Fairvest shines among domestic property companies
Landlord, which focuses on shopping centres in small towns and rural areas, is optimistic about its tenant profile
Fairvest, owner of retail centres in rural areas and small towns has stood out as one of few SA property funds not seeing its returns wrecked by a weak economy and rising debt-servicing costs.
The company, which released financial results for the six months to December on Monday, said it was on track to deliver dividend growth of 4%-6% in the year to June. This is while numerous other funds forecast flat or negative dividend growth this year.
SA’s weak economy has led to a scarcity of new capital and limited opportunity for new growth, but the company said its full-year distribution should beat inflation.
The group would focus on upgrading its existing assets where appropriate and would not attempt new developments until market conditions improved.
Fairvest delivered dividend growth of 5.1% in the six months to December, net property income growth of 2.2%, and a five-year low in its portfolio’s vacancy rate, said CEO Darren Wilder.
“Fairvest’s focus on a differentiated sector of the market and its persistent drive to get the property basics right have again demonstrated the defensiveness of its portfolio amid market conditions that have proven extremely challenging,” he said.
“We have something that few property companies have in their management teams. We have people with bull-market but also bear-market experience. You’ll find many other funds don't know how to act in bear markets. Some of them had unclear strategies or overcomplicated strategies, which might have worked in good times but now they aren’t working so well. They are seeing their dividends fall and are having to manage high debt levels,” he said.
Fairvest's loan-to-value is 34% and its portfolio vacancy sat at 3.2%, falling from 4% in the matching period.
“We are very happy with these healthy metrics which have enabled us to beat inflation with our distributions for yet another period,” said Fairvest’s CFO Jacques Kriel.
Keillen Ndlovu, head of listed property funds at Stanlib, said Fairvest had been a consistently good investment for years, and it was “hard to criticise its management”.
“It’s focused on the market where the population is and where the growth is. Social grants help to support its centres as well as the consumer friendly budget, from last week, which will provide more tax relief to lower income brackets,” he said.
The value of the group’s total property portfolio rose 10.4% to R3.49bn.
The group said its portfolio remained well diversified across SA, with the four largest provinces — Gauteng, KwaZulu-Natal, the Western Cape and the Free State — contributing 77.7% of revenue.
The high national tenant component of 73.3% of the portfolio provides shareholders with a low-risk investment profile, the company said, with national food retailers occupying 37.2% of the portfolio in terms of gross lettable area.