Fairvest beats inflation again with 8% distribution growth
However, the company is warning that its 2020 results could be hit by declining rental income
Fairvest, which focuses on shopping centres in smaller towns and rural areas, warned on Thursday that pressure on rental incomes as a result of weak economic conditions means it may not meet its historical distribution growth of about 10% in 2020.
The group said on Thursday that it expects distribution growth to slow as it renews leases, even as it said it once again beat inflation in the six-months to end-June, when its distribution grew 8.1% to 21.77c per share.
Fairvest said four large, long-term leases were expiring during 2020, with the company expecting rentals to be reduced on renewal or re-letting. As a result, it was expecting distribution growth to fall to between 4% and 6%.
Distribution growth at this range would be a respectable performance in the current economic climate, said Metope Investment analyst Kelly Ward, even though Fairvest had delivered around 10% growth previously. “I think the results are solid, and testament to a focused and well-managed portfolio.”
The company, which has a portfolio of 42 properties worth R3.16bn, saw its net asset value per share rise 0.7% to 229.38c per share during its first half. Revenue increased 21.1% to R490m.
Headline earnings per share increased by 2.6% to 21.39c per share.
“Despite difficult economic conditions, the company remains confident that the nature of its portfolio, its low-risk tenant base and the company’s letting expertise will prove to be defensive in the face of economic headwinds, with growth in distributions per share approximating or exceeding current inflation,” the company said.
Fairvest has been in the news recently due to its mooted merger with low-income shopping centre-focused peer Safari through a share swap. This deal was was called off in August after it became clear the deal had failed to get sufficient support from Safari’s shareholders.
Fairvest’s share price rose 5.46% to R1.93 at 12pm on Thursday. This pared its 2019 loss to 11.47%, while the JSE’s property index had fallen 4.78% over the same period.
The share price has, over the short term, lagged peers, possibly due to illiquidity and issues around the proposed Fairvest and Safari merger that did not materialise, Catalyst Fund Managers investment manager Paul Duncan said.
“Over the long term, the share has outperformed peers and, in my opinion, over the long term, likely to deliver quality, sustainable earnings growth in excess of inflation and the sector,” he said.
Said Duncan, Fairvest has illustrated over the past few years that a dedicated approach to a simple, focused strategy can outperform in terms of delivering quality, clean earnings despite the tough operating environment.