Covid-19 has not spared Spear Reit

Spear Reit, the Western Capefocused listed landlord, did not escape the effects of the coronavirus pandemic in 2020, with the hard lockdown and negative rental reversions forcing it to slash its dividend payout for the first time since listing in 2016.

The company, which owns a property portfolio comprising 32 assets worth R4.5bn and has a market capitalisation of R1.4bn, announced a final dividend per share for the year to endFebruary 2021 of 58.70c.

This was 36% lower than the dividend of 91.66c per share declared for the year to endFebruary 2020. However, the 2021 dividend was based on an 80% payout ratio in previous years, Spear has paid out 100% of its distributable earnings as a dividend.

This was the first time its dividend had fallen year on year since the company listed in November 2016.

Spear chose to change its payout ratio because it had incurred costs after it gave rental holidays and discounts to tenants to help them through the pandemic and because it needed to hold on to more cash in 2021, given the uncertainty around when the pandemic will end and when most of SA’s population will have been vaccinated.

“The pandemic has been devastating for businesses across the country. We believe we have performed strongly through it and that we are now on a solid growth trajectory. We believe the Western Cape is the investment case for SA. We will not waiver from our strategy of investing solely in the region. While our industrial and community retail assets have fared strongest and our office assets have battled, we believe in a strong future for the fund,” CEO Quintin Rossi said.

Spear’s average property value was R139m at the end of the reporting period compared with R129m at the end of the 2020 financial year.

The fair value of the group’s portfolio fell 2.57%, or by R106m, during the reporting period.

Spear’s loan-to-value (LTV) at year-end was 45.81%. Rossi said the firm planned to bring this metric below 40% during its year to end-February 2022.

The company’s average cost of debt declined by 149 basis points during the reporting period to 7.26%.

Rossi said Spear’s industrial portfolio was a standout performer during the period.

It offered a diversified mix of well-established industrial nodes, consisting of mini, mid and large modern logistics units, and rental collections were 96.70%, thanks to the easing of operating restrictions from level 4 of the national lockdown onward.

Occupancy was 97.54% at year-end.

Spear’s commercial office portfolio had an 8% vacancy rate because of Covid-19.

“Although the future of work and the workplace are arguable key unknowns, all the evidence suggests that a strong demand for commercial office will return,” said Rossi.

Most of Spear’s larger retail tenants were able to trade throughout the lockdown. Occupancy was at 99.6% at year-end, with a collection rate of 95.58%.

Management excluded hospitality revenue from its income forecasts for the period, given the uncertainty of when unrestricted travel would return.

“The local and global vaccination rollout will [usher in] the recovery of the hospitality sector. Local market penetration has been successful as regional business travel and regional leisure travel has recommenced. Smaller group meetings and accommodation business has been on the increase as economic activity increases,” Rossi said.