Quintin Rossi: Managing bricks and mortar in a province ravaged by the coronavirus

Quintin Rossi heads Spear Reit, the Western Cape specialised property fund listed on the JSE. The real estate investment trust (Reit) has been one of the best performers since listing in 2016, beating the FTSE/JSE SA Listed Property Index by 43% on a total returns basis.

Earlier this week Spear posted an inflation-beating 6% growth in dividend payouts, which also bucks the trend in an industry that is axing shareholder rewards or shrinking them.

But the Covid-19 pandemic and the resultant economic lockdown have been brutal for Cape Town and the Western Cape in general. More than 50% of the confirmed coronavirus cases in SA are in that province.

Rossi spoke with Business Day about how Spear is getting through this unprecedented event.

Why did you choose to invest in Western Cape property?

Our decision to invest in the Western Cape was informed by numerous factors. These included favourable economic and property fundamentals. There is also an excellent track record of good governance and value-adding infrastructure spending.

The Western Cape’s GDP growth on average has outpaced the rest of SA in years gone by. It has won numerous accolades as one of the top destinations to visit in the world and all of the founders and now management have an acute understanding of the Western

Cape real estate and real estate development market.

How happy are you with Spear’s performance since listing?

I am exceptionally happy with Spear’s performance since listing and believe we have established ourselves as a player in the Western Cape real estate market. Spear’s growth since listing is in excess of 200% and we have consistently achieved inflation-beating dividend-per-share growth.

Has Covid-19 wrecked your 2021 financial year already?

The impact of Covid-19 has and will have a materially negative impact on our 2021 financial year based upon the forecast plan we did in December 2019.

Given the SA government’s risk-adjusted approach, our hospitality portfolio, for example, cannot reopen until roughly level 2 or level 1. A further example would be restaurants and gyms within the portfolio that are unable to reopen unless we move closer to level 2 and level 1. The impact of the lockdown is unfortunately widespread and the full effects of the pandemic and the lockdown are partially visible right now.

Has the pandemic caused a complete halt to your development pipeline?

We have halted new largescale green-and-brownfields projects. However, where capital has been ring-fenced for expansion of tenants’ premises off the back of a new long-term lease, those will proceed in line with our capital budgets.

How much is your development pipeline worth?

Roughly R1.6bn, consisting of Marine Place, which is sized at 52,000m², Sable Square’s residential component at 12,000m², and a warehouse development in Blackheath sized at 6,700m².

When could Spear achieve inflation-beating dividend growth again?

At this point we want to get through FY2021 and ensure that the immediate crisis is dealt with in a manner that entrenches Spear well into the future of the SA real estate sector. We are unable to comment on future dividendper-share guidance at this point.

Could we have tenant failures at Spear?

There is a high likelihood that tenant failures will occur across the board in the SA real estate space. Spear will not be immune to these and the residual risk of our lockdown forcing businesses to close permanently or dramatically cut overheads.

Would you consider collaborating with health-care providers to find new uses for your hotels?

We pride ourselves on being an entrepreneurial team and will always look to collaborate with other role players to add value to Spear and its shareholders.

Should most businesses in the Western Cape be able to reopen now?

Yes. We believe nationally more businesses should be opened and strict movement rules applied if need be. The reality remains that infections will occur, so we urge those who are elderly or ill to remain isolated. The healthy must get back to work and get our paralysed economy working.

Why should the government push the province to stage 3 even if the Covid-19 infection rate is still so high?

Our discussions with the Western Cape provincial government lead us to believe that we should be moved to level 3. The provincial government has a robust readiness programme to deal with further increases in Covid19 infections. We must remember that we are not trying to break the curve but merely flatten it. At the end of the day the so-called cure cannot be worse than the virus.

The economic risks and livelihood risks seem to motivate that the SA economy be reopened as soon as possible. We are sympathetic to those who have lost their lives due to the virus but many thousands more run the risk of starvation if the economic wheels don’t start turning soon.

THE IMPACT OF COVID-19 HAS AND WILL HAVE A MATERIALLY NEGATIVE IMPACT ON OUR 2021 FINANCIAL YEAR