Wrap Text
Voluntary Operational And Financial Update For The Three Months Ending 31 May 2022
SPEAR REIT LIMITED
(Incorporated in the Republic of South
Africa)
(Registration number: 2015/407237/06)
Share code: SEA
ISIN: ZAE000228995
LEI: 378900F76170CCB33C50
Approved as a REIT by the JSE
(“Spear” or “the Company”)
VOLUNTARY OPERATIONAL AND FINANCIAL UPDATE FOR THE THREE MONTHS
ENDING 31 MAY 2022
1. INTRODUCTION
Spear is pleased to provide a high-level operational and financial update for the three
months ending 31 May 2022 (“Q1”) for the financial year ending 28 February 2023
(“FY23”).
Spear’s hands on regional focus continues to positively impact business operations in
FY23. Whilst FY23 is still in relative infancy, management is pleased to report that the
core portfolio is performing in line with management’s operating strategy and forecast.
Asset management initiatives are yielding positive early stage results as letting activity
and tenant renewal & retention milestones continue to be reached.
Trading conditions remain tough, as South Africa’s low growth environment persists and
inflationary pressures drive increases in costs across the board, inclusive of interest rates
which management has proactively managed.
The robust Western Cape provincial and municipal infrastructure provides Spear with
numerous investment and development opportunities, bolstering both the organic and
inorganic growth impetus of the business. Spear has successfully concluded numerous
new lease agreements across the core portfolio resulting in a portfolio vacancy factor
decline of close on 10 bps compared to FY22. The uptake of vacant office space across
the commercial portfolio is encouraging and evident of the ongoing return to office
momentum communicated to shareholders.
Operational performance of the underlying portfolio continues to display resilience as
financial and asset management objectives are executed successfully. Renewal and
reletting activity for Q1 have resulted in an overall decline in core portfolio negative rental
reversions from FY22 of -5.57% to Q1 FY23 of -4.31%. Management’s obsessive regional
focus, proximity to assets, active asset management and early engagement strategies
continue to accelerate Spear’s navigation back towards a pre-Covid 19 trading profile.
Spear’s Western Cape specialisation remains a key component to the ongoing financial
and operational achievements year-to-date as key ratios have improved during Q1 (as
set out in the tables below) compared to FY22. Notable improvements in loan-to-value,
interest cover ratio’s, cost to income ratio’s as well as fixed debt ratios during this update
period continue to position Spear for growth throughout FY23.
Whilst the macro-economic conditions remain extremely challenging, management
remains intently focussed on the execution of strategic asset management objectives that
will maintain high levels of rental recoveries and occupancy percentages across the
various asset types. Spear’s core portfolio remains of a high-quality and defensive nature,
positioned to take advantage of growth opportunities in the Western Cape.
Spear’s balance sheet and income statement remain in a healthy state as receivables
reduce on a consistent basis resulting in a high percentage of cash collections for Q1.
Spear’s consistent and sustainable cashflows across the portfolio will be maintained
throughout FY23 and beyond as 100% of rental income is fixed contractual income with
zero exposure to any variable income producing assets.
2. OPERATIONAL UPDATE FOR THE THREE MONTHS ENDING 31 MAY 2022
Sectoral Update:
Industrial:
Spear’s industrial portfolio has maintained its robust performance during Q1 with ongoing
demand for industrial rental opportunities across the portfolio. Management’s focus will
be to further increase Spear’s portfolio exposure to this asset type across multi-let
industrial, warehousing, manufacturing and logistics assets to take advantage of the
demand in the market through the acquisition of brown and greenfield growth
opportunities. Letting activity and lease renewals during Q1 have been fully in line with
management’s forecast.
Convenience Retail:
Spear’s convenience retail portfolio has remained consistent in trading with high
occupancy rates, generating stable cashflow output for Spear and driving down overall
portfolio negative rental reversions. None of Spear’s retail assets are reliant on any form
of local nor international tourism to support its trading success. All of Spear’s retail assets
are classified as convenience with 41% of the retail portfolio gross leasable area (“GLA”)
occupied by national tenants on long-dated leases. Tenant feedback across the retail
asset base has been positive as turnover increases are reported and reinvestment into
stores, through upgrades and renovations commence. The two fitness gym’s within the
retail portfolio have been back to 100% of rental payments since 1 April 2022.
Commercial:
Spear’s commercial portfolio is very well positioned to be a net beneficiary of the return
to office momentum currently underway. Increased letting activity across Spear’s office
assets has been encouraging, with inroads made into decreasing office vacancies at
No. 2 Long Street, Northgate Corporate Park, No. 1 Waterhouse, Century City and
Bloemhof Building and Tygervalley during Q1. Currently a further 3 000 m2 of office space
is in advanced negotiations stage which should meaningfully contribute to further
decreases in portfolio vacancy percentages during the course of FY23. Management and
the leasing team have kept a close eye on the office portfolio as vacancy creep has been
the most prolific in this sector since the start of the Covid-19 pandemic.
Hospitality:
15 on Orange is a fixed income triple net lease with The Capital Hotels & Apartment
Group. Spear has zero exposure to hotel operations, repairs and maintenance, fixtures,
fittings and equipment replacement at the hotel. Positive occupancy rate growth coming
out of the pandemic trading environment has been reported along with positive trading
across all revenue centres for the hotel operator. Generally, Cape Town has been busier
with business travel and international travel rebounding strongly together with a sooner
than expected recovery in the meetings, incentives, conferences and exhibitions (“MICE”)
sector.
Com- Hos- Total FY22
Industrial Retail FY22 Q1
mercial pitality Q1 Total
Total GLA m² 247,047 132,898 48,951 16,663 445,559 470,881 457,950
Vacancy
% 1.50 3.92 0.64 2.90 6.16 6.08 6.24
% of total
Sector
% 2.70 13.13 5.83 2.90 - - -
vacancy %
Reversion
% -2.97 -3.22 13.42 - -4.31 -5.79 -5.57
% YTD
WALE Months 23 26 29 74 26 26 27
Average
% 6.46 6.20 6.20 7.00 6.26 6.54 6.31
escalation
Collections % 96.77 95.31 94.97 95.68 95.54 95.03 97.92
Revenue
R'000 44,112 67,526 22,453 9,019 143,209 133,246 554,836
Billed
Group
FY22 Q1 FY22 Total
FY23 Q1
Loan to value % 38.33 45.34 39.05
Interest cover ratio Times 2.59 2.09 2.19
Tangible net asset value R 11.47 11.98 11.30
Total distributable income R'000 48,262 37,397 170,975
SA REIT Cost to Income % 43.37 43.82 44.30
SA REIT Administrative cost to
% 6.63 8.47 6.86
income
Weighted average cost of debt % 7.56 7.26 7.32
Weighted average cost of variable
% 6.42 5.68 5.92
debt
Weighted average cost of fixed
% 8.34 8.66 8.34
debt
Fixed debt ratio % 68.59 55.83 67.03
Weighted Average expiry of debt Months 25.05 24.84 28.26
Number of net shares in issue 000 234,035 205,685 234,432
Acquisitions and disposals
Management remains committed to prudently recycle capital into strategic assets in line
with its focus of growing long-dated portfolio exposure to industrial and convenience retail
assets. Current portfolio assets identified for disposal that have achieved maximum value
for Spear will be disposed of to fund part of Spear’s growth strategy. Management will
redeploy disposal proceeds into higher quality assets within the Western Cape offering
improved longer term cashflows and tenant covenants. Per the schedule below,
management’s acquisitions and disposals for the period bear testament to the above
strategy.
ACQUISITIONS
Property Name Purchase Transfer Initial Yield
Consideration Date
27 Junction Road, Parow R65 million 09/05/2022 9.78%
DISPOSALS
Property Name Disposal Transfer Premium to
Consideration Date Book
6 Talana Close, Parow R71.4 million 08/04/2022 8.00%
Island Business Park, R22.5 million 24/06/2022 7.00%
Paarden Eiland
UNDER DUE DILIGENCE Disposal Anticipated Premium to
Consideration DD Book
confirmation
Property 1 R85 million 01/07/2022 2.84%
3. FINANCIAL UPDATE
Group funding
A further R50 million of variable debt expiring in FY23 has been settled in Q1 and
proceeds from further property disposals will be utilised to settle further variable debt.
Covenants
Covenant 31 May 2022
Loan-to-value 50% 38.33%
Interest cover ratio 2 times 2.59 times
Cash Collections and availability
The Spear group collections remain strong and post the FY22 final distribution payment,
the Spear group has R210 000 000 in cash available. The positive increase in collections
and the increasing cash availability will support a continued dividend pay-out ratio of 90%.
4. FORECAST
Based on Spear’s operational and financial performance year-to-date, Spear remains on
track to achieve management’s guidance set out to the market for FY23. Management’s
guidance remains a DIPS growth of 5% - 7% for FY23.
The guidance is based upon the following assumptions:
- National State of Disaster is not unnecessarily prolonged;
- No further Covid-19-related lockdowns;
- Vacancies are reduced in line with forecasts;
- Lease renewals are concluded per the Company’s forecast;
- No major tenant failures occur during the year;
- Tenants successfully absorb rising costs associated with utility charges and
municipal rates; and
- Load shedding does not become a permanent feature in the operating environment.
Any changes in the above assumptions may affect management's forecast for the year
ending 28 February 2023.
The information and opinions contained above are recorded and expressed in good faith
and are based on reliable information provided to management.
No representation, warranty, undertaking or guarantee of whatsoever nature is made or
given with regard to the accuracy and/or completeness of such information and/or the
correctness of such opinions.
The forecast for the financial year ending 28 February 2023 is the sole responsibility of
the directors and has not been reviewed or audited by Spear’s independent external
auditors.
Cape Town
28 June 2022
Sponsor
PSG Capital
Date: 28-06-2022 10:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
