Cape Town, 02 April 2024
Spear REIT (SEA:SJ), the only regionally focused REIT listed on the JSE announced the acquisition of a real estate portfolio from Emira Property Fund Limited valued at R1,146bn. The acquisition, which consists of a diversified portfolio situated exclusively in the Western Cape, highlights Spear’s focused strategy of solely investing in this province.
This strategy has served Spear well, and the fruits have been evident in its rate of return to shareholders and the operating performance delivered on a consistent and annualised basis. Western Cape real estate fundamentals have remained strong across the industrial, retail, commercial, and residential sectors as the region manifests counter-cyclical economic and investment activity compared to the rest of South Africa.
Commenting on the announcement, Spear CEO Quintin Rossi stated,
“This new portfolio acquisition marks the achievement of a key strategic objective by Spear (subject to certain approvals) as we take hold of this transformative and accretive transaction. This will add value both in income and asset quality to the existing Spear portfolio, increasing our diversified portfolio by 16% to 502 000m2 (Liberty Life GLA excluded) of high-quality Western Cape-only real estate assets. It is a true testament to the execution of one of the key pillars of our investment strategy.”
The acquired portfolio comprises of 93 491m² of industrial, medical and life science-focused retail and commercial assets, located across prime nodes in the Cape Metropole. The new portfolio segmentation based on a gross lettable area comprises 51% industrial, 40% commercial and 9% retail assets. One of the notable industrial assets is the fully occupied Northpoint Logistics Park situated in the sought-after R300 Brackenfell industrial precinct with a gross lettable area of 16 000m² of modern warehousing solutions.
The new acquisition increases Spear’s asset base to 40 properties, with a combined value of R 5,4bn (excluding the disposal of the R 400 million Liberty Life building awaiting transfer out of the Spear portfolio). The portfolio remains strongly underpinned by high-quality industrial assets which will account for 59% of the expanded portfolio’s gross lettable area once the announced portfolio acquisition transfers to Spear.
Spear’s CFO Christiaan Barnard commented,
“We have financed the new acquisition through a combination of available equity and debt, utilising disposal proceeds and funds from our recent R 313,5 million private placement, which concluded in February this year. A debt package has been secured with Spear’s funders which will see the Spear loan-to-value post implementation of the new portfolio remain at the lower end of its strategic band of between 38% – 43%”.
Spear CIO Kim Pfaff-Karg said,
“Securing a portfolio of this quality, asset composition and size within the Western Cape was not an easy task. Our deal team remained focused on property fundamentals throughout our negotiations, and we were very fortunate to secure this high-quality portfolio from an equally reputable counterparty”.
The acquired portfolio has an impressive 95% occupancy rate, 26 months weighted average lease expiry and just under 7% annualised in-force escalation rate. The average valuation per square meter is R 12 258/m2. Spear will acquire the portfolio on an initial yield of 10,1% adding to the overall group profitability, once stabilised into the Spear portfolio.
The transaction will be classified as a Category One transaction for Spear, necessitating shareholder approval. Spear will make further announcements in due course regarding the dates of the shareholder circular and voting. Competition commission approvals will also be required, given the scale of the transaction.
Rossi believes that the new portfolio will, subject to shareholder and regulatory approvals, transfer into the current Spear portfolio before the end of 2024.
Spear’s FY2024 pre-close presentation provided guidance on its financial performance for the balance of FY2024 which would see its DIPS for the year to be between 0% – 1,5% higher than FY2023 further enhancing consistent shareholder return. Spear’s FY2024 annual results will be released on 22nd May 2024.
Against the prevailing trend and amid recent fluctuations in the listed property sector, Spear’s strategy continues to impress, remaining resilient to challenges facing the REIT sector in certain geographical and sectoral nodes.
