Spear REIT announced on the Stock Exchange New Service today that it concluded the disposal of its final hospitality holding, Cape Town hotel 15 on Orange. The R246 million deal marks its exit from this asset class.
Spear CEO Quintin Rossi said; “It has been our strategy, as announced in 2019, to exit the hospitality sector and our disciplined approach to stay on the course has been achieved with the successful sale of this property.”
Spear’s portfolio composition will now be fully aligned with management’s strategic objectives of owning only fixed-income producing Western Cape assets, comprising industrial, retail, commercial and mixed-use properties.
The disposal consideration represented a 7% discount to the call option price of R265 000 000, as agreed in terms of the option agreement. The discount was acceptable to Spear’s board of directors, given the fact that the sale would be implemented prior to the expiry of the period within which the call option could have been exercised. Management also considered the cost of not concluding the disposal under the current macroeconomic environment, taking into account rising interest rates and the forfeiture of alternative investment opportunities available to Spear which support its investment and capital allocation strategy.
There is no related debt to be settled as a result of the sale and the full disposal consideration will be received by, and be available to Spear. The disposal yield on the asset is 8.1% and with management’s proven ability to redeploy capital through sound and strategic capital allocation, the proceeds will be put to work in the balance sheet.
The disposal consideration will be utilised to grow Spear’s portfolio in a strategy-aligned manner, following a value investment approach. Whilst strategic investment and growth opportunities are being pursued and finalised, the disposal consideration will be applied to settle certain of the existing debt facilities permanently, and the remaining portion will be held in Spear’s existing debt facilities. This strategy will reduce interest costs, in line with Spear’s strategic growth objectives. The application of the disposal consideration will reduce the group loan-to-value (LTV) by 335 basis points and the forecasted Spear group LTV, following the sale, will be 36.8% firmly positioning the balance sheet to take advantage of growth opportunities as and when they present themselves.
Spear remains the only regionally focussed REIT listed on the JSE with a sole investment mandate of investing in high-quality industrial, retail, commercial and mixed-use real estate within the Western Cape. The effects of semigration and the superior municipal infrastructure of the province make Spear’s investment philosophy an attractive opportunity for investors seeking indirect real estate exposure in South Africa’s top real estate investment locations.