Fairvest manages to cut portfolio vacancies
Fairvest’s focus on tenant retention and letting of vacant space saw portfolio vacancies, which peaked at about 8% mid-year, reduce to 5.9% by year-end.
Demand for industrial and retail space by existing and new occupiers continues on a strong momentum while the office sector has also seen an uptick in the take-up of space.
“We will continue focusing on leasing vacant space and we intend keeping vacancies below 7% of total portfolio gross lettable area (GLA),” CEO Darren Wilder told Business Day.
In its annual results, Fairvest reported that of nearly 250,000m² of space that came up for renewal during the year, more than 215,000m² was renewed or re-let. Tenant retention hit 87.4% in September.
Of this, more than 76,000m² were new deals, with rental reversions within expectation reaching a negative 6.4% comprising retail at -2.6%, office at -16.6% and industrial +0.4%.
Fairvest is a JSE-listed real estate investment trust (Reit) with a portfolio of 141 properties valued at R12.1bn. By revenue, retail comprise 65% of the portfolio, office (23%) and industrial (11.4%). It also holds a 61.0% stake in Indluplace Properties and a 5.1% interest in Dipula Income Fund. Its A and B share structure caters for the different risk profiles of investors.
Wilder said leasing during the year has been positive despite a challenging economic environment. He said that in retail big tenants and many who have bought other businesses are seeking additional space within their malls, with good demand coming from independent retailers too.
“We have a defensive retail portfolio in underserviced nodes and we will continue to improve our assets through enhancing the tenant mix at our malls.”
The portfolio of 77 assets saw vacancies decrease from 4.9% in March to 4.3% in September. Tenant retention rose from 86.4% to 88% with a 6.4% weighted average built-in escalation. More leases that are new were signed, reaching 247 from 131 in March, while renewals increased from 173 to 348 in September. During the reporting period, Capex expenditure was R70.1m.
Small users are driving demand in the industrial portfolio, said Wilder. They are starting to see growth in yields in the business, he said. The portfolio, with 26 assets, has a 1% vacancy rate. There were 56 new leases signed in September from 29 in March, with renewals increasing from 31 to 59 during the same period.
Seven noncore assets valued at R96.5m were sold at an average premium to book value of 1.4% and an average yield of 10.1%. A further seven properties valued at R500.9m are held for sale pending registration and transfer.
Wilder said proceeds from the disposals will go towards capital expenditure, debt repayment and share buybacks. “There is a pipeline of assets that we are looking at, but we will only buy where we see value.”
At year-end, Fairvest had R6.1bn in debt with a loan-tovalue having come down slightly from 39.2% to 38.1%, with cash and undrawn debt facilities of about R304.7m. Fairvest entered into interest rate swaps of R4.1bn to hedge 67.4% of total loans with a targeted fixed debt percentage of 70%.
Total distributable income declined 4.7% to R711.6m. The distributable income for A-class shares rose 5% to R79.2m while falling 5.8% to R632.5m for Bclass shares.
For the 12-month period, a distribution of 126.22c per A share was declared and 43.29c per B share, exceeding guidance by 4.4%.
On a like-for-like basis, net property income from the core portfolio is expected to increase 2%-4% for the 2023 financial year. Operational performance is expected to remain robust, with strong growth from the retail and industrial sectors, partially offset by further pressure on the office sector.
“We know our business well and our focus remains to implement our new strategy, leasing vacant space and selling noncore assets to optimise the portfolio,” said Wilder.