Dividend growth should recover in 2021, Fairvest says

Fairvest Property Holdings, the owner of malls in townships and small towns, says its dividend will increase up to 2% in its full financial year to June 2021 as its bias towards lower income shoppers is paying off.

Fairvest declared an interim dividend of 10.590c and is on track to deliver a total dividend of 21.038c or better in the full year to June 2021.

CEO Darren Wilder said the fund's shopping centres tend to serve lower Living Standards Measure (LSM) shoppers and have held up well because those customers buy mostly essential goods, which were sold throughout the different levels of lockdown.

Fairvest's property portfolio consists of 43 properties with 250,911m² of lettable area, valued at R3.425bn.

The group has managed to grow income returns for its shareholders, which many other listed property funds have not been able to achieve. The majority of listed property funds have seen their dividends shrink in the year to December 2020 or have warned that they will shrink in the year to June 2021.

Real-estate investment trusts (Reits) are required to pay a minimum of 75% of their distributable income as dividends each financial year. Historically, most SA Reits have paid out 100% of this income but in 2020, some have paid between 90% and 95% of it.

Fairvest, however, has committed to paying 100% in its 2021 year to June, having paid out 100% of its distributable income in the year to June 2020.  

The company achieved a 7.2% increase in its distributable income in the six months to end-December compared with the six months to end-June 2020, when the country was under hard lockdown restrictions.

When compared with the pre-Covid-19 corresponding period to end-December 2019, however, the distribution decreased 5.1%. 

On a one-, three-, five- and 10-year basis, Fairvest has featured in the top three among the JSE’s universe of 28 SA-based Reits in terms of total return performance, which includes share price appreciation and dividend growth.

Wilder said Fairvest’s specialist, niche positioning of smaller neighbourhood centres with grocery-anchored assets with a focused, hands-on management team has been resilient during the Covid-19 pandemic, with the recovery being quicker than anticipated, and without significant increases in vacancies.

Countrywide, food retailers demonstrated the most resilient trading densities of all merchandise categories, and smaller format retail outlets outperformed as consumers redirected their spending power towards convenience shopping closer to home, according to Wilder.

Total property revenue increased 2.3% to R274.2m, as a result of income growth in the historic portfolio and acquisitions in the latter half of the previous financial year, offset by the disposal of Tokai Junction.

Net property income increased by 4.6% to R176.5m from R168.661m.

Wilder said that Fairvest’s balance sheet remained strong, with a conservative loan-to-value (LTV) ratio and a comfortable interest cover ratio.

LTV measures the value of a company’s debt relative to its assets. Fund managers prefer LTVs to be between 35% and 40%, as a ratio higher than that could imply financial distress.

The LTV ratio decreased to 32.2% from 36.3% at the end of June mainly because of the disposal of Tokai Junction during the period, offset by further investments in solar projects.

The company's share price was up 2.78% at R1.85 by midday on Thursday, and up 5.26% year to date.

Senior fund manager for listed property at Stanlib Nesi Chetty said Fairvest had delivered a strong set of results.

“Vacancies have reduced to 3.8% and they are still managing to see decent like-for-like portfolio growth of 3.4%," he said.

“We continue to favour these types of assets, which are mostly grocery-anchored centres. The reported result at Fairvest is very strong, even with all the rental relief and deferments they would have negotiated with some tenants over the last year,” he said.

andersona@businesslive.co.za