

Recent jobs data suggests he is right, as the majority of job creation in the past year has been in the Western Cape.

Statistics SA’s Quarterly Labour Force Survey from January to March 2018 showed that in the Western Cape there were 123,000 more jobs in the first quarter of 2018 than there had been in the first quarter of 2017. This was 75% of the estimated 165,000 new jobs which had been recorded in that period for the whole country.

Spear is the only Capecentric and the only regionally specialised property fund on the JSE.

Rossi says specialisation is attracting fund managers who are excited about Spear’s future.

The company’s assets increased 117% during its 2018 financial year and its performance exceeded dividend expectations by 1.95%, declaring a final dividend of 78.50c per share. It is set to grow its dividend 9%-11% a year for the next two years because of its ability to buy well in the province, he says.

This is while other listed property funds have been growing dividends at between 3% and 5% over the past couple of financial years.

Metope Investment Managers CEO Liliane Barnard says Spear Reit is pushing to deliver regular double-digit income growth.

A low total portfolio vacancy of 1.95% indicates there is demand for space in Spear’s high-quality portfolio, says Rael Colley, a real estate analyst at Anchor Stockbrokers. ●