Property group Spear upbeat over dividend after reaching pandemic goals
The specialist property fund expects growth to return in the second half of the financial year
Spear Reit, the only JSE-listed Western Cape specialist property fund, expects to experience dividend growth to return in the second half of the financial year to February 2021 now that SA is working under level 1 lockdown regulations.
The dividend payout of the company, which owns a R4.46bn portfolio, fell for the first time since it listed on the JSE’s AltX in November 2016 and the main board of the exchange in May 2017.
Spear declared a dividend for the six months to end-August of 29.34c, 34.27% lower than the 44.64c paid in the same period in 2019.
In 2019, Spear paid all of its distributable income out as a dividend, but in 2020 it paid 80% of is distributable income, holding on to some cash given the uncertainty about the pandemic.
During the hard lockdown, mostly between April and June, Spear was unable to construct properties and its hospitality assets couldn’t operate. Spear found secondary revenue streams from its hospitality assets including using hotel rooms for Covid-19 quarantine purposes.
CEO Quintin Rossi said all of Spear’s dividend for the 2020 reporting period was paid from rental income. “We aren’t using any capital to pay out dividends. Our tenants have, for the most part come through the pandemic strongly,” Rossi said.
Rental collections of 96.9% of revenue billed were achieved.
“Operating in one of the most challenging, modern-day trading environments, Spear has successfully executed on its short-term Covid-19 strategic objectives. The leasing and property management team have achieved good results on renewals and re-lets for the period resulting in a 91.2% tenant retention rate,” he said.
Rossi said that as Spear only operates in the Western Cape it can consult with tenants easier and quicker.
“Spear’s regional focus and hands-on asset management approach has remained one of our competitive advantages as [the] management’s proximity to its assets and tenants have allowed for speedy engagements and crisis resolution in a mutually acceptable manner,” he said.
Spear said it will begin to disinvest from the hospitality sector. It accepted a cash offer for its 15 on Orange Hotel in Cape Town for R280m.
Spear will exit the rest of its hospitality assets over the next 12 to 24 months. All disposal proceeds will be used to settle debt and move the fund’s loan-to-value (LTV) to 38%-43%.
Rossi said Spear will not be issuing any distribution guidance for the second half of the financial year but he is optimistic that dividend growth will return. “Management will provide a trading update and guidance of a final distribution per share in a pre-close presentation prior to year-end.”
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