Cape Town-based property group Spear Reit has increased its dividend by nearly 13% despite tougher trading conditions, particularly in the hospitality sector.

The company declared a dividend of 41.73c per share for the six months to end-August, beating its earlier forecast.

The company also forecast dividend growth of between 9% and 11% for the full financial year, which ends in February 2019.

Spear, which was listed in November 2016 by real estate sector stalwart Mike Flax, who is also the company’s chair, has appealed to investors who want better income growth than the general industry. Over the past two years, its dividend has grown by 9% and 12% in each reporting period.

CEO Quintin Rossi said Spear had established itself as the only Western Cape-focused property group listed on the JSE and had become popular in an industry where larger capital growth funds were struggling to meet market expectations.

These companies have only mustered dividend growth that is in line with or worse than inflation. Some funds’ dividends have actually shrunk in the latest reporting season.

Rossi said Spear had achieved property revenue of R204m for the reporting period and that Cape Town’s economy had staved off economic weakness better than other major metropolitan areas had. The group’s investment asset value had climbed from R2.7bn to R3.37bn during the reporting period.

Rossi said Spear was benefiting largely from semigration because the group understood where people want to live in Cape Town and that people who move from Gauteng to the Mother City were not only looking to buy in upper-market areas.

Spear’s tangible net asset value per share increased marginally since year-end to R11.63 as a result of new acquisitions and the disposal of two assets during the interim period.

Spear listed with assets worth R1.5bn and a market cap of about R900m.

The group’s current property portfolio comprises 33 assets with an average value per asset of R102m per property, being an 8.8% increase during the interim period and total gross lettable area of 376,757m².

The asset portfolio should reach R5bn by early 2019 if the company’s pipeline roll-out continues with the same momentum.

“Cape Town is beginning to see investments in areas beyond the Atlantic Seaboard and CBD. While we believe there are opportunities in the CBD and we have invested, we are finding quite a few attractive investments in Cape Town areas further away from the centre. This is as more people move and open businesses in places like Somerset West,” said Rossi.

Evan Robins of Old Mutual Investment Group said Spear was attractive partly because it was run by a talented management team that had intimate knowledge of Cape property. 

“We like specialisation or focus because we like a management team to have real expertise and a competitive advantage in an area to extract maximum value there,” he said.

Flax and Rossi say they will not be aggressive in a weak economic environment. Real estate throughout the country is under pressure, including the residential market in Cape Town, where house price growth has begun to taper off.