Fairvest on a retail asset acquisition trail for growth

FAIRVEST, the listed property fund, has agreed to acquire three Eastern Cape retail centres from Born Free Investments 385 for R133 million.

The transaction, which is still subject to several conditions, involves Boxer Centre Elliotdale, Mpitshane Shopping Complex and Boxer Centre Mqanduli. Fairvest said these acquisitions were consistent with its growth strategy of focusing on acquiring retail assets with a weighting in favour of non-metropolitan areas and lower living standards measure (LSM) sectors.

The announcement about the transaction followed Fairvest yesterday reporting a 10.1 percent growth in distributions a share to 15.106c in the year to June from 13.72c in the previous year. The distribution growth achieved exceeded the company’s previously issued market guidance of growth in distributions of between 9 percent and 10 percent.

Fairvest is focused on retail assets weighted toward nonmetropolitan shopping centres and convenience, community and regional shopping centres servicing the lower LSM market located in high-growth nodes and close to commuter networks. Its portfolio comprises 34 geographically diversified properties in South Africa valued at R1.36 billion, with 89.3 percent of its assets focus in the retail sector and 10.7 percent in office properties.

Darren Wilder, the chief executive of Fairvest, said they were pleased with the performance over the past year, with the fund achieving a 41.4 per- cent annualised return to shareholders, a reduction in vacancies from 7 percent to 4.4 percent, a 16 percent increase in net asset value and a successful equity raising.

Revenue increased by 26.2 percent to R187.9 million in the year from R148.9m in the previous year.

This increase resulted from income growth in the historic portfolio and acquisitions concluded during the past year. Net profit from property operations increased by 22.4 percent to R122.2m from R99.8m.

Gross property expenses as a ratio of revenue increased slightly from 35.5 percent to 36.8 percent almost entirely because of increases in rates and taxes and electricity.

Administration expenses rose by 20.2 percent to R12.1m from R10.1m. The value of the prop- erty portfolio increased to R1.36bn from R1.1bn in the year as a result of the acquisition of three properties valued at R139.5m and a 10.5 percent growth in the value of the historic portfolio.

These acquisitions were the Jan Niemand Spar in Gauteng, Cosmos Centre in Mpumalanga and Richmond Shopping Centre in KwaZulu-Natal.

Redevelopments and upgrades projects undertaken during the year included the Nyanga Junction, which was substantially completed during the year and resulted in the gross lettable area of the centre increasing by 323m².

Wilder said this property was a prime example of Fairvest’s value creation abilities, with the property value increasing from R58m at acquisition in May 2013 to R104.7m at year- end on the back of capital expenditure of R15.4m.

He said tough trading conditions were expected to continue into the year ahead, with an upward interest rate cycle, disproportionate increases in operating expenses that were outside of Fairvest’s control and lacklustre economic growth.

However, Wilder said the benefit of improved occupancies, together with the most recent property acquisitions and ongoing cost control, should allow for continued strong growth in distributions.

Wilder said Fairvest’s management was confident they should be able to maintain the distribution growth of between 9 percent and 10 percent for the 2016 financial year.

Shares in Fairvest on the JSE ended unchanged at R1.75.